While the growth of the island of Taiwan’s exports to the US has been positive for the island’s economy in the short term, the vulnerabilities and risks underlying this seemingly close trade relationship cannot be overlooked.
Factors such as uncertainties in artificial intelligence (AI) chip demand, shifts in the industrial chain and fluctuations in global supply chains could jeopardize the sustainability of this trade momentum.
The island’s exports to the US soared 78.5 percent year-on-year to $11.89 billion in August, topping the record for any month’s shipments to the Chinese mainland, Bloomberg reported on Monday, citing the latest statistics from the Taiwan authorities.
There is no denying that the share of the US in the island of Taiwan’s export markets has been on the rise in recent years. A key factor behind this trend has been the rapid development of the AI sector in the US. But export data alone cannot accurately reflect the island’s overall trade relations and economic situation. For decades, Taiwan has maintained a huge trade surplus with the Chinese mainland, which has become the main support for the stable development of Taiwan’s economy.
While the strong demand for chips in the US, particularly for high-end versions, has generated significant export revenues for the island of Taiwan, this impressive growth raises important concerns.
Taiwan’s heavy reliance on a single industry and market for its exports highlights the fragility and substantial risks inherent in its economic structure.
In the first eight months of 2024, Taiwan island’s exports rose 10.9 percent year-on-year, with the information and communications and audio/video industry making the most significant contribution and showing a remarkable year-on-year growth rate of 89.8 percent, statistics from the island indicated.
To begin with, there is considerable uncertainty about the sustainability of the growth in AI chip procurement. While the US chip industry is making rapid strides in the high-end segment, its progress in low- to mid-end segments and other high-tech fields, particularly in application areas, remains sluggish. Consequently, the extent to which AI development in the US can yield a positive and measurable economic impact on the domestic industrial sector will directly influence the export prospects of Taiwan’s chip-related products.
Furthermore, the island’s trade relationship with the US is inherently fragile and increasingly precarious. As the US actively promotes the revitalization of its own domestic manufacturing sector, there is a growing likelihood that Taiwan’s high-tech factories may gradually relocate to the US.
This shift could fundamentally alter Taiwan’s position in the global semiconductor production landscape. In the long run, as the US enhances its domestic chip production capacity, Taiwan island’s market share is likely to face significant risks and challenges.
Moreover, despite Taiwan’s significant role in the global semiconductor market, it is evident that the island will encounter increasingly fierce competition as major economies worldwide intensify their chip production efforts.
For instance, the semiconductor industry in the Chinese mainland has made substantial strides, characterized by expanding production capacity and substantial investment aimed at bolstering its technological capabilities. This competitive landscape is further complicated by initiatives by other countries, such as the US and members of the EU, which are also seeking to enhance their semiconductor manufacturing capabilities through strategic partnerships and government incentives.
It is also important to recognize that the US perceives the Taiwan island more as a strategic asset within the Asia-Pacific region rather than as a genuine partner. The US consistently prioritizes its own economic and security interests, which may further complicate the island’s economic future and its role in the global supply chain.
It is imperative for the Taiwan island to pursue diversified development pathways for its industries, as exports to the US are unlikely to guarantee economic prosperity in the long term.
GT
