Taiwan’s Foreign Trade and Global Supply Chains

At the container terminals of the Port of Taipei, thousands of TEUs are loaded and unloaded every day before being shipped around the world. Inside these seemingly ordinary steel boxes lies the secret of Taiwan’s economic miracle: from garments and toys in the 1960s to semiconductor chips today, Taiwan has secured a critical position on the international stage through export trade. Although its territory covers only 36,000 square kilometers, Taiwan ranked as the world’s 16th-largest export economy by export value in 2023¹, and it holds an irreplaceable position in key fields such as semiconductors and information and communications technology products.

Taiwan’s total foreign trade reached US$869.54 billion in 2023, comprising US$475.07 billion in exports and US$394.47 billion in imports². Its import-export dependence ratio is as high as 100%, making it a classic trade-oriented economy. Of this total, trade with China, including Hong Kong, accounted for 35%, while trade with the United States accounted for 15%, highlighting Taiwan’s delicate position within the U.S.-China-Taiwan triangle.

Why This Matters

Taiwan’s foreign trade is a survival strategy. On an island lacking natural resources, Taiwan must obtain daily necessities and energy through trade while exporting technology-intensive products to generate wealth. As global supply chains are reorganized by geopolitics, Taiwan’s strategic position has become increasingly clear: it is both a technological outpost in the United States’ containment of China and an indispensable technology supplier for China. How Taiwan maintains balance within this triangle bears directly on the livelihoods of 23 million people.

The Formation of an Export-Oriented Economy

1960-1980: Export Substitution Strategy

The limits of import substitution:
In the 1950s, Taiwan adopted an import-substitution policy to protect the development of domestic industry. But the domestic market was small, and the strategy soon encountered a development bottleneck.

The shift toward export orientation:
Beginning in the 1960s, Taiwan promoted export-oriented industrialization.

The government established export processing zones to attract foreign investment and factories, while offering tax incentives and low-cost labor to win orders. It also created a trade promotion agency, the Taiwan External Trade Development Council, and paired this with a currency depreciation strategy to improve export competitiveness.

Three major export pillars:

Textiles and garments: Leveraging abundant labor and an existing technical base
Electronics assembly: Taking on contract manufacturing orders from European and American firms
Plastic toys: Labor-intensive products with low technological barriers

Rapid trade growth: Exports amounted to only US$164 million in 1960, but reached US$19.9 billion by 1980, growing 121-fold in 20 years. Over the same period, export dependence rose from 11% to 52%, marking Taiwan’s completion of its export-oriented transformation.

1980-2000: Industrial Upgrading and Transformation

Facing low-cost competition from South Korea and Southeast Asia, Taiwan was forced to upgrade toward technology-intensive industries.

The rise of the technology sector:

The Hsinchu Science Park was established in 1980, helping semiconductor and information industries take root in Taiwan and forming research-and-development and manufacturing clusters. It also cultivated local technology talent and built a complete industrial clustering effect.

The contract manufacturing model:
Taiwanese firms developed a distinctive ODM/OEM model: OEMs provided pure manufacturing services, while ODMs integrated design and manufacturing to tailor products for international brands, creating an end-to-end contract manufacturing ecosystem.

Changes in export structure: The share of traditional textiles and toys declined, while information and electronics products became the mainstay of exports, significantly increasing the technology intensity of Taiwan’s export mix.

2000-Present: Integration into Global Supply Chains

The wave of investment in China:
After 2000, Taiwanese businesses moved westward into China on a large scale, using China’s low-cost labor and land to serve European and American brand companies from nearby production bases. This created the emblematic model of “orders taken in Taiwan, production in China,” and drove rapid growth in cross-strait trade.

The triangular trade model:
Taiwan, China, Europe, and the United States formed a tightly connected triangular trade relationship:

Taiwan: Technology R&D, production of key components, and trade hub
China: Final assembly, manufacturing, and low-cost production base
Europe and the United States: Brand marketing and end-market consumption

Taiwan’s Role in Global Supply Chains

Semiconductor Kingdom

The TSMC effect:
TSMC has become the global leader in wafer foundry services, with a market share exceeding 50%:

Controls the most advanced process technologies, including 3 nm and 2 nm
Sole supplier for major firms such as Apple, NVIDIA, and AMD
Drives development across upstream and downstream supply chains

A complete semiconductor ecosystem:

At the IC design end are companies such as MediaTek, Realtek, and Novatek. Wafer foundry is led by TSMC, UMC, and Vanguard International Semiconductor, while packaging and testing are dominated by ASE, SPIL, and Powertech. Equipment and materials suppliers such as Hermes-Epitek, Sino-American Silicon Products, and GlobalWafers form a complete upstream support base.

