PART 1 · Q1 · TAIWAN IN THE GLOBAL ECONOMY

Taiwan: A Small Island Wired into Europe, Japan, the US and ASEAN

>60%

of global foundry chip revenue (TSMC)

~90%

of the most advanced chips

>100%

trade as a share of GDP

Europe

Technology & investment

ASML (NL) makes the EUV machines TSMC needs
EU: largest foreign investor (e.g. offshore wind)
TSMC fab in Dresden

Japan

Materials & shared fabs

Key supplier of chemicals, wafers, tools
TSMC fab in Kumamoto with Sony, Denso
Colonial-era legacy

United States

Market, design & security

Top market for ICT and chips
Apple, Nvidia, AMD design chips made in Taiwan
TSMC fabs in Arizona

ASEAN

Production & labour

Taiwanese factories in Vietnam, Thailand, Malaysia
Migrant workers fill Taiwan's labour gaps
New Southbound Policy (2016)

Also: China/HK (assembly and market)

(~2 min) Thesis: Taiwan matters far beyond its size because it sits at the chokepoint of the electronics supply chain, and it is tied most closely to four partners. EUROPE: Dutch ASML is the sole maker of the EUV lithography machines TSMC needs; the EU is Taiwan's largest source of foreign direct investment, notably offshore wind; ESMC, TSMC's joint venture with Bosch, Infineon and NXP, is building a fab in Dresden. JAPAN: Japanese firms supply critical materials and tools; TSMC's JASM fab in Kumamoto is a joint venture with Sony and Denso; deep historical links since the colonial period (1895-1945). US: the main market for ICT and chips; fabless clients (Apple, Nvidia, AMD, Qualcomm) design the chips TSMC makes; TSMC is investing in Arizona; US aid and market access drove growth in the 1950s-70s. ASEAN: Taiwanese firms operate factories in Vietnam, Thailand, Malaysia and Indonesia; migrant workers fill labour gaps; the New Southbound Policy (2016) aims to deepen these ties and diversify away from China. Mention China/HK briefly. Trade exceeds 100% of GDP, so Taiwan is highly exposed. Figures approximate - verify before presenting.

Q2 · CAPITALISM, GLOBALIZATION & FREE TRADE

Globalization: growth engine and vulnerability

Gains

GDP per capita from ~US$1,000 (1970s) to >US$30,000
Export-led growth with relatively low inequality
US aid, technology and markets enabled early take-off
Global value-chain niche: chips, ICT, machinery

Costs & risks

Hollowing out: factories moved to China after 1987
Wage stagnation; dual economy: high-wage chip giants vs low-productivity small firms and services
Dependence on one sector and on US–China relations
Environmental pressure: energy, water, land
Ageing and very low fertility (TFR ≈ 0.9)

(~1.5 min) Be balanced: past and present. Past: US aid and the open US market in the 1950s-70s; export processing zones (Kaohsiung, 1966); later the PC/ICT boom. Costs: after the 1987 currency appreciation and the lifting of capital controls, labour-intensive industry relocated to China and Southeast Asia, hollowing out parts of the domestic base. Dual economy: a split between high-wage, high-productivity chip and electronics giants and lower-productivity small firms and services, so overall growth does not lift the typical worker's pay. Today the risks are concentration in one sector, geopolitical exposure, the power and water demands of fabs, and demographic decline. Free trade benefited Taiwan only because the state shaped it (selective protection, industrial policy) - not pure laissez-faire.

Q3 · LOCAL ECONOMY 1970s – TODAY

Fifty years of change, driven by shocks

1970s

Labour-intensive exports → heavy & petrochemical industry

Shock: Oil shocks 1973/79

1980s

Hsinchu Science Park (1980); rise of electronics; factories relocate to China

Shock: NT$ appreciation 1985–87

1990s

Making PCs and chips for other brands; services grow

Shock: Asian crisis 1997 (resilient)

2000s

'Design in Taiwan, make in China'

Shock: Dot-com crash 2001; Global financial crisis 2008–09

2010s–now

Smartphones, AI chips; New Southbound & reshoring

Shock: US–China trade war; COVID

Shift: agriculture (~15% of GDP in 1970 → ~2%) → light industry → electronics → knowledge-intensive chips.

