While Taiwan basks in the economic glow of the global AI boom, The Economist has published a sobering account of the risks lurking beneath the headline numbers. Some of its specific data points and conclusions deserve scrutiny — but the underlying vulnerabilities it identifies are real.
The magazine acknowledges the genuine gains. AI-driven demand for chips, data centers, and servers has pushed Taiwan's economy to a remarkable 14% annual growth rate, sent profits at South Korea's electronics giants surging by more than 500%, and delivered a meaningful boost to Japan. By any standard, these are extraordinary results.
Yet The Economist argues that this export-led prosperity is masking serious structural problems — chief among them a process of "deindustrialization" unfolding across Northeast Asia, alongside a fundamental shift in China's economic relationship with its wealthier neighbors. On the first point, the magazine is simply wrong. On the second, it is onto something real — though it stumbles on a significant factual error.
The "Deindustrialization" Label Doesn't Fit Taiwan
Deindustrialization properly describes a structural economic shift in which manufacturing progressively gives way to services, reflected in a declining share of industry in GDP. The concept carries heavy baggage: the United States — once responsible for nearly half of global industrial output in the postwar era, with manufacturing accounting for roughly 30% of GDP through the 1960s and 1970s — has watched that share fall to around 10% today. When globalization ran smoothly, offshoring low-margin, labor-intensive manufacturing to developing economies seemed not only rational but desirable. The consequences — hollowed-out communities, supply chain fragility exposed by the pandemic, and vulnerability to geopolitical disruption — only became apparent later.
Applied to Taiwan, however, the label is wrong. A decade ago, manufacturing accounted for roughly 31.4% of Taiwan's GDP. Following the trade-war-driven supply chain reorganization and the onset of the AI boom, that figure climbed to 35.2% by 2022, and an estimated 38.56% last year. Taiwan's export figures tell the same story: total exports — overwhelmingly manufactured goods — rose from approximately $345.2 billion in 2020 to $640.7 billion in 2025, a gain of 85%. These are not the numbers of a deindustrializing economy. If anything, Taiwan is undergoing aggressive reindustrialization.
South Korea and Japan present a less dramatic but similarly stable picture. Comparing 2020 and 2025 data, the share of industry and manufacturing in both countries' GDP has fluctuated only modestly. The deindustrialization framing does not hold for Northeast Asia as a whole.
The Real Problem: Dangerous Concentration in a Single Sector
Where The Economist does identify something genuine — and where Taiwan's situation warrants serious concern — is in the extreme concentration of economic activity within one sector.
Taiwan's headline economic data is almost entirely a product of the AI and semiconductor industries. The 14% growth rate, a per capita GDP approaching $40,000 and on course to surpass both Japan and South Korea, an export growth rate exceeding 30% — virtually all of this is generated by a narrow technology sector employing fewer than 10% of the workforce. The economic fruits of this boom are falling on a small number of industries and an even smaller share of workers.
One figure from the report is particularly striking: since 2022, stripping out chips and AI-related exports, Taiwan's remaining exports have fallen by 40%. South Korea's non-AI exports have similarly stagnated. The evidence from specific industries reinforces the picture. Machine tool exports — long a backbone of Taiwan's central region — stood at $3 billion in 2022 and have since fallen to $2 billion. Chemical product exports dropped from $24 billion to $18 billion over the same period: declines of 20 to 30%.
This imbalance creates two distinct categories of risk. Domestically, it produces a widening gap in incomes and opportunity. Workers in traditional manufacturing and the chronically low-wage service sector — the majority of Taiwan's labor force — have little realistic prospect of sharing meaningfully in the AI windfall. Externally, the extreme concentration of exports in AI and semiconductor-related products leaves Taiwan acutely exposed to any reversal in sector fortunes — whether from an AI market correction, which a growing number of analysts are warning about, or from trade protectionism targeting the technology supply chain.
China's Competitive Rise Is Real — But the Trade Data Needs Correcting
The report's broader argument about China's changing economic relationship with Taiwan, Japan, and South Korea is substantively correct. China has been moving up the global value chain, producing progressively higher-value goods and competing directly with its neighbors rather than importing their components for final assembly. The most visible examples are China's electric vehicles, batteries, and solar panels — its so-called "new three industries" — as well as a broader automotive sector that now competes with European and American manufacturers, not just regional ones.
However, the article's specific claim that Taiwan has already tipped from a trade surplus to a deficit with China is factually incorrect, and the error is significant enough to warrant a correction. While China's exports to Taiwan have been growing faster than its imports from Taiwan in recent years, Taiwan still runs a substantial surplus with China and Hong Kong combined: $147.14 billion in 2025, with an additional $25.1 billion surplus recorded in the first four months of this year alone. The trend of China substituting domestic production for Taiwanese imports is real, and the surplus will likely narrow over time — but the shift from surplus to deficit has not yet occurred.
Taiwan's Real Diagnosis: Dutch Disease, Not Deindustrialization
Taiwan's economic challenge is not deindustrialization. The more accurate diagnosis is Dutch Disease — a condition in which a booming export sector drives up the currency and crowds out other industries, hollowing out the broader economic base even as aggregate numbers look strong. The AI and semiconductor boom is performing exactly this function: generating spectacular headline growth while leaving much of Taiwan's industrial and service economy behind.
What is conspicuously absent is any serious government strategy to address the imbalance — whether to broaden the benefits of the current boom, cushion the industries being left behind, or reduce Taiwan's structural vulnerability to a single-sector reversal. The numbers are impressive. The underlying fragility is real. And for now, Taipei appears to have no credible answer to either.
