South Korean chip exports become AI's "canary," institutions warn of a hundred-billion-dollar export decline risk

Data from the Korea Customs Service shows that from October 1 to 20, South Korea's exports reached $61.6 billion, the highest on record for the same period in any year. Among them, chip exports soared 222.5% year-on-year to $27.5 billion.

At the same time, warnings about the outlook for chip exports and whether a bubble will emerge in AI development are appearing frequently. Data from the Bank of Korea shows that if major US technology companies slow their AI capital expenditure next year, South Korea's semiconductor exports could be reduced by $50 billion to $100 billion compared with previous forecasts.

The International Monetary Fund (IMF) also said in a recently released report that although core companies in the AI ecosystem have so far remained profitable, easing pressure on AI-related stock valuations, a weakening and non-durable AI investment and profitability could trigger an adjustment in AI-related asset prices, and this adjustment is exacerbated by rising leverage, concentration of risk and circular financing arrangements.

Bloomberg Economics economist Nicole Gorton-Caratelli estimated in the report: "Between 2023 and 2027, the AI-related capital expenditure commitments of five core companies including Amazon will exceed $1.6 trillion. These funds come from debt and equity financing in domestic and international markets, including less transparent private markets. What is worrying is that returns may be slow to arrive and lower than expected. This is exactly where the impact of widening global imbalances lies. The investment of large trade surpluses in US assets means that the gains and potential risks brought by the AI boom are dispersed around the world. If the expected returns fail to materialize, the contagion effect of an AI bubble bursting will be very broad."

In the AI era, South Korea's chip export data, known as the "global trade canary," has been given benchmark significance and has become the AI "canary," meaning that any systemic contraction in AI capital expenditure can be reflected first in South Korea's export data, and South Korea can also provide the aforementioned estimate of exports for the first 20 days of each month, offering investors a higher-frequency tracking window.

By industry, in the first 20 days of October, South Korea's chip exports soared year-on-year to $27.5 billion, with chips accounting for 44.7% of South Korea's total exports during the same period. Calculated by working days, South Korea's average daily chip exports that month reached $4.74 billion, the highest level for the first 20 days of any month in history.

Amid this boom, according to data released by the Bank of Korea on the 27th, in the three months through September, South Korea's gross domestic product (GDP) grew 1% quarter-on-quarter and 3.4% year-on-year, higher than the 3.1% expected; from April to June it grew 0.6% quarter-on-quarter and 3.7% year-on-year.

Although the overall data are strong, the divergence within the South Korean economy is widening. South Korea's private consumption in the third quarter fell 0.2% from the previous quarter, reversing the 0.4% growth during April to June.

The Bank of Korea believes that as the semiconductor cycle expands, exports and investment are expected to maintain strong growth; at the same time, improved income levels should further broaden the scope of the consumption recovery.

Currently, South Korean economists believe that the country's total annual exports this year are expected to break the $1 trillion mark for the first time. According to statistics from South Korea's Ministry of Trade, Industry and Energy, if this goal is achieved, South Korea will become the fourth economy in the world after the United States, China and Germany to reach this milestone.

The boom in South Korea's chip industry has also boosted public finances. The South Korean government expects national tax revenue to reach a record 478.6 trillion won this year, up 28% from 2025. For next year, the South Korean government has proposed increasing government spending by 12.8%, with a large amount of the funds earmarked specifically for AI and chip infrastructure construction.

Cold water from institutions

However, beneath the prosperous scene, the Bank of Korea has already begun to warn. In a written response submitted to lawmakers, the bank constructed a "pessimistic scenario" assuming that the unit price of South Korean semiconductor products will fall by 10%, in order to assess the impact on the economy if US technology giants cut aggressive infrastructure spending.

Under this scenario, a sudden decline in exports would reduce South Korea's GDP growth rate next year by about 0.4 percentage points and push South Korea's current account surplus far below the central bank's previous forecast of $430 billion for 2027.

The report said that the combined capital expenditure of the five major US technology companies—Amazon, Google, Microsoft, Meta and Oracle—grew rapidly, from $40 billion last year to about $80 billion this year, and is expected to reach $110 billion next year.

"The main channels through which it affects the economy include: reduced AI-related investment, lower Asian exports, wider corporate bond spreads damaging non-AI-related investment, and falling stock prices hitting consumption through the wealth effect," Oxford Economics said in the report. "It is not hard to imagine the compounded painful scenario: a sticky inflation risk premium could leave central banks with little room for rescue and keep borrowing costs high; and the AI boom does not need to actually burst to cause broader economic damage. Anxiety about AI financing and returns could spread to the broader credit market, pushing up borrowing costs and squeezing investment in other areas before the AI momentum is exhausted."

"In our tech downturn scenario, North America performs badly because of sharp falls in stock prices and technology investment. In 2028, US GDP is 2% below the baseline; the impact on Canada and Mexico is considerable because their economic fortunes remain tied to the United States," the Oxford Economics report proposed. "Other major economies are also significantly affected, partly reflecting the sharp appreciation of developed-economy currencies against the dollar, which weakens export volumes. Under this scenario, in 2028 euro area GDP is 1.4% below the baseline."

"Since 2022, announced greenfield investment has hovered at around 1.2% of global GDP. The huge attraction of the AI boom has once again driven cross-border portfolio investment flows higher," Gorton-Caratelli told a Yicai reporter. UN data shows that last year AI and semiconductor investment accounted for about one-third of greenfield investment, and capital was concentrated in a few economies. This shows that in the coming years, the economies that benefit from foreign investment may be more limited.

Gorton-Caratelli analyzed that around 2000, countries with current account surpluses invested their excess savings in US Treasury bonds; these capital inflows lowered the yields on safe assets and prompted private investors to seek higher returns. Subsequently, leverage, securitization and regulatory failures pushed this boom into the real estate market. These factors were not the direct cause of the financial crisis, but they did add fuel to the fire. "Foreign investors today prefer riskier portfolios. Since 2024, when foreign investors buy US securities, they have increasingly favored stocks and corporate bonds rather than Treasury bonds. The volume of funds flowing into these assets has approached the highest level since data began, and this coincides with the AI investment boom," she warned.