Strategic importance:
Semiconductors are the foundation of modern technology, and Taiwan controls the following global capacities:

Wafer foundry: Led by TSMC, Taiwan’s total market share is estimated to exceed 70%; in 2023-2024, TSMC alone reached 55-67%³
More than 90% of advanced process capacity
More than 50% of packaging and testing capacity

Information and Communications Technology Supply Chains

Laptop manufacturing kingdom:
Taiwanese brands and overseas production by Taiwanese firms together account for approximately 85-90% of global notebook computer contract manufacturing, including Taiwanese factories in mainland China, according to 2024 data. The proportion directly produced on Taiwan proper has already declined sharply[^4]:

Quanta: Major contract manufacturer for Apple MacBook
Compal: Contract manufacturer for Lenovo and Dell laptops
Pegatron: Manufacturer for ASUS and Sony laptops

Servers and cloud equipment:

70% of global servers are designed and manufactured by Taiwanese firms
Major suppliers for cloud service providers such as Google, Amazon, and Facebook
Important manufacturers of 5G infrastructure equipment

Key components:

Passive components: Yageo and Walsin Technology, among the global top three by market share
Connectors: Hon Hai and Cheng Uei, major Apple suppliers
Printed circuit boards: Zhen Ding and Unimicron, with leading technology

Precision Machinery and Machine Tools

In 2023, Taiwan’s machine tool export ranking fell to seventh globally, down from its peak, after being surpassed by the United States and South Korea⁴. Its precision machinery technology nevertheless remains competitive:

Precision processing equipment for mobile phones: Preferred suppliers in the TSMC and Apple supply chains
Automotive components: Hota Industrial and Tong Yang Industry
Bicycle supply chain: Giant, Merida, and upstream and downstream manufacturers

Cross-Strait Trade Relations

ECFA and Cross-Strait Trade

The signing of ECFA in 2010:
The Cross-Strait Economic Cooperation Framework Agreement produced substantive benefits.

ECFA’s early harvest list reduced tariffs on multiple items, drove rapid growth in Taiwan’s exports to China, opened service-sector markets, and established a framework for investment protection agreements.

Trade data:

Cross-strait trade in 2023 varies by statistical definition: direct trade statistics from the Ministry of Finance’s Customs Administration put it at about US$223.9 billion, while estimates including indirect trade are higher; US$284.7 billion is another cited figure⁵
China is Taiwan’s largest trading partner
Taiwan’s trade surplus with China is about US$80 billion
Main export items: semiconductors, panels, and machinery equipment

Investment and Industrial Relocation

The westward movement of Taiwanese businesses:

1990s: Relocation of traditional manufacturing industries, including textiles and footwear
2000s: Large-scale westward movement of the electronics and information industries
2010s: Service industries began positioning themselves in the Chinese market

Industrial division of labor: Taiwan is responsible for R&D and design, key components, and brand operations, while China takes on manufacturing and assembly, the domestic sales market, and supply-chain integration. This has formed a highly interdependent structure of vertical specialization.

Risks and challenges: The cost of this model is excessive dependence on a single market, accompanied by the threat of technology leakage and rising geopolitical risk.

The Impact of the U.S.-China Trade War

Shock from the Technology War

The Huawei ban effect:
U.S. sanctions against Huawei and other Chinese companies affected Taiwanese suppliers:

TSMC stopped manufacturing chips for Huawei
MediaTek, Largan Precision, and others lost important customers
Taiwanese firms were forced into the dilemma of choosing sides

Strategic competition over semiconductors: The U.S. CHIPS Act uses subsidies to attract TSMC to build factories in the United States, while China has simultaneously increased investment in semiconductor self-reliance. Caught between the two powers, Taiwan faces risks of technology outflow.

Opportunities from Supply Chain Reorganization

Order transfer effect:
The U.S.-China trade war created business opportunities from redirected orders. As U.S. firms reduced procurement from China, Taiwan took on part of the transferred orders, with machinery equipment and electronics benefiting most clearly.

New Southbound Policy:
The government has promoted the New Southbound Policy with the goal of building investment networks in the ten ASEAN countries, six South Asian countries, Australia, and New Zealand, while advancing talent exchange, technological cooperation, and infrastructure finance cooperation in order to reduce dependence on China.

Nearshoring trends: Under pressure to improve supply-chain resilience, multinational enterprises have diversified their geographic footprints. With its democratic governance system and technological credibility, Taiwan has become a priority destination when firms shift production capacity.

