Taiwan’s Role in the Global Tech Industry

Taiwan, with a population of 23 million, significantly impacts the global technology sector, according to BofA Securities analysts.

Semiconductor Production

Taiwan produces over 60% of the world’s semiconductors and 90% of advanced chips, contributing 10% of the value-added in the global semiconductor supply chain. This dominance has strengthened Taiwan’s economy, particularly as demand for semiconductors rises with the advancement of artificial intelligence (AI).

Economic Growth

The tech sector drives much of Taiwan’s economic growth, with GDP growth rates of 3.4% in 2020, 6.6% in 2021, and 2.6% in 2022, mainly fueled by semiconductor exports. Despite global economic challenges, the tech exports have sustained Taiwan’s strong economic performance. Analysts anticipate a GDP growth of 3.7% in 2024, driven by AI-related recovery and investment.

Risks and Vulnerabilities

However, this reliance on technology poses substantial risks. A considerable share of Taiwan’s economy—over 60% of its exports—is tied to the tech sector. In 2023, Taiwan exported 35% to mainland China and Hong Kong, 19% to the US, and 18% to ASEAN, heightening its vulnerability to trade disruptions and geopolitical tensions.

Despite attempts like the New Southbound Policy to diversify trade partners, Taiwan remains heavily reliant on its tech sector.

Structural Constraints

Taiwan faces several structural challenges, including energy security, as 98% of its energy is imported, mainly fossil fuels. With the push to phase out nuclear power, energy supply pressures will only increase, making energy reform crucial.

Additionally, the shortage of skilled tech professionals poses another significant hurdle. Taiwan has a substantial talent gap in the semiconductor industry, worsened by a shrinking youth population and global competition for tech talent. Government initiatives have yet to close this gap, threatening the sector’s long-term sustainability.

Taiwan’s macroeconomic stability is also challenged by large capital flows associated with the global tech cycle, complicating economic management and contributing to property market volatility.

Recommendations

BofA analysts suggest strategic measures for Taiwan, including:
– Improving energy security by exploring advanced nuclear technologies.
– Addressing talent shortages through better educational programs and attracting international professionals.
– Diversifying the economy by investing in high-value industries like semiconductor design, biotechnology, renewable energy, and intelligent machinery.
– Expanding the services sector, particularly healthcare, to create new growth opportunities.