A Pacific island has become one of the biggest economic success stories of the year so far.
Taiwan has witnessed a dramatic boom in recent months driven by the mania for artificial intelligence (AI). Earlier this year, its stock exchange soared to become the fifth largest in the world based on market capitalisation, the value of its publicly traded shares, overtaking the United Kingdom, Canada and India.
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Much of that upward momentum has been driven by AI and other technology exports highly sought after by the United States.
Last year, the US imported $۲۰۱bn worth of goods from Taiwan, nearly double its rate from ۲۰۲۴, when it acquired $۱۱۶bn in imports. In May, Taiwan eclipsed China to become the third-largest source of US imports, after Mexico and Canada.
Experts have described Taiwan’s market acceleration as a return to its status as a “tiger economy” — a term used to capture surging growth in East Asia. Much of the credit, they say, falls to its flourishing technology sector.
“Artificial intelligence helps explain the rising importance of Taiwan,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics.
But critics warn that, while Taiwan’s market remains strong, factors like tumultuous international relations, as well as demographic concerns, could complicate the island’s long-term outlook.
“It seems to be a win-win for now,” said Reza Hasmath, an academic faculty adviser at The China Institute at the University of Alberta. “But Taiwan is just postponing a reality that’s not sustainable.”
An economic boom
Taiwan’s thriving export market helped boost its gross domestic product (GDP) to ۸.۶۳ percent in ۲۰۲۵.
That rocket-ship trajectory continued into the first quarter of this year, when the GDP saw an exhilarating ۱۳.۶۹ percent rise.
Government data released on Friday showed that the island is continuing that momentum, with its economy growing an impressive ۱۲.۹۲ percent in the second quarter of the year, which ended in June.
“The GDP growth is going like gangbusters,” said Dexter Tiff Roberts, nonresident senior fellow at the Atlantic Council’s Global China Hub.
Roberts expects the trend to be “long term”, as Taiwan produces about ۹۰ percent of the advanced chips used to power leading AI models.
“That’s not going to go away. We know the world, and the US, needs this,” he added.
While the AI boom is a global phenomenon, the US has become a major market for such chips, with billions of dollars flowing into the industry each year.
US President Donald Trump, meanwhile, has pledged to bolster his country’s status as “the world leader in artificial intelligence”. His administration has claimed to attract more than $۲.۷ trillion in tech and AI investments since the start of his second term.
To secure US access to Taiwan’s cutting-edge semiconductor technology, the Trump administration signed an agreement under which Taiwan will invest $۵۰۰bn in the US.
Half of that amount is expected to come in the form of direct investments by Taiwanese semiconductor and tech firms, including through the development of onshore tech manufacturing.
The rest is largely comprised of credit guarantees for additional investments from Taiwan in the US.
Under the agreement, Taiwanese firms would be allowed to import ۲.۵ times the capacity of their US factories, without fear of steep tariffs.
In a subsequent trade agreement, Taiwan agreed to reduce its tariffs on ۹۹ percent of US exports.
Taiwan has also boosted its tech exports to the US through investments in nearby Mexico, with cross-border plants manufacturing inputs for data centres in Texas.
‘Unbalanced relationship’
But Hasmath, the faculty adviser at the University of Alberta, warns that there are troubling signs on the horizon for Taiwan-US relations.
Trump has long sought to eliminate trade deficits with US economic allies, and he has lashed out at countries that export more to the US than they import.
Hasmath pointed out that Taiwan is building a robust trade surplus with the US, close to $۲۰۰bn and counting. That could spark a backlash.
“This is an unbalanced relationship and not conducive to Taiwan in the long term,” Hasmath warned.
Trump will not tolerate a hefty trade surplus for long, he added. Hasmath believes the US president will soon look to renegotiate his country’s deals with Taipei.
Roberts at the Atlantic Council, meanwhile, warned that Trump is “mercurial” — and with such a temperament comes “uncertainty”.
Then there’s the question of political upheaval in the US. Trump’s approval ratings are low, and he is ineligible under US law to run for a third term as president.
Demographic problems
While Taiwan’s economic boom is “very real” and “very obvious”, Roberts said there are clear vulnerabilities even on the domestic front.
Taiwan’s traditional export sectors like plastics and textiles are underperforming. Plus, Roberts pointed out that only a small fraction of the Taiwanese population is involved in the AI sector.
“A majority of the younger population is not in hi tech, so that’s a real problem,” he said.
While the booming stock market has sparked a “wealth effect” — those with rising portfolios feel richer and are more inclined to spend — that helps the wider population only to an extent.
With most of Taiwan’s employment concentrated outside of the AI sector, economists have warned that the island could develop what’s called a K-shaped economy, where the wealthy see growth, while the poorer segments of society stagnate or decline.
The chip industry employs up to ۳۵۰,۰۰۰ people at most, experts say.
Meanwhile, TSMC, Taiwan’s biggest chip company, makes up to ۴۰ percent of the stock market and provides four percent of the island’s GDP growth. That lopsided proportion is “unsustainable”, according to Hasmath.
Plus, Taiwan has a rapidly ageing population, with roughly a fifth of its population over the age of ۶۵.
The island also has other vulnerabilities. For example, it relies heavily on foreign imports of energy products, particularly oil, and has struggled with water scarcity.
Then, there’s the superpower next door: China. The government in Beijing considers Taiwan, a self-governing island, as its own territory, and it has taken aggressive measures to limit the island’s ability to establish diplomatic relations of its own.
That conflict has added fuel to the debate around Taiwan’s growth, with a spokesperson for the Chinese government reportedly saying the island’s growing proximity to the US tech sector will “drain Taiwan’s economic interests” and “hollow out” the country’s major industry.
Hasmath said that, if the AI boom backfires on Taiwan, all of that ultimately adds up to a “recipe for electoral change, a shift in government” in Taipei.
