Asian exporters, including S. Korea, seen as particularly vulnerable

Weak domestic demand deepens concern

Lobster fishermen return to port in Portland, Maine, after a morning on the water on Oct. 12. [AFP]
Lobster fishermen return to port in Portland, Maine, after a morning on the water on Oct. 12. [AFP]

The AI infrastructure investment boom that has driven global trade and economic growth this year has become dangerously concentrated in AI-related products, potentially creating a serious vulnerability for the world economy, the Wall Street Journal reported Wednesday (local time). The report particularly warned that Asian exporters such as South Korea, already struggling with weak domestic demand, could face severe consequences.

London-based economic research firm Capital Economics said in a recent report that global trade this year is on track to record its strongest annual growth since globalization took hold in the early 1990s — excluding the rebound periods following the COVID-19 pandemic and the 2008-2009 global financial crisis.

That trade boom rests heavily on a US-led data center construction surge. Asian economies including South Korea, China and Taiwan have sharply expanded exports of semiconductors, server racks and related products to meet soaring American demand for computing power.

South Korea's total exports in October surged 93.7 percent year-on-year, while China's rose 35 percent. South Korea's semiconductor exports led the way, jumping 259.4 percent.

The concern is that the entire global trade picture could become vulnerable depending on the trajectory of US data center investment going forward.

Capital Economics estimated that up to 80 percent of recent growth in global exports has been concentrated in AI-related goods. Countries that depend on exports of such products could suffer significant damage if the AI investment cycle slows, the firm said.

The firm added that major exporters such as South Korea and China are particularly exposed because weak consumer spending means any drop in exports would deal a heavy blow to overall growth.

These concerns are already showing up in financial markets.

Worries that a Democratic landslide in recent US midterm elections could lead Congress to put the brakes on data center development, combined with espionage allegations surrounding Nvidia, have heightened volatility in global equity markets. South Korea's Kospi has fallen roughly 42 percent from its recent peak.

A similar shock played out during the dot-com bust.

According to Oxford Economics, another UK-based research firm, the share of US GDP accounted for by imports of IT-related equipment peaked in the mid-2000s and then fell 55 percent over two years. That drop in US imports rippled through Asian and other economies that had been supplying the equipment. As a result, global trade contracted sharply and world economic growth fell to 2 percent in 2001.

Gaurav Ganguly, head of international economics at Moody's Analytics, said the global economy would struggle to absorb a sharp drop in AI-related stocks on top of oil price shocks, tariffs and rising interest rates. "The result would be a severe shock that could tip the world into recession," he said.

Frederic Neumann, chief Asia economist at HSBC in Hong Kong, also said: "If the AI boom were to collapse, there would be very little that could be done to prevent a global recession."


yckim6452@heraldcorp.com