Taiwan's AI Boom Sparks Economic Growth, but Long-Term Challenges Loom

Taiwan's economy has been booming in recent months, driven by its thriving technology sector and demand for artificial intelligence (AI) chips. The island's stock exchange has soared to become the fifth largest in the world based on market capitalisation, overtaking the United Kingdom, Canada, and India. This growth has been fueled by Taiwan's export of AI and other technology products to the US, which imported $201 billion worth of goods from Taiwan last year - nearly double its rate from 2024.

Experts describe Taiwan's market acceleration as a return to its status as a 'tiger economy', a term used to capture surging growth in East Asia. Chad Bown, a senior fellow at the Peterson Institute for International Economics, attributes Taiwan's rising importance to AI. However, critics warn that factors like tumultuous international relations and demographic concerns could complicate Taiwan's long-term outlook.

Government data released on Friday showed that Taiwan's economy grew an impressive 12.92 percent in the second quarter of this year. Dexter Tiff Roberts, a nonresident senior fellow at the Atlantic Council's Global China Hub, expects this trend to be 'long term' due to Taiwan's dominance in producing advanced chips for leading AI models.

However, there are concerns that the US may not tolerate Taiwan's growing trade surplus, which is close to $200 billion and counting. Reza Hasmath, an academic faculty adviser at The China Institute at the University of Alberta, warns that this could spark a backlash from the US president. Additionally, Taiwan's traditional export sectors like plastics and textiles are underperforming, and only a small fraction of the population is involved in the AI sector.