Taiwan's economy expanded at its fastest pace in 15 years during 2025, posting 8.6 percent growth driven by surging global demand for artificial intelligence chips and technology hardware manufactured on the island.

The robust expansion, reported by Taiwan's government statistics agency, marks the strongest annual performance since 2010 and underscores the island's increasingly central role in the global technology supply chain. The growth comes as companies worldwide race to acquire the advanced semiconductors that power AI systems, data centers, and next-generation computing infrastructure.

Taiwan produces more than 90 percent of the world's most advanced semiconductors through Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest contract chipmaker. The company's facilities in Hsinchu and southern Taiwan have been operating near full capacity to meet demand from major technology firms including Apple, Nvidia, and AMD.

The AI-driven boom has also lifted Taiwan's broader technology manufacturing sector. Electronics assembly giant Foxconn Technology Group, which manufactures products for Apple and other global brands, has expanded its workforce and production lines to handle increased orders for AI-related hardware.

The economic performance carries significant geopolitical weight. Taiwan's technological indispensability has become a factor in cross-strait relations with China, which claims the self-governing island as its territory. The concentration of critical semiconductor production in Taiwan has prompted both Washington and Beijing to recalibrate their strategic approaches to the island.

The United States has sought to diversify chip production through initiatives including TSMC's new fabrication plants in Arizona, though these facilities will take years to reach full capacity and will not match the scale or technological sophistication of Taiwan's domestic operations.

Economists note that while the AI boom has turbocharged Taiwan's growth, the island's economy remains vulnerable to sudden shifts in global technology demand. The semiconductor industry is notoriously cyclical, with periods of explosive growth often followed by sharp corrections when inventory builds or demand softens.

Taiwan's government has sought to leverage the current boom to strengthen the island's economic resilience, investing in workforce development, research infrastructure, and efforts to attract high-value manufacturing beyond semiconductors. However, chips remain the dominant driver of growth.

The expansion has also created challenges. Property prices in Taipei and Hsinchu have surged as technology workers' wages have risen. Labor shortages in advanced manufacturing have become acute, prompting Taiwan to expand work visa programs for skilled foreign workers.

Looking ahead to 2026, analysts project Taiwan's growth will moderate but remain strong as AI infrastructure investment continues. The trajectory will depend heavily on whether the current wave of AI adoption translates into sustained long-term demand or proves to be a temporary surge.

Watch what they do, not what they say. In East Asian diplomacy, the subtext is the text.