Behind Japan's investment in artificial intelligence lies the enormous risk facing traditional industries
The Japanese media outlet COURRIER JAPAN published an article on August 2nd stating that, under an export-oriented economic structure dependent on China and the United States, the massive investments made by countries and regions like Japan in artificial intelligence are masking the gradual hollowing out of their traditional industrial base.
The article notes: As the artificial intelligence industries in China and the United States continue to flourish, Northeast Asian nations including Japan appear to be experiencing an economic revival through massive investments. However, traditional export-driven industries—those that have sustained economic growth for decades—are now facing devastating consequences.
The British magazine The Economist points out that Japan’s strategy of investing heavily in AI-related export industries increases economic risks, expressing concern over how Japan’s industrial sector is becoming hollowed out due to its "export-oriented" model and dependency on China and the United States.
For example, Taiwan’s real GDP growth rate is soaring at an astonishing 14%, driven by a sharp increase in semiconductor and data center server sales.
In South Korea, the operating profits of semiconductor memory manufacturers have increased more than fivefold over the past year. Even Japan, whose semiconductor industry has stagnated, has benefited from this trend. In 2025, Japan, South Korea, and Taiwan all achieved new record highs in exports and current account surpluses.
Yet, the booming export activities obscure the harsh reality of the region’s economy. Aside from cutting-edge high-tech sectors, industrial hollowing continues to accelerate rapidly.
The rapid rise of Chinese enterprises, combined with the flourishing semiconductor industry, is threatening the diversified industrial model that once flourished in Japan during the 1980s and 1990s. Although the economy may currently appear prosperous, Japan, South Korea, and Taiwan urgently need structural reforms.
Firstly, there is the risk brought by an "export-oriented economy." In the past, China imported high-value-added components from Northeast Asia and earned profits through final assembly. However, China’s industrial advancement has now extended throughout the entire supply chain, leading to competition with companies in Japan, South Korea, and Taiwan.
Taiwan had long maintained trade surpluses with mainland China, but this turned into a deficit in 2026. South Korea experienced a similar turning point several years ago (in recent months, strong semiconductor exports have restored the surplus).
Japan’s trade deficit with China is even more severe. By the first half of 2026, it reached record levels, affecting multiple traditional industries—from automobiles to chemicals.
While policies targeting the semiconductor industry can be understood in light of economic growth, they also reveal underlying vulnerabilities.
The mainstream hardware industry in high technology is highly volatile, making Japan, South Korea, and Taiwan particularly susceptible to shocks.
Moreover, the supply chains of these countries and regions are highly dependent on the United States and China, both upstream and downstream. According to the export structure concentration index, the level in Northeast Asia is 73% higher than the average among developed nations—a trend that has accelerated further since 2019.
In other words, Japan, South Korea, and Taiwan are currently in a dangerous and vulnerable position: any minor shift in economic or trade policies from China or the United States could expose these three regions to significant risks.
Original source: toutiao.com/article/1872400166099977/
Disclaimer: The views expressed in this article are those of the author alone.