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The article argues that the AI boom has given Taiwan, South Korea, and Japan a deceptive sense of strength. Demand for chips, servers, and memory has lifted exports, profits, and headline growth across north-east Asia. Yet the same boom is narrowing their industrial base and hiding weakness in older manufacturing sectors that once powered the region’s rise.

China is central to the pressure. It no longer merely assembles goods from high-value parts made elsewhere in Asia; it now competes across much of the supply chain. That shift has turned Taiwan’s goods balance with mainland China into deficit, deepened Japan’s trade shortfall with China, and squeezed industries from cars to chemicals. For governments accustomed to export-led success, the temptation is to defend national champions and pour more money into strategic industries.

The Risk Of A Narrow Boom

The article does not dismiss semiconductor specialization. Chips are a legitimate comparative advantage for these rich economies. The problem is concentration. The hardware cycle is volatile, and the chip supply chain depends heavily on American and Chinese demand, inputs, and geopolitical tolerance. If Washington or Beijing turns protectionist, economies tied too tightly to one sector become vulnerable fast.

The deeper remedy is domestic reform rather than more industrial policy. Two-tier labour markets protect insiders while leaving many workers insecure and underpaid. Pension systems often favor employees at large exporters while leaving others exposed. Weak household demand, managed currencies, and state-directed credit all keep the old export machine running, but they also suppress consumption and trap capital in less productive uses.

Reform Beats Nostalgia

The article’s practical message is that Taiwan, South Korea, and Japan should let weaker firms fail, stop subsidizing companies that can already compete, and make their home economies more dynamic. It also urges more trade openness within the region, including better links between Japan and South Korea.

The warning is especially sharp because governments are moving the other way. South Korea has promised \$530bn in chipmaking subsidies, while Japan is backing dozens of strategic sectors. That approach helped poorer economies catch up decades ago. For already-rich countries, the article argues, doubling down on export-led industrial policy will make them less resilient. The AI boom is real, but it should be used as breathing room for reform, not as an excuse to preserve an aging economic model.