Who are the spillover winners from the AI export boom in Asia?

Taiwan is emerging as the primary domestic winner from Asia's artificial intelligence export boom, followed closely by South Korea, according to Bank of America. Stronger technology demand is driving economic activity, government revenues, and investment in these countries, with AI-related exports emerging as a significant growth driver.

Year-to-date, exports in South Korea have increased by 57% compared to the same period last year, while Taiwan's exports have grown by 44% and China's by 21%, showcasing the varying impacts of the AI boom across the three markets.

Despite South Korea leading the export growth, Taiwan is expected to experience the most substantial domestic spillover effects from the AI boom. This is primarily due to Taiwan's extensive exposure to technology manufacturing, which allows external demand to translate into wider domestic economic gains. South Korea is also projected to benefit greatly from the export expansion, supporting domestic activity and government finances.

Conversely, China is benefiting from stronger technology exports but is facing weaker domestic demand and economic headwinds, which are limiting the broader impact of the AI boom.

The differences in economic impacts are shaping fiscal policies in the region. Rising exports have led to increased government tax revenues in Taiwan, South Korea, and China, providing opportunities for additional public spending. In Taiwan and South Korea, higher fiscal receipts are being used to finance transfers and investment, which in turn support domestic demand. However, China has not experienced a similar spending boost, partially due to financial constraints faced by local governments.

The uneven economic effects are anticipated to lead to different monetary policy responses. In Taiwan and South Korea, stronger domestic demand and positive output gaps are contributing to inflationary pressures, supporting the case for further interest rate increases. In contrast, China faces a different outlook with softer domestic demand, suggesting a potential shift toward additional monetary easing.

Bank of America's assessment indicates that Taiwan and South Korea are poised to capture stronger economy-wide benefits from the AI boom, while China's gains are expected to remain more concentrated amid domestic challenges.