Taiwan Seeks to Diversify Economy Away from China

2025-07-07 economy

Taipei, Monday, 7 July 2025.
Amid rising geopolitical tensions, Taiwan is pushing to reduce its dependence on China, its largest trading partner, focusing on semiconductor industry diversification and strengthening alliances.

Rationale Behind Taiwan’s Economic Diversification

Taiwan’s push to reduce economic ties with China comes amid escalating geopolitical tensions, particularly as China remains Taiwan’s largest trading partner, accounting for 31.7% of its exports and 20.4% of imports as of 2024 [1]. The Taiwanese government, led by President Lai Ching-te, is urging a shift in focus for major industries such as semiconductors, advocating for supply chains that exclusively involve companies from democratic countries [2]. This strategic pivot is influenced by a desire to align more closely with the United States and other Western nations amid rising cross-Strait tensions [3].

Impact on the Semiconductor Industry

Taiwan’s semiconductor industry, a cornerstone of its economy, is at the heart of this diversification effort. Companies such as Taiwan Semiconductor Manufacturing Company (TSMC) and Foxconn have significant operations in China, with TSMC constituting over 50% of the global market by 2020 [4]. However, with new policies like requiring licenses for sales to Huawei and SMIC, Taiwan aims to curb its business with China [5]. This policy shift has significant implications for the global supply chain, potentially altering the landscape of technology and electronics manufacturing worldwide [6].

Risks and Challenges of Economic Transition

While the move to diversify away from China is strategic, it comes with substantial risks. Taiwan’s ties with China have historically been both a source of economic growth and a potential leverage for China. From 2010 to 2024, Taiwan’s investment in China plummeted from over 80% to just above 7%, illustrating a sharp decrease in economic interdependence [7]. Businesses in Taiwan face the challenge of finding alternative markets while maintaining profitability and relevance in the competitive semiconductor industry [8].

Future Prospects and Global Implications

The success of Taiwan’s economic diversification strategies could have profound effects on global supply chains, particularly in technology sectors. Taiwan’s government has been encouraging foreign businesses to relocate operations to Taiwan, amidst uncertainties in Hong Kong and growing regional tensions [9]. With geopolitical dynamics in flux, Taiwan’s strategic realignment could reshape its role as a global tech leader and influence the restructuring of international trade partnerships [10].

Sources

Taiwan China