Participation in International Trade Agreements

Challenges in FTA Positioning

Constraints from political factors:
Because of the One China policy, Taiwan faces difficulty participating in regional economic integration:

Unable to participate in RCEP, the Regional Comprehensive Economic Partnership
Slow progress on its CPTPP, Comprehensive and Progressive Agreement for Trans-Pacific Partnership, application
Bilateral FTA negotiations obstructed

Existing trade agreements:

FTAs signed with seven countries, including Panama, Guatemala, Honduras, and Nicaragua
TIFA, the Trade and Investment Framework Agreement, negotiations with the United States restarted
Promotion of a BIA, Bilateral Investment Agreement, with the European Union

Breakthroughs in Economic and Trade Strategy

Digital trade cooperation: Taiwan and the United States signed a technology trade and investment cooperation framework, while Taiwan has participated in DEPA, the Digital Economy Partnership Agreement, negotiations and promoted digital trade rules favorable to Taiwan in multilateral settings.

Supply chain cooperation: The U.S.-Taiwan Initiative on 21st-Century Trade and the Taiwan-U.S. Technology Trade and Investment Collaboration Framework provide bilateral institutional frameworks, while Taiwan has also joined multilateral collaboration with allies to build critical minerals supply chains.

Transformation of Trade Structure

Evolution of Export Goods

1960s: Textiles, garments, and plastic products
1980s: Information and electronics products and machinery equipment
2000s: Semiconductors, panels, and notebook computers
2020s: Advanced semiconductors, 5G equipment, and electric vehicle components

Current major export goods, 2023:

Integrated circuits (36.7%)
Machinery equipment (9.8%)
Petrochemical products (7.2%)
Optical instruments (5.1%)
Base metals (4.9%)

Changes in Trade Partners

Export market distribution, 2023:

China, including Hong Kong (31.7%)⁶
United States (14.8%)
European Union (8.9%)
ASEAN (8.2%)
Japan (6.7%)

Diversification trend:

The share of exports to China, including Hong Kong, fell from a 2021 peak of 42% to 31.7% in 2023, according to Ministry of Finance statistics⁶. Over the same period, exports to the United States and ASEAN filled part of the gap, while emerging markets such as India and Mexico also showed rapid growth.

Future Challenges and Opportunities

Geopolitical Risk

U.S.-China technology confrontation: Semiconductor technology controls have tightened year after year. The bloc formation of supply chains and the divergence of technology standards are accelerating, placing Taiwan’s position under pressure for renegotiation.

Impact of the Taiwan Strait situation: Investors’ risk assessments have risen, international companies are accelerating diversification, and insurance and transportation costs are increasing in parallel. These costs will ultimately be reflected in Taiwan’s export competitiveness.

Opportunities for Industrial Transformation

Although geopolitical pressure creates uncertainty, it has also opened three corridors for Taiwan’s transformation: energy technology, digital infrastructure, and biotechnology and healthcare. Taiwan already has a manufacturing base in these three fields. Whether it can deepen technological barriers will determine its export competitiveness over the next decade.

Net-zero carbon trend: Taiwan ranks among the leaders in global market share for solar cells, the offshore wind power supply chain is taking shape, and electric vehicle components are becoming a new source of export growth.

Digital transformation demand: 5G infrastructure construction is driving demand for the Internet of Things and edge computing, while the explosion in AI computing power has directly benefited Taiwan’s artificial intelligence chip design capabilities.

Biotechnology and healthcare industry: COVID-19 highlighted Taiwan’s capabilities in vaccine R&D and precision medical equipment manufacturing, while digital health solutions are an emerging new export category.

Building Resilient Supply Chains

U.S.-China confrontation and risks in the Taiwan Strait have forced companies to reassess supply-chain concentration. Taiwan’s response strategy proceeds on two tracks: externally, avoiding excessive dependence on a single market and building diversified sources of supply; internally, keeping key technologies and production capacity in Taiwan, combined with secure stockpiles of strategic materials, to maintain autonomous control over industrial chains. Improving supply-chain visibility is a common infrastructure requirement for both tracks.

Conclusion

Across 60 years of foreign trade history, Taiwan has moved from garments and toys to wafer foundry and AI servers. Each transformation has been an active choice made under pressure. Facing the new Cold War configuration of U.S.-China confrontation, Taiwan must preserve its existing technological advantages while accelerating its positioning for the next industrial cycle.

Supply chain reorganization does not bring only risks. Taiwan’s concentrated advantages in wafer foundry, server contract manufacturing, and precision machinery mean companies cannot easily bypass Taiwan. The trade structure has moved from labor-intensive exports toward technology-intensive supply chain nodes, while diversified market positioning is the key pillar for countering geopolitical risk.