A new boom with uneven benefits
Taiwan has raced to the front of the global artificial intelligence buildout, and the payoff is striking. The economy has logged around 8 percent growth for two straight quarters, led by surging exports of semiconductors and electronics. Officials now project gross domestic product (GDP) growth of about 7.37 percent in 2025, a pace that would outstrip China. October exports jumped a record 49.7 percent from a year earlier, after a 36.5 percent rise in the third quarter. Taiwan’s stock market has also vaulted into the top tier, overtaking Germany to become the eighth largest in the world as global investors pour into AI suppliers.
Behind the headlines are factories and labs that sit at the center of the AI race. Local companies manufacture the chips and servers that train and run modern AI models. That concentration is a strength and a vulnerability. Electronics and semiconductors account for more than 15 percent of GDP but employ only about 6.5 percent of the workforce. Chips and electronics make up nearly three quarters of exports. Many households have not felt the boom. Real wages have been largely flat since the early 2000s, labor’s share of GDP has slipped, and consumer confidence remains subdued. Per capita GDP is forecast to climb above 38,000 dollars, yet average wages still lag those in South Korea and Japan by at least 30 percent.
Uncertainty hangs over the trade and geopolitical outlook. Taiwan’s trade surplus with the United States has grown, raising the risk of new tariffs. Taiwan still lacks a comprehensive trade agreement with Washington. China continues to assert sovereignty claims over the island, adding to business and market anxiety. The result is a fast growing, export driven economy whose gains are concentrated in a narrow slice of industry, while a large share of workers struggle with stagnant pay and rising living costs.
What is powering Taiwans surge
The AI economy is hardware hungry, and Taiwan builds the critical parts. Taiwan Semiconductor Manufacturing Company (TSMC) produces the advanced chips that power AI training and inference for companies that design the processors and rent out computing capacity to the world. Server makers and contract manufacturers assemble the racks of machines that fill cloud data centers. Outbound shipments to the United States have climbed more than 60 percent in the first ten months of the year. TSMC has raised its revenue outlook on the back of AI demand, while its suppliers expand production of high bandwidth memory, advanced packaging, and networking gear. The AI upgrade wave is still climbing as cloud providers and large enterprises race to install more computing power.
The AI hardware stack
Training a large model requires thousands of graphics processing units working in parallel, specialized memory to feed those chips, and advanced packaging to connect chiplets at high speed. Taiwan dominates the pieces of this stack. The foundry model, where companies like TSMC manufacture chips designed by others, lets the island capture value at the most complex step of production. Assembly and testing clusters around Hsinchu, Taichung, Tainan, and Kaohsiung. This pull from AI has led the government to lift medium term growth expectations. Officials now see GDP expanding 3.54 percent in 2026, up from an earlier 2.81 percent forecast, with exports projected to grow more than 6 percent next year even as the pace cools from the 2025 peak.
A two speed economy and who is left behind
The gap between the winners and everyone else is widening. Five years ago, wages in electronics were already about 35 percent higher than the economy wide average. The premium has grown as chipmakers pile on bonuses and overtime to meet orders, while many traditional firms face weak demand and thinner margins. Real wage growth for much of the workforce has been stuck near zero for years. Labor’s share of national income has slipped, and the benefits of the AI windfall are concentrated in a small set of companies and skilled engineers.
Small and medium sized enterprises, long the backbone of Taiwan’s manufacturing base, have found ways to adapt and plug into global supply chains. Even so, a strong Taiwan dollar and new tariffs on traditional goods have squeezed machinery, chemicals, and auto parts makers. Economists warn of a two speed economy, with semiconductors and servers racing ahead while many other sectors grind through slow growth. Younger and early career workers feel exposed in jobs most impacted by software automation, while opportunities and pay gains cluster in AI adjacent engineering, data, and advanced manufacturing roles.
