Steady Growth Despite Looming Tariff Threats
Taiwan’s economy continued to show resilience in early 2025, with robust export growth and a strong semiconductor sector driving expansion. However, concerns over potential U.S. tariffs and a cooling real estate market have tempered optimism.
Taiwan’s economy is expected to grow at a moderate pace this year, though projections have been revised slightly downward. In late February, the Directorate General of Budget, Accounting and Statistics (DGBAS) lowered its 2025 GDP growth forecast to 3.14% from 3.29%, citing concerns over potential trade restrictions from the United States under President Donald Trump’s administration.
Taiwan’s exports continued their upward trajectory in early 2025, rising 4.4% year-over-year (YoY) in January to US$38.71 billion, according to Ministry of Finance data. This marks the 15th consecutive month of growth, fueled largely by demand for AI applications and a rush to secure Taiwanese-made chips before potential U.S. trade restrictions take effect.
However, January’s export orders fell 3% YoY – the first decline in nearly a year – suggesting a possible slowdown in demand. The Ministry of Economic Affairs attributed the decrease to seasonal factors and weaker-than-expected sales in the consumer electronics segment. Whether this trend continues will depend largely on how global demand for AI chips and high-performance computing components evolves in the coming months.
In January 2025, Taiwan’s industrial production index reached 96.31, marking a 5.07% YoY increase and exceeding expectations. This growth was primarily driven by the electronic components sector, which saw a 16.67% annual increase. Notably, the integrated circuit (IC) industry index surged by 22.92% YoY, fueled by strong demand for AI and high-performance computing applications.
However, not all sectors are benefiting. Base metals, chemicals, and auto parts reported declines, reflecting weaker domestic demand and a challenging global environment. Policymakers will be watching closely to see whether industrial growth can remain broad-based or if the economy becomes increasingly reliant on high-tech exports.
Inflation remains under control, with the DGBAS forecasting a 1.94% increase in the Consumer Price Index (CPI) for 2025, slightly below the Central Bank’s 2% target. CIER’s estimate stands at 1.93%, reinforcing expectations of stable price growth.
The Central Bank kept its benchmark interest rate unchanged at 2% in December, opting for a cautious stance amid global economic uncertainty. With relatively low inflation, policymakers will likely prioritize economic stability over aggressive tightening.
Taiwan’s real estate market is showing signs of cooling after years of rapid price increases. Presale and new housing prices rose 7.13% last quarter, but sales rates plunged 22.69%, according to Cathay Real Estate Development.
New Taipei City saw the sharpest price hike, with an 11.65% YoY increase, but affordability concerns and tighter mortgage rules have dampened buyer enthusiasm. Sinyi Realty predicts that the market will take two to three quarters to adjust to stricter loan-to-value ratios.
Chips Investments Please America
The primary concern for the Taiwan economy remains U.S. trade policy, particularly the possibility of tariffs on semiconductor exports. President Donald Trump has floated the idea of a 25% tariff on chips, which could significantly impact Taiwan’s trade-dependent economy. Taiwan’s Central Bank has warned that heightened protectionism could dampen demand for its key technology exports, impacting overall economic performance.
“The impact could be felt as early as Q3 or Q4,” the DGBAS said in a February statement, noting that such a move could trigger shifts in global supply chains. Taiwan’s government has been in discussions with Washington to mitigate potential fallout, but businesses remain wary of how trade negotiations will unfold.
In a significant move to bolster its global manufacturing footprint, TSMC has announced that it intends to invest US$100 billion to expand its operations in the United States. The ambitious plan includes the construction of five new fabrication plants in Arizona, supplementing the company’s existing projects in the state.
The announcement was made during a joint appearance by TSMC CEO C.C. Wei and Trump at the White House on March 3. Hailing the investment as a monumental boost to the U.S. economy, President Trump said that “this US$100 billion in new investment will go into building five cutting-edge fabrication facilities in the great state of Arizona and will create thousands of high-paying jobs.” He further noted that the move brings TSMC’s planned total investment in the United States to approximately US$165 billion.
TSMC’s expansion is expected to support 40,000 construction jobs over the next four years and create tens of thousands of high-tech positions in advanced chip manufacturing and research and development. The company said in a press release that it anticipates these facilities will generate hundreds of billions of dollars in semiconductor value, particularly for AI and other cutting-edge applications.
The investment aligns with the U.S. government’s strategic objectives to enhance domestic semiconductor production, thereby strengthening economic and national security. The initiative also reflects the deepening economic ties between Taiwan and the United States, underscoring Taiwan’s pivotal role in the global semiconductor supply chain.
Taiwan’s semiconductor industry remains a cornerstone of economic growth. The Industrial Technology Research Institute (ITRI) forecasts a 16.5% increase in semiconductor production value this year, reaching NT$6.17 trillion (US$192.8 billion). The foundry sector, led by TSMC, is expected to grow 20.1% YoY to NT$3.86 trillion. Packaging and testing services have seen slower-than-expected growth, with ITRI lowering its estimates for these segments. Still, overall semiconductor demand remains strong, particularly for AI and data center applications.
