Taiwan economy takes flight with AI boom

The global boom in Artificial Intelligence (AI) drove Taiwan’s economy in the first quarter to the fastest growth in 39 years.

The island’s biggest firm, Taiwan Semiconductor Manufacturing Company (TSMC), posted record revenue for a quarter at NT$1.13 trillion, US$35.6 billion, a rise of 35 per cent year-on-year.

The Directorate-General of Budget, Accounting and Statistics (DGBAS) said that growth in the first quarter was 13.69 per cent year-on-year, with exports rising by 51.12 per cent to US$195.7 billion.

Electronic components, and information and communications technology products accounted for 78.5 per cent of exports. “Expansion by global cloud providers is driving demand across Taiwan’s tech supply chain,” the DGBAS said.

The biggest beneficiary is TSMC, with orders flooding in from major clients like Apple and Nvidia. Moody’s Investors Service said that capital expenditure in AI data centres in 2026 will surpass US$700 billion, with US$44.7 billion in the first quarter, an increase of 28 per cent over the same period in 2025.

The Iran war, which began on February 28, did not damper sales. In March, TSMC revenue rose 45.2 per cent year-on-year to NT$415.2 billion. It makes chips for a wide range of uses, from large-scale data centres to everyday gadgets.

In the fourth quarter of 2025, TSCM reported 35 per cent growth in profit, its eighth consecutive quarter of year-on-year growth. It said that it planned to spend up to US$56 billion on additional factories outside Taiwan, in the U.S., Japan and Germany.

Taiwan makes about 70 per cent of the world’s semi-conductors, including 95 per cent of those at the high end and 100 per cent of those used in AI.

The DGBAS said that the high exports had promoted investment and manufacturing, “creating a positive feedback loop.” Domestic demand held firm.

Private consumption grew 4.89 percent, supported by government cash handouts, stock market gains and promotional activities by businesses. Retail sales and dining revenues increased, while spending on services such as telecommunications, leisure and transportation expanded.

Tourism is flourishing, despite restrictions placed by Beijing on its citizens. In January, 723,375 visitors came, an increase of 11.1 per cent from January last year. The arrivals included 603,786 foreign visitors and 119,589 Overseas Chinese. The top four were Japanese, South Koreans, Southeast Asians and Hong Kong people. From 2019 to April this year, Beijing heavily restricted individual travel to Taiwan.

Geopolitical uncertainties and uneven global demand remain key risks, although their effects have so far been limited, the agency said.

Taiwan relies for over 40 per cent of its energy from the Middle East. Because of the Iran war, overall fuel prices have risen by more than 10 per cent. The government has absorbed nearly 75 per cent of the price hike to protect consumers.

Taiwan holds over 100 days of oil reserves and 12-14 days of liquefied natural gas (LNG). Like many countries in Asia, Taiwan is vulnerable to a long closure of the Straits of Hormuz. Last year ships carrying 20 per cent of the world’s LNG and 25 per cent of its oil passed through it.

The biggest threat to Taiwan is a blockade, or even a war, by China.

In an interview published in Le Monde on May 3. Vice Foreign Minister Francois Wu Chi-chung said that Taiwan played a critical role in the global supply chains, regional security and with democratic partners.

“The constant pression exercised by China has not prevented Taiwan from becoming irreplaceable for the future of the world. The Taiwan Strait is an essential world maritime passage. For several year, many countries, especially European, have sent frigates there to defend the liberty of navigation,” he said.

“If key technologies fell into the hands of China, that would have a major impact on the industrial development of the world and international security,” he added.

Taiwan diplomats refer to semi-conductors as their “trump cards”. While their international activities are limited by the lack of official recognition and the opposition of Beijing, all countries need Taiwan chips. This gives them an invaluable calling card.