Taiwan’s been in the news a lot lately. Nancy Pelosi’s visit there, China’s subsequent military drills near and around it, and the sending of US warships through the Taiwan Strait, have thrust the island – and its sovereignty dispute with China – onto the front page of many leading publications.
But there’s more to Taiwan than political and military intrigue. It remains a highly advanced economy and continues to develop its world-leading semiconductor manufacturing capabilities. Continue reading below for a quick update on what’s happening with Taiwan’s vibrant and unpredictable economy.
A few basics
Before we dive more deeply into the ins-and-outs of Taiwan’s economic comings and goings, let’s get a few basics out of the way. Taiwan has the fifth-largest economy in Asia and the 19th largest in the world when you measure by purchasing power parity. (Pretty impressive for such a small island.) It also boasts the world’s 8th largest GDP at purchasing power per capita.
But what really sets Taiwan apart isn’t the size of its economy, but its relative importance on the world stage. Because Taiwan doesn’t make the bulk of its money by shipping raw materials, minerals, or other unrefined goods. In fact, almost 45% of its GDP is earned in the manufacture of electronic, information, communication, and audio-video products. And one product in particular dominates the island’s economy.
Semiconductors: Dependence and need
It’s not going too far to say that Taiwan boasts one of the most important economies in the world. And the reason for it can be summed up in a single word: semiconductors. The world relies on the semiconductors churned out by Taiwan’s largest semiconductor companies, including the Taiwan Semiconductor Manufacturing Company (TSMC) which, by itself, accounted for 54% of global semiconductor foundry revenue in 2020.
Other companies, like the United Microelectronics Corporation (UMC), make up the rest of the Taiwan-based semiconductor manufacturing base and – together – account for over 60% of global semiconductor production.
Importantly, there aren’t just a lot of semiconductors manufactured in Taiwan. The ones that are produced there are also some of the world’s most advanced, running many of the globe’s most intricate electronics.
It’s not an exaggeration to say that all of the world’s advanced economies rely heavily on this small island to keep their high-tech industries humming. The United States and Japan, for example, combined to import nearly $200 billion US worth of goods from Taiwan in the year 2021. And almost all of that total was made up of electronic goods, including semiconductors.
Trade with Taiwan isn’t limited to a small club of highly wealthy nations, either. It’s widely distributed, with countries from all over the world sampling Taiwan’s high-end electronic goods. From Brazil to South Africa, Saudi Arabia, and Australia, there’s hardly a country across the globe that doesn’t rely – to one degree or another – on Taiwan’s exports.
And it’s not just countries that find themselves totally dependent on what Taiwan is selling. Many of the world’s leading tech companies, including Microsoft, Apple, and Samsung desperately need the advanced semiconductors put out by Taiwan’s leading manufacturers.
Independence and security
No discussion of Taiwan’s economic situation would be complete without at least a cursory explanation of its diplomatic and national status. In broad strokes, China claims sovereignty over the entirety of Taiwan, while Taiwan seeks status as an independent nation. It’s an extremely fluid and complex situation, complicated enough to require the United States to maintain a policy of “strategic ambiguity” to keep from stepping on anyone’s toes in the disagreement.
But Taiwan’s ostensible political distance from China represents a huge business advantage for the semiconductor manufacturers present on the island. That’s because, quite simply, the Western economies don’t trust the security of semiconductors manufactured in China proper, because of that country’s communist regime. Taiwanese chips, on the other hand, are widely trusted to be free from security backdoors that could be exploited by the Communist Party of China.
This leaves Taiwan-based chip manufacturers free to sell semiconductors to Western powers seeking to build their critical electronic infrastructures on the most advanced chips available in the world, without fear of Chinese spying or eavesdropping.
CHIPS-Plus, Taiwan, & Top Semiconductor Companies
The United States recently signed into law a bill referred to as CHIPS-Plus. The legislation is designed to strengthen the American domestic semiconductor manufacturing sector while shoring up and securing supply chains for semiconductors and other high-end electronics around the world.
The Top 50 Taiwanese Manufacturers
The bill is widely viewed as being targeted directly at China, seeking to curb its growing influence over electronic supply chains. That, in turn, is motivated by the aforementioned security and economic concerns that arise when an antagonistic communist regime gains too much influence over supply chains critical to the electronic infrastructure of the United States.
CHIPS-Plus could have a stimulative effect on Taiwan’s semiconductor and high-tech industries. As we mentioned earlier, Taiwan’s political distance from the larger Chinese regime means that the products manufactured on the island are much more trusted by major Western nations. In the real world, “strengthening supply chains” may, in part, translate into supporting the efforts of the Taiwanese high-tech industries and further insulating them from mainland China.
(For more on the CHIPS-Plus Act, and to see a list of the world’s Top Semiconductor Companies, read more here.)
What the future holds
No one quite knows what the future holds for Taiwan. The geopolitical uncertainties are simply too great. Will China move to seize the island by force? Will Taiwan unilaterally declare independence? Or will the current stalemate hold out for a while longer?
What is certain is that this small island region holds much of the world in thrall with its indispensable and borderline-miraculous economic output of advanced semiconductors. At this point in time, Taiwan is just plain too important – to the United States, to China, and to everyone else – to allow their economy to be interrupted by mere politics. The movers and shakers of the Taiwanese semiconductor scene are some of the most important economic actors in the world. And we can’t wait to see what they’ll come up with next.
