Taiwan’s central bank projects that the island’s trade surplus could reach a record $205.4 billion this year, fueled by a rapid expansion in artificial intelligence hardware manufacturing. This would be more than four times the $49.2 billion surplus recorded in 2018, when the US-China tariff dispute began.
Taiwan Emerges as Key AI Manufacturing Hub
The surge is closely tied to US efforts to build supply chains independent of China. Taiwan is becoming a critical node in the global AI supply chain, exporting servers and advanced semiconductors to the US while importing memory chips from South Korea and wafer fabrication equipment from Japan. Medium- and low-tech manufacturing is increasingly outsourced to ASEAN countries.
The US trade deficit is expected to exceed $1.1 trillion, with Taiwan projected to become its third-largest source at $219.2 billion, behind Vietnam ($238 billion) and Mexico ($221 billion), and ahead of China ($156.4 billion).
Electronics Manufacturing Shifts Away from China
Taiwan’s electronics industry is moving away from the old model of producing goods in China for US markets. Instead, Taiwan now focuses on high-value, tariffed, and cybersecurity-sensitive products, while lower-tech assembly moves to the US or ASEAN. The share of locally produced exports hit a record 52.9% last year, up from 47.6% in 2018, while China’s share fell to 26.2%, down from 46.9%.
Investment Flows Redirected to the US
Taiwanese investment in China is declining as companies reassess strategies amid higher costs and geopolitical risks. The cumulative direct investment ratio in China dropped from 58.3% in 2017 to 18.8% from 2018 onward. Meanwhile, the US has become Taiwan’s most important investment destination, with the ratio rising to 18.7%. In 2023 and 2024, investment directed to the US accounted for 36.4% and 29.1% respectively, highlighting a broader shift toward the US, Japan, and Southeast Asia.
These trends underscore Taiwan’s central role in the global AI supply chain and the ongoing realignment of manufacturing and investment flows away from China.
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