Taiwan Has Too Many Semiconductors

TL;DR

Taiwan's semiconductor dominance is causing a high-tech Dutch disease: currency appreciation, a two-speed economy, and dangerous over-reliance on one industry.

Key Points

• 1.Taiwan's economy is dangerously concentrated in semiconductors. TSMC alone holds 70% of global foundry market share, and in 2025 semiconductors accounted for 77% of global chip production from Taiwan, with GDP growing 8.7% — its strongest in a decade.
• 2.This mirrors the Dutch disease that crippled the Netherlands in the 1970s. Massive semiconductor export revenues flood Taiwan with foreign currency, appreciating the New Taiwan Dollar and making other industries — manufacturing, agriculture — globally uncompetitive, just as Dutch gas exports crushed non-gas sectors.
• 3.The chip boom creates a deeply unequal two-speed economy. TSMC engineers earn ~$116,000/year while the median Taiwanese salary is just $17,000; meanwhile 70% of workers earn below the average monthly wage of $1,500, and rising prices squeeze those left behind.
• 4.Multiple risks threaten the entire model simultaneously. Taiwan sits on high-earthquake-risk tectonic zones (a 2024 quake briefly halted TSMC), faces potential CCP military action, and is vulnerable to an AI bubble burst that could crash chip demand the way falling oil prices devastate petrostates.
• 5.Taiwan's currency policy is caught in a diplomatic trap. It holds a record $605.5 billion in foreign reserves and actively intervenes to suppress the New Taiwan Dollar, but the US Treasury has placed Taiwan on its currency manipulator monitoring list, complicating trade negotiations and tariff deals.
• 6.The $250 billion US-Taiwan trade deal offers partial relief but creates new risks. TSMC committed $165 billion to Arizona fabs, recycling USD outflows to ease currency pressure and securing a 15% tariff rate with semiconductors exempt — but shifting too many advanced fabs offshore could erode the 'silicon shield' protecting Taiwan from Chinese aggression.