By Chiang Min-Hua
Despite China’s military intimidation, Taiwan’s economic performance in 2024 has been strong. Its economic growth at 4.3 per cent outpaced Singapore, Hong Kong and South Korea.
Tension across the Taiwan Strait rose significantly after Taiwanese President Lai Ching-te, a staunch supporter of Taiwanese independence, was elected. The number of Chinese aircraftcrossing the Taiwan Strait’s median line tripled in the five months after Lai’s inauguration in May 2024.
Taiwanese businesses’ production flexibility, following the US–China trade frictions, explained how the island benefited from the vigorous external demand. Taiwanese firms moved part of their Information and Communications Technology (ICT) production capacity back to Taiwan after the United States imposed higher tariffs on Chinese goods in 2018. As a result, Taiwan’s exports of ICT and audiovisual products have almost tripled from 2019 to 2024. The growing ICT exports have been attributed to the US market. In 2024, the United States accounted for over half of these exports.
Taiwanese firms’ relocation back to the island is evidenced by growing domestic investment and a declining overseas production ratio of all manufacturing industries — from 55 per cent in 2016 to 49 per cent in 2024. The overseas production ratio for ICT goods fell the most, from 94 per cent to 81 per cent during the same period.
Electronic component exports experienced a 0.8 per cent decline in 2024. The US ban on selling advanced chips to China might explain the export drop. But the impact of losing the Chinese market appears limited as global demand for ‘made-in-Taiwan’ chips has remained.
Private consumption also made a modest contribution to economic growth in 2024. Taiwanese consumers’ lack of threat perception might explain the limited impact of China’s military threats on private consumption. According to the Institute for National Defense and Security Research, 62 per cent of respondents considered China unlikely to invade Taiwan in the next five years, compared to only 24 per cent who believed that it is possible.
Rising inflation also impacted Taiwan’s private consumption development. Despite wage hikes, real regular wages have seen minimal growth — a 0.45 per cent year-on-year increase between January and September — due to inflation. Soaring housing prices have held down private consumption and added risks to a potential household debt crisis. In 2023, Taiwan’s household debt-to-GDP ratio reached 90 per cent, higher than the United States, Japan, Germany and Singapore in 2022.
Taiwan’s economic prospects appear to remain prosperous. The Taiwan Semiconductor Manufacturing Company (TSMC) will continue to drive Taiwan’s exports of semiconductor chips. TSMC’s share in the global foundry market expanded over the last year, from 58 per cent in the second quarter of 2023 to 62 per cent in the same quarter of 2024. It is estimated that the global foundry market will grow by over 15 per cent after 2026.
Though TSMC has set up factories in Japan, Germany and the United States, Taiwan will still represent a significant portion of the company’s total chip fabrication. At present, Taiwan accounts for 80 per cent to 90 per cent of the company’s total chip output.
Taiwan’s investment in China’s electronic parts and components manufacturing, which includes semiconductor chip fabrication, shrank to US$2 million in 2024. The overall investment in China amounted to US$3.6 billion in the same year, far behind its investment in the United States, ASEAN and India.
China’s slowing economy, the ongoing US–China trade war, subdued property market recession, weak private consumption and greater state influence over private business made China less ideal for conducting business. China’s ban on certain Taiwanese agricultural goods and ongoing military aggression has also made doing business in China much riskier than before.
While the ICT and semiconductor industries are thriving, the exports of other industrial goods, such as metal, chemicals, rubber and plastics, transportation equipment and optical and precision instruments showed negative growth rates in 2024, compared to the same period in 2023. Taiwan’s limited free trade agreements and low-price competition from China and other developing countries explain their business struggles in recent years.
Though the overall economy has been sustained relatively well, the over-reliance on the tech industry for economic growth has enlarged inter-sectoral income inequality. Over the last two decades, the average monthly salary in the ICT industry grew by 48 per cent, far more than the 26 per cent increase in the services and manufacturing industries. But despite higher salaries, the ICT industry only accounts for 11 per cent of total employment.
To alleviate growing income inequality the government almost doubled its social welfare expenditure over the last decade. With an aging population, government expenditure on social welfare is expected to grow even more. The government will also have to raise its defence budget in the face of China’s military threats. More economic growth will be needed to mitigate the impact of imbalanced industrial development on social inequality and defend the nation’s economic autonomy and political sovereignty.
But with the Trump administration potentially introducing extra levies on all imports, including Taiwanese products, the island’s export-oriented economic prospects look uncertain. The Legislative Yuan’s recent freeze of Taiwan’s defence budget will cripple Taiwan even more in financing its own defence.
Economic growth and strong national defence complement each other. While a resilient economy could sustain national defense expenditure in the long run, a strong defensive capability will improve business confidence and promote economic prosperity. Without either of them, Taiwan would risk having a bleak future.
- About the author: Min-Hua Chiang is a non-resident senior fellow at Taiwan Research Hub, University of Nottingham, and an adjunct fellow at the East-West Center in Washington DC.
- Source: This article was published by East Asia Forum and part of an EAF special feature series on 2024 in review and the year ahead.