How housing got so costly
The AI surge is colliding with a long running property crunch. The TSMC effect, a local shorthand for how new chip fabs reshape neighborhoods, has driven prices sharply higher near major sites. In Kaohsiung’s Nanzih district, prices have jumped about 89 percent since 2020, reflecting the pull of new fabs and the influx of higher paid engineers. Hsinchu, Tainan, Taichung, and parts of Chiayi show the same pattern, with fresh projects lifting surrounding property markets. Taipei’s house price to income ratio now sits above many major global cities, putting ownership out of reach for large numbers of first time buyers.
Rising home values have widened the wealth gap. Household wealth inequality has nearly quadrupled over three decades, as owners of multiple properties reap gains far beyond wage growth. Many families outside the chip sector face longer commutes or accept smaller homes to stay within budget. The government has raised the minimum wage in recent years, introduced preferential loans for first time buyers, and increased taxes on multiple home ownership. Those steps help at the margin, but they do not offset the acceleration in prices near fab hubs or the broader scarcity of affordable housing in job rich regions.
Can the boom last
Taiwan’s strengths are clear, but reliance on a single growth engine carries risk. The island’s export mix is heavily tilted toward chips and electronics, making growth sensitive to global tech investment cycles. The United States now takes about a third of Taiwan’s exports. A deeper surplus with the US could trigger tariff threats. China is spending heavily to catch up in mature chips, which could pressure margins in some product lines. Official forecasts already point to a cooler pace after 2025, even as AI demand remains strong.
There is also confidence inside the industry that the investment cycle still has room to run. At a recent forum, former Minister of Economic Affairs Mei-Hua Wang said the demand picture remains robust. Wang argued that the surge in computing needs is still gathering steam as more companies deploy AI in operations and products.
Demand for AI computing power is skyrocketing, and semiconductor demand shows no sign of slowing.
How Taiwan can spread the gains
A durable fix for the growth gap will require lifting productivity and wages beyond the chip cluster. Policy priorities discussed by business leaders and economists include expanding high quality vocational and technical training, helping traditional manufacturers adopt automation and digital tools, and widening research and development support outside the semiconductor core. Stronger incentives for investment in equipment and software for small and medium sized firms can raise pay in sectors that employ most workers. Housing supply matters as well. Zoning reforms, faster approvals near new industrial parks, and scaled up social housing could reduce pressure in hotspots around new fabs. Over time, better transport links between fab towns and surrounding cities would broaden access to good jobs without pushing up local prices as fast.
Managing the labor market impact of AI matters too. Academic research points to a common pattern in automation waves. Wages can rise as productivity jumps, then flatten as machines replace a larger share of cognitive tasks. That dynamic is not fixed. Economists argue that wage growth is more likely to persist when investment in the physical side of the economy keeps pace with the intelligence side. For Taiwan, that suggests pairing cloud and chip expansion with new spending on healthcare, construction, energy, and infrastructure that uses AI tools to lift productivity. It also points to tax and labor policies that reward companies for training workers, keeping humans in the loop in service and manufacturing workflows, and sharing productivity gains through profit sharing or performance pay.
At a Glance
- GDP has grown around 8 percent for two straight quarters on an AI export surge.
- The government projects about 7.37 percent GDP growth in 2025, with 3.54 percent in 2026.
- October exports jumped 49.7 percent year on year, after a 36.5 percent rise in the third quarter.
- Taiwan’s stock market is now the world’s eighth largest, lifted by AI suppliers.
- Electronics and semiconductors exceed 15 percent of GDP but employ about 6.5 percent of workers.
- Exports to the United States have risen more than 60 percent in the first ten months of the year.
- Chips and electronics account for nearly three quarters of exports, underscoring reliance on one sector.
- Real wages have been largely flat since the early 2000s and the labor share of income has declined.
- Housing costs have soared near new fabs, with prices in Kaohsiung’s Nanzih up about 89 percent since 2020.
- Officials and industry leaders expect AI demand to remain strong, even as growth moderates after 2025.
