Taiwan has emerged as one of the most striking economic success stories in recent times, fueled by a massive wave of investment in artificial intelligence (AI). According to data released Friday, the island's GDP expanded by 12.92% in the second quarter of this year, following a 13.69% surge in Q1 and an 8.63% growth for the full year of 2025.
This rapid growth is largely driven by strong US demand for advanced semiconductor chips manufactured in Taiwan. In 2024, the US imported $116 billion worth of goods from Taiwan, but that figure jumped to $201 billion last year. By May, Taiwan had surpassed China to become the third-largest source of imports into the US, trailing only Mexico and Canada.
Analysts liken Taiwan's resurgence to an Asian “economic tiger,” with most of the momentum coming from its thriving tech sector. Chad Bown, a senior fellow at the Peterson Institute for International Economics, said: “AI explains Taiwan's rising importance.”
However, experts also point to potential risks. The trade relationship between Taiwan and the US is becoming unbalanced, with Taiwan's trade surplus with the US reaching nearly $200 billion. Reza Hasmath, an academic advisor at the China Institute of the University of Alberta, warned: “This is an unbalanced relationship and not beneficial to Taiwan in the long run.” US President Donald Trump could seek to renegotiate existing trade agreements.
Moreover, over-reliance on the semiconductor sector raises sustainability concerns. The chip industry provides jobs for only about 350,000 workers, while a large portion of Taiwan's young population does not work in high-tech fields. TSMC, Taiwan's largest chipmaker, now accounts for 40% of the stock market's value and contributes 4% to the island's GDP growth—a ratio deemed “unsustainable.”
In addition, Taiwan faces rapid population aging, with about one-fifth of its population over 65, alongside dependence on energy imports and water scarcity. Tensions with China, which considers Taiwan part of its territory, also add to uncertainty. A Chinese official reportedly warned that Taiwan's deepening integration with the US tech sector would “drain economic benefits” and “hollow out” the island's core industry.
Hasmath noted that if the AI wave fails to deliver expected benefits, all these factors could contribute to “a recipe for electoral change, leading to a change of government” in Taipei.
