Global Trade Endures Tariffs and Conflicts Thanks to AI, but Bubble Risks Are Emerging
Key Points Summary
In simple terms, global trade has been performing better than expected recently. Despite conflicts in the Middle East and increased tariffs between countries, the volume of global goods trade continues to rise, and the momentum is positive.
Who is driving this growth? Artificial intelligence (AI) is the main force behind it. AI-related products, from chips and servers to electric vehicles, are selling extremely well, compensating for the weakness in other sectors such as traditional manufacturing and agriculture.
Who is benefiting the most? The United States and a few Asian countries, such as Thailand, Malaysia, and India, are reaping the benefits. The U.S. benefits from having many AI giants and the wealth effect on its stock market, which boosts both consumption and investment. Europe and most developing countries, however, are falling behind due to a lack of computing power, funding, and technology.
What is the biggest risk? Current AI investments are being too aggressive and costly. Many AI companies are borrowing money to expand, but profits have not kept up with the spending. Moreover, there is no clear evidence that AI has significantly increased productivity. If this boom fades or if debt problems arise, the global economy could face a hard landing.
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Detailed Analysis
1. Trade Data Shows Unexpected Strength: AI-Related Products Are the Driving Force
You might think that with the current geopolitical turmoil and trade wars, global trade should be sluggish. However, the latest data from the World Trade Organization (WTO) (July Barometer Index of 102.0) shows that trade is not only stable but also accelerating.
It’s like a restaurant that, despite a heavy rainstorm (geopolitical conflicts) and a “service fee surcharge” (tariffs), is still full of customers. The reason? The restaurant has introduced a new “hot dish” – AI-related electronic products.
- The electronics component index is soaring (104.9), indicating a strong global demand for chips, AI servers, and related components.
- Other sectors are performing moderately: Container shipping (99.6) is below expectations, suggesting that the transportation of traditional goods is not as booming. The automotive (101.5) and agricultural raw materials (102.6) sectors are only slightly above average.
- Future prospects are promising: The “export orders index” has risen to 103.5, indicating that manufacturers are receiving more orders, and trade is expected to continue to grow in the coming months.
In plain language: Global trade is not experiencing widespread growth; instead, AI-related products are driving it. Without AI, trade data would likely look much worse.
2. Who Is Reaping the Benefits? The U.S. Leads, with Some Asian Countries Benefiting
The benefits of AI are not evenly distributed. Data from the Oxford Economics Institute reveals that the benefits are largely concentrated in the U.S. and a few Asian countries in the supply chain:
- The U.S. is the biggest winner:
- Consumption: Americans, holding a large number of tech stocks, feel wealthier and are more willing to spend. Stock price increases have boosted annual consumer spending by 0.3-0.4 percentage points.
- Investment: U.S. investment is growing by 3% annually, all thanks to AI. Without AI, investment in other sectors would be declining by 2%.
- Asia’s divided landscape:
- Beneficiaries: Countries like Thailand (double-digit investment growth), Malaysia (7%), and India, which have participated in AI hardware manufacturing or supply chain activities.
- Lagging behind: Although South Korea is strong in chips, its investment growth is modest. The Philippines, being lower in the supply chain, has not benefited much.
- Europe and developing countries are left behind: ECB President Draghi warns that the EU’s AI capacity accounts for only 5% of the global total, compared to the U.S.’s 75%. This means Europe has little say in the AI era. Most developing countries face barriers such as poor infrastructure, high costs, and a lack of talent, making it difficult to participate in digital trade.
In plain language: The U.S. is the main beneficiary, while other countries, like Thailand and Malaysia, get a share of the profits. This imbalance could widen global wealth disparities.
3. Beware of a “False Prosperity”: AI Investments Are Borrowed, with Profits Yet to Materialize
This is the most concerning aspect of the news. The current AI boom resembles previous bubbles, such as the internet boom or the infrastructure boom, but on a larger scale and with more reliance on borrowing:
- Excessive spending: AI companies are spending heavily on data centers and chips, but revenue growth has not kept up with spending.
- Rising debt: These companies are accumulating debt. By 2026, AI-related bond issuance could reach $500 billion, accounting for 40% of the total long-term bond supply. If AI fails to generate sufficient profits to repay the debt or market confidence fades, this could become a financial threat.
- Profit illusions: Some AI companies’ financial reports look good because the value of their stock investments has increased, not because they are generating actual profits from sales.
In plain language: AI companies are spending a lot on infrastructure without immediate returns. If future profits do not meet expectations or if lending conditions tighten, they could face bankruptcy.
4. No Increase in Productivity? AI May Just Be a More Expensive Tool
Optimists hope that AI will make workers more efficient and reduce costs, boosting economic growth. Economists disagree:
- Productivity unchanged: The Oxford Economics Institute shows that U.S. productivity has not increased despite AI. Professors like Mihov from the European Business School confirm that current growth does not stem from AI-driven improvements in overall efficiency.
- Reasons: AI may still be in the “construction phase,” with most funds going towards hardware (such as GPUs and servers) rather than process optimization. Alternatively, its applications may not have fully realized their potential.
In plain language: You might buy an expensive AI-powered coffee machine, but you spend more on installation and maintenance rather than increasing sales. If this continues, investors may question the value of the investment.
5. A Tug-of-War Between Regulation and Speed: Governments Want Speed, Experts Want Stability
The news also highlights regulatory concerns: Rapid AI development has raised security concerns, but there is a disagreement between governments and companies:
- Experts warn: Companies like Anthropic and OpenAI are calling for slower progress to avoid safety risks.
- Government stance: The Trump administration and some Republicans oppose strict regulation, arguing that it should not hinder U.S. competitiveness.
- Potential impact: This tension could lead to inconsistent regulatory policies. Loose regulation could lead to safety issues or ethical concerns, while strict regulation could stifle innovation and undermine U.S. leadership.
In plain language: The debate over the speed of AI development reflects a balance between safety and economic growth. It will be a key factor shaping the future of the AI industry.
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Summary and Recommendations
For individuals and investors:
1. Short-term optimism, long-term caution: Global trade is strong due to AI, but there are long-term risks related to debt and productivity.
2. Focus on the next phase of winners: The initial beneficiaries were companies that supplied the infrastructure (chips, servers). The next wave of success will come from those that can effectively utilize AI for real profit.
3. Be wary of debt: If AI companies start defaulting on loans or if the bond market fluctuates, it may indicate a bubble is bursting.
4. Regional differences: U.S. tech stocks remain strong, but Asian supply chain countries have opportunities. Europe and traditional manufacturing countries face greater challenges.
In one sentence: AI is sustaining global trade with borrowed money and future expectations. However, the sustainability of this boom depends on whether AI can transition from a costly investment phase to a profitable one.