(~2 min) Walk the timeline. The pattern: each external shock pushed upgrading rather than collapse. 1970s oil shocks led to the Ten Major Construction projects and heavy industry. 1985-87 currency appreciation and liberalisation led to factories relocating to China and Southeast Asia, while the state doubled down on Hsinchu and ITRI. 1990s: Taiwan built PCs and chips for other brands, and the foundry model emerged; Taiwan weathered the 1997 Asian crisis thanks to low foreign debt and flexible small firms. 2000s: 'design in Taiwan, make in China'; hit by the 2001 dot-com crash (tech spending collapsed, GDP fell) and the 2008-09 global financial crisis (exports fell about 20% in 2009). 2010s-now: smartphones, AI chips, and reshoring to the US/Japan/Europe plus New Southbound diversification. Sector shares are approximate.

Q3 · HAS THE ECONOMY MOVED ONTO A NEW GROWTH PATH?

Taiwan has a new growth path, but a narrow one

Yes: a real new path

Structural shift. From farming and cheap labour-intensive goods to high-tech chips and electronics.
Higher output. Output per worker and incomes rose sharply; TSMC and its suppliers now drive growth and exports.
Resilient. Taiwan bounced back from big shocks (oil crises, a stronger currency, the 2001 and 2008 downturns) and kept growing, so the change is lasting.

But narrow

One sector. Chips and electronics are a large share of exports and growth; a sector downturn or US–China conflict would hit everything.
Few firms. A handful of big chip firms capture most of the gains; most workers are at small firms where pay and productivity lag. This split is called a dual economy.
Few regions. Growth clusters in the Hsinchu–Taipei–Taichung corridor; rural and southern areas lag.
Few new industries. Biotech, green energy and AI services are still small next to chips.

Q4 · POLICY AND LOCAL IMPACT

Regional policy: national, top-down, uneven

Industrial & spatial

Export processing zones (1966); Hsinchu (1980), Southern (1996) and Central (2003) Science Parks; Ten Major Construction

Impact: Created high-tech clusters; strong north–west corridor

Regional revitalization

Local Revitalization (2019): tackle depopulation, support local brands & youth return

Impact: Early stage; mixed results

Result: growth poles in Hsinchu, Taipei and Taichung, but a persistent north–south and urban–rural gap.

PART 2 · ASSESSING DEVELOPMENT OUTCOMES

Assessing outcomes: who drove new paths

1 · New paths pursued?

Yes: electronics (1970s–80s), then foundry/fabless chips (1987→), now AI & green energy. Largely successful.

2 · Who led?

National government (state research institute, central planning agency) – no EU-style body; local councils secondary.

3 · What sparked it?

Hsinchu Science Park + spin-offs from the state research institute (first chip maker UMC 1980, TSMC 1987); returnee engineers from Silicon Valley.

4 · Inside or outside?

Both: state-led from within, with US technology and markets and Taiwanese talent and money from abroad.

5 · Endogenous role

Family-run small businesses, 'living-room factories', clusters (Taichung machine tools), community action, local governments.

6 · Market forces

Global: US ICT demand, supply-chain shifts. National: credit, tax, R&D. Local: cluster networks.

CONCLUSION

Conclusion: a hybrid development model

Inherited economic systems

Japanese-era infrastructure and land reform; capitalism based on small and medium-sized family firms; state-owned enterprises.

Influence: Strong

Long-standing social strengths

High education, entrepreneurial networks, returnees from abroad, strong civic and community life.

Influence: Strong

External support

US aid (1951–65), markets and technology; Japanese tools and materials; worldwide demand for computers, phones and chips.

Influence: Decisive early, conditional now

CONCLUSION

Takeaway: state-guided and externally enabled

State-guided: the government led

Hsinchu Science Park (1980): built and subsidised by the government
ITRI research institute (1973): developed technology and spun off UMC and TSMC
TSMC (1987): a government fund was its largest shareholder at the start
Export zones, tax breaks and the 1970s Ten Major Construction projects

Externally enabled: outside help and demand

US aid (1951–65) and open access to the US market
Technology transfer: chip-making know-how licensed from US firm Radio Corporation of America (RCA) in 1976; Philips as TSMC partner
Returnee engineers from Silicon Valley
Japanese chip-making machines, silicon wafers and chemicals; worldwide demand for computers, phones and chips

Then rooted locally: family-run firms and clusters made it last. Next challenge: diversify beyond chips and spread growth beyond the core cities.

(~1 min) Closing takeaway. STATE-GUIDED examples: Hsinchu Science Park (1980) was a government-built and subsidised site; ITRI (1973) developed chip technology and spun off UMC (1980) and TSMC (1987); at TSMC's founding the government's National Development Fund was the largest shareholder; export processing zones, tax incentives and the Ten Major Construction projects built the base. EXTERNALLY ENABLED examples: US aid 1951-65 and open access to the US market; technology transfer such as the 1976 RCA chip-technology licence and Philips as TSMC's partner; returnee engineers from Silicon Valley; