The global AI race is supercharging Taiwan’s economy. But many don’t feel better off

For proof that an economy can thrive even under constant military threats from a powerful neighbor and amid US President Donald Trump’s sweeping global tariffs, look no further than Taiwan.

The self-ruled democracy has logged roughly 8% economic growth for two consecutive quarters, a rare achievement for a developed economy and one that is projected to push its 2025 GDP growth close to 7.4%, even surpassing China’s.

“Taiwan’s economy has clearly been one of the best performing economies in the world, particularly over recent quarters,” said Jason Tuvey, an economist at Capital Economics. “Many people expected Taiwan’s economy to benefit from the sort of AI boom, but maybe many underestimated to what extent it would do.”

Taiwan’s statistics bureau on Friday reported 8.21% year-on-year growth in GDP in the third quarter, driven by a 36.5% surge in exports in the period ending September. This followed an already striking 7.7% expansion in the second quarter.

In October, exports hit a record high, climbing 49.7% from a year earlier – the largest single month increase in over 15 years.

To top it all off, Taiwan’s stock market overtook Germany’s in September as the world’s eighth largest, riding on the global frenzy for artificial intelligence.

But even as Taiwan’s economy flourishes, driven by the outsized influence of its high-tech sector as exemplified by the world-beating chipmaker TSMC, many citizens have been unable to share in the boom, as income gaps widen and wages remain stagnant.

Economists say a key reason is that the gains are highly concentrated. Electronics manufacturing accounts for more than 15% of GDP but employs just 6.5% of the workforce, according to Capital Economics.

This unevenness is partly reflected in sluggish consumer spending. Consumer confidence has remained subdued throughout the year, according to the index released by the Research Center of Taiwan Economic Development. Trump’s trade war has also dampened sentiment, economists say, particularly as Taiwan has yet to finalize a trade agreement with Washington.

“From my perspective as a salaried worker earning above the median income, I feel the economy isn’t actually doing that well,” said Vivian Chen, a nurse in the Southern port city of Kaohsiung.

Chen’s observations are echoed by many in the home of the global chip powerhouse. Taiwan’s GDP per capita is forecast to exceed $38,000 this year, outpacing South Korea and Japan. But its average wage lags both countries by at least 30%, according to CNN’s calculations of official data.

One of the biggest beneficiaries of AI

Taiwan’s tech prowess, built over decades in the chip and electronics industries, has positioned the island to benefit from the AI boom. As tech giants from Google and OpenAI to Microsoft rush to build data centers powered by graphics processing units designed by Nvidia and AMD, Taiwanese companies have been at the forefront, manufacturing the semiconductors and servers essential for training AI models.

In one prominent example, TSMC, the world’s largest contract chipmaker that supplies Nvidia and is known by locals as the “protector of the nation,” has raised its full-year revenue growth forecast to the mid-30% range, driven by the explosive growth in AI, after surpassing sales expectations in previous quarters.

Meanwhile, Taiwan’s outbound shipments to the US, where most of the AI data center expansions have occurred, have grown more than 63% in the first 10 months of this year, according to Taiwan’s Ministry of Finance.

But questions have mounted about the sustainability of this export-driven boom, especially amid concerns that the AI frenzy could cool.

Taiwan’s export growth “will definitely come down next year,” said Wang Jiann-Chyuan, vice president of the semi-official thinktank Chung-Hua Institution for Economic Research. He expects growth to retreat from about 30% in recent quarters to single digits, as this year’s surge makes further expansion harder.

Trump’s shadow

Adding to the uncertainty is Trump, Wang said. Taiwan’s trade surplus with the US hit a record this year, raising the risk of scrutiny from a president who has made reducing trade deficits a central goal of his tariff campaign.

So far, chips and electronics, which made up more than 73% of Taiwan’s exports, have been spared from the levy. While Trump has repeatedly threatened triple-digit tariffs on semiconductors, he has exempted companies, including TSMC, that build manufacturing facilities in the United States.

Still, the heavy concentration of exports in the high-tech sector has amplified concerns about over-reliance on a single industry — or even a single company. While chips and electronics now account for nearly three-quarters of exports, up from roughly half five years ago, traditional sectors such as metals, machinery, and plastics have seen little growth or outright decline.

For Wu Jieh-min, a researcher at Taiwan’s top research institute Academia Sinica, however, part of the concern about the island’s economic future are associated with many Taiwanese people’s deep-seated insecurity about its political status. China claims Taiwan as part of its territory, despite having never controlled it, and has vowed to absorb it by force, if necessary.

“I think the cautious, on-edge mindset you see across Taiwanese society is very obvious, and I actually see it as something positive,” said Wu, whose research focuses on political economy and sociology.

“We have to manage our own future very carefully, because even just surviving is already difficult for us,” he said.

Disconnect

On the ground, some Taiwanese say the rosy headline figures don’t reflect their daily lives, like Chen, the nurse, who said salaries for health professionals feel stagnant.

“That’s why you hear doctors complaining about being underpaid, and why so many nurses are leaving the country or the industry altogether,” Chen said.

“People in Taiwan keep hyping themselves up, saying things like ‘We have TSMC,’ or boasting about how high the stock market is. But for many living here, their monthly pay stayed much the same,” she added.

GT Lin, an AI engineer in Taipei, echoed that sentiment.

“That’s why I’ve come to the conclusion that the country is strong, but the people aren’t necessarily wealthy,” he said.

Taiwan’s real wage growth, adjusted for inflation, began to slow in the late 1990s and has remained stagnant since the early 2000s. Labor’s share of GDP peaked at about 50% in the 1990s and has since fallen to around 44%.

Roy Ngerng, a Singaporean labor activist based in Taipei who has written extensively about the issue of wage stagnation in Taiwan, attributed the problem to long-term wage suppression — aimed at boosting export competitiveness.

He said that while Taiwan’s economy has seen exceptional growth in recent years – and booming profits among tech businesses – average workers and employees in other sectors have been mostly left out, widening the income disparity.

Just five years ago, wages in the electronics sector were already 35% above the economy-wide average, according to Capital Economics. Now they are more than 70% higher.

Ngerng added that the current government has been steadily increasing the minimum wage.

Wu Tsong-Min, an economist at National Taiwan University, however, notes that wage stagnation is “not unique to Taiwan,” as many advanced economies face similar issues, particularly among low-skill workers.

Wu, the author of “A 400-Year History of Taiwan’s Economy,” also pointed out that Taiwan’s GDP per capita, after adjusted for purchasing power, rises further thanks to lower domestic prices.

Still, housing remains a major burden: Taipei’s house price-to-income ratio has nearly tripled in the past two decades, surpassing London, New York and even Hong Kong, according to the Global Property Guide.

For Wu of Academia Sinica, he remains optimistic, saying that the thriving tech industry could generate spillover effects that trickle down to other sectors.

“Taiwan’s economy wasn’t shaped by deliberate planning or an exceptionally capable government, but rather an evolutionary process,” he said.

While the size of Taiwan’s economy is dwarfed by leading global powers, Wu added, its small and medium-sized enterprises are nimble, adaptable and attuned to global trends.

“That’s how its semiconductor industry became what it is today.”