Taiwan achieved impressive growth, growing by 8.6 per cent in 2025, which is higher than most economies in the world. The high demand for consumer electronics and artificial intelligence (AI) by US companies improved the economy of the island, although the tariff policy by US President Donald Trump brought challenges.
The reduced US tariffs on Chinese products were an advantage to Taiwan, which weakened the urge to move the export production partially out of the mainland. In 2025, the United States overtook China and Hong Kong to be the largest export destination of Taiwan, with 31 per cent of all exports made by the island. Those exports that were assembled in and exported out of mainland China prior to additional levies being imposed constituted 77 per cent of information, communication and audio-video products.
In the meantime, the total exports of China and Hong Kong in Taiwan fell to 27 per cent of the total exports in 2025, down as much as 44 per cent in 2020, with almost every category falling, except electronic components, which increased slightly. This trend illuminates that China has never been a significant consumer market for Taiwan manufacturers. The exports to China were mostly focused on assembling industrial material into final products for the US market, which also resulted in Taiwan being a strong exporter. With the decline of China as a final assembly hub and export hub, cross-strait economic relations will become defunct.
The reduction in exports of Taiwan to the mainland is also a factor of overcapacity within China in the industry of internal combustion automobiles, iron and steel, cement, phone handsets, legacy semiconductor chips, solar panels and electric vehicles. To make this worse, the US export control policy also reduced exports of Taiwanese advanced chips to China. In 2024, Taiwan was allowed to export no more than 7-nanometre and 16-nanometre process technology chips to China, and in 2025, to chips based on 16-nanometre process technology.
However, the fact that Taiwanese electronic component exports have remained robust shows that legacy chips that contain chips with 28-nanometre or more process technology continue to be demanded by China. The high quality of the products produced in China, particularly in relation to the localised products, is undeniably a factor that has allowed many Chinese manufacturers to remain dependent on Taiwanese chipmakers, whose quality and reputation are vital towards ensuring that the quality and reputation of Chinese brand products are not compromised.
The accelerated worldwide growth of AI has influenced the high aggregate demand of Taiwan’s advanced chips, which are mainly supplied by the US AI companies. High-performance computers are a large portion of this demand, which allows AI applications and contributed to 58 per cent of the total revenue of TSMC, the top producer, in 2025.
The greater exports compared to imports in Taiwan increased its trade surplus considerably to US 157 billion in 2025, compared to the US 81 billion last year. The foreign exchange reserves also increased to US 602.6 billion and 577 billion in 2025 and 2024, respectively, and Taiwan came second only after China, Japan and Switzerland. Over 80 per cent of these reserves are allocated in the US Treasury bonds.
In contrast to chips and consumer electronics, Taiwan has been losing export of other industrial products in the past few years, e.g. plastics, steel, textiles, and transportation equipment. The Chinese and the Southeast Asian markets have been impacted particularly because of the growing competition posed by the cheap Chinese industrial goods and the fact that Taiwan is not part of the regional free trade agreements.
However, the Taiwan-US trade agreement that was signed in February 2026 (reducing the tariffs of imports in Taiwan to 20 to 15 per cent) can counterbalance these difficulties. Taiwan has developed a competitive niche in the US market on various manufactured and industrial products because of its manufacturing prowess, especially its high chip fabrication capacity.
Other than consumer electronics and chips, electrical machinery and wood products of Taiwanese origin are major markets in the United States, constituting 40 per cent of the total export in the two industries in 2025. It is also a significant importer of Taiwan’s basic metals, transportation equipment and machinery, whereby it receives close to a third of the total exports per sector during the same year.
The closer relations of Taiwan with the United States are not limited to the world of trade. The U.S. has overtaken China as the largest investment destination in Taiwan with a total of 13 per cent of the total outward foreign direct investment in the island, partly due to TSMC constructing chip fabrication plants in Arizona since 2020. The new bilateral trading arrangement can also stimulate Taiwanese investment in the future since companies that invest in semiconductor capacity in the US are potential beneficiaries of the bilateral agreement.
Generally, the achievement of economic reshuffling of Taiwan to the United States has helped to establish excellent economic development of the island. The US-Taiwan Economic Prosperity Partnership Dialogue in January 2026 once again resembled bilateral collaboration in developing a resilient supply chain network. The economic relations between the two countries are likely to continue supporting the Taiwan economy in the forthcoming years.
There are, however, risks associated with the growing dependence on the US economy. Even the 15 per cent tariff is still expensive to the Taiwanese manufacturers, and transferring the production power to the United States is a major investment that might worsen brain drain.
Geopolitical uncertainty still informs US policy, and the overdependence of Taiwan on the US market exposes it to changes in policies or retaliatory concerns that may disorient its economic path and threaten the future success of its economy.
