Taiwan has redrawn the AI map

Artificial intelligence (AI) is usually discussed as a technology story, but in Asia it has become a trade story, and nowhere is that more visible than in Taiwan. The nation has spent four decades mastering semiconductor manufacturing, and now finds itself at the center of the fastest redrawing of Asia’s trade map in a generation. What Taiwan does with that position, at home as much as abroad, would shape its economy for decades to come.

The scale of the shift is striking.

Intra-Asian trade in AI-enabling goods — the chips, components and equipment on which the technology runs — has roughly doubled since before the COVID-19 pandemic to nearly US$2 trillion last year, and AI-linked goods now account for about one-third of Asia’s total exports, close to twice their share a decade ago, HSBC Global Investment Research said.

Within that surge, Taiwan’s gains stand apart. Its share of global trade in the intermediate inputs that feed AI hardware has nearly doubled over the past decade, and about 80 percent of its exports now fall within the AI category, the highest concentration of any economy in Asia. Taiwan does not merely participate in the AI hardware economy; to a considerable extent, it is its center of gravity.

What has changed most in the past two years is not the scale of Taiwan’s role, but its geography. Taiwan’s trade with ASEAN in AI-enabling goods reached US$47.4 billion in the first quarter of this year, up 77 percent from a year earlier, and the bloc now takes about one-quarter of Taiwan’s exports, up sharply from just a few years ago.

The Singapore corridor illustrates the mechanics: Taiwanese exports to the city-state rose 160 percent year-on-year in the three months to May, lifting Taiwan from Singapore’s fourth-largest trading partner in 2024 to its largest last year, a shift underpinned by Taiwanese semiconductor firms whose investment into Singapore’s manufacturing sector has grown more than 10-fold compared with the late 2010s.

The counterpart to this southward tilt is a historic rebalancing away from China. Taiwan’s trade balance with China slipped into a deficit in July last year for the first time since 2002, followed by several months of deficit early this year, as export controls redirected advanced chip shipments toward the US. Nearshoring is adding a further channel, with Taiwan’s exports to Mexico nearly tripling last year as high-end hardware is assembled there for the US market.

Taiwan’s deepening trade deficit with South Korea, at a record high, tells a similar story of centrality rather than weakness. South Korean high-bandwidth memory flows into Taiwan’s advanced packaging facilities, where it is integrated into the AI servers and accelerators that ship onward to US customers, a complementarity that has made Taiwan South Korea’s fourth-largest export market. Taiwan sits at the point where the region’s most valuable inputs converge and its most valuable outputs depart.

The next phase of Taiwan’s AI story is being written at home. Global technology leaders including Amazon Web Services, Google and Nvidia have committed to cloud regions, data centers and research facilities in Taiwan, drawn by the density of the semiconductor ecosystem and the depth of the engineering talent around it. There is considerable room to grow: Taiwan’s own data center investment remains a small fraction of the US level relative to the size of its economy, which suggests that the domestic build-out has barely begun even as Taiwanese chips power data centers everywhere else.

The macroeconomic payoff is already substantial. HSBC expects Taiwan’s economy to be among the fastest-growing in the world this year, the fastest in Asia, with a current account surplus that ranks among the largest anywhere relative to the size of its economy. That surplus points to a further opportunity: As Asia’s AI infrastructure demand rises, the region’s savers might increasingly deploy capital at home rather than channelling it abroad, and few economies are better positioned than Taiwan — with its combination of export earnings, deep corporate balance sheets and expanding domestic investment pipeline — to convert hardware leadership into broader financial market development and wealth creation.

The risks that accompany this position deserve honest treatment. With four-fifths of exports tied to a single technology cycle, Taiwan is more exposed than any of its neighbors to a downturn in global AI capital spending, tighter export controls or sharp swings in semiconductor prices, and some of the current export strength might reflect front-loaded orders that normalize over time. Rising computer and component prices could also feed inflation pressures at home and across the region.

Yet concentration is the consequence of being indispensable. Taiwan spent four decades building the capabilities the AI era demands, and the same discipline applied to the next stage, diversifying its trade corridors, deepening its domestic digital infrastructure and putting its considerable savings in the transition would extend that indispensability well beyond the factory gate.

The world’s AI ambitions run through Taiwan. The task ahead is to ensure that Taiwan’s economy captures the full value of that position.