Taiwan votes amid economic surge fueled by semiconductor success

 Taiwanese voters will head to the polls on Saturday for an election that takes place amid an economic landscape buoyed by a “tailwind” generated by several years of growth, primarily driven by semiconductor exports.

According to estimates by investment firm Natixis, the island’s GDP growth rate is expected to reach 2.9 percent in 2024, rebounding from 1.2 percent in 2023, when semiconductor exports were reduced and overseas investments by Taiwanese companies increased.

“Whoever wins the elections will have the wind in their favor because I think these two things will go better in 2024,” said Alicia García-Herrero, the Natixis chief economist for Asia-Pacific.

“The semiconductor cycle is recovering, and there is the whole issue of demand for artificial intelligence. So, I think whoever wins will have that in their favor at least in 2024,” the teacher at Sun Yat-sen University in Taiwan told EFE.

During Tsai Ing-wen’s presidency, Taiwan experienced economic growth above its potential, even amid the worst moments of the pandemic.

The GDP expanded at an annual average of 4.2 percent between 2020 and 2022, peaking at 6.6 percent in 2021, with exports reaching over $446 billion.

China’s share in these exports decreased, dropping from 40 percent between 2016 and 2019 to 35 percent in 2023.

Natixis figures also indicate a decline in Taiwan’s direct investment in China, falling from 65 percent during the Kuomintang years (2008-2016) to 34 percent for 2016–2023.

For García-Herrero, the reduced dependence on China is a global trend rather than a policy directive from the ruling Democratic Progressive Party (DPP).

“People insist that these are political issues, and I also believe that the rest of the world is not investing as much in China as before. The change occurred, especially with Trump and the trade war. They see that exporting from China is going to be very expensive, so they leave,” said the economist.

During recent decades, and especially in the pandemic years, the spearhead of Taiwanese economic growth has been the semiconductor industry, which together represents around 15 percent of the island’s GDP.

The island is key to the supply chains of some of the world’s leading technology firms.

In 2022 alone, the more than 300 companies in the sector operating in Taiwan earned some $156 billion in revenues, 18.5 percent more than the previous year, according to figures from the Association of the Taiwanese Semiconductor Industry (TSIA).

One of the main architects of the growth has been semiconductor makers like Taiwan Semiconductor Manufacturing Company (TSMC), the largest producer of chips in the world.

TSMC had a turnover of $75.88 billion, a 33.5 percent year-on-year increase in the US currency.

According to Natixis estimates, despite a slowdown in the industry’s performance in 2023 due to excess semiconductor and tech product inventory worldwide, a resurgence is expected in 2024 as global demand recovers.

While the incoming president will inherit a resilient economy with low unemployment, high consumption levels, and fiscal space, García-Herrero said uncertainties existed in long-term foreign investments due to “geopolitical risk” related to a potential conflict with China.

“All investors are afraid of investing long-term in Taiwan because of the geopolitical risk… The economy is going a little better, but direct investment means that these people invest for 20 years, and of course, they tell you no, that in 20 years you don’t know what will become of Taiwan,” warned the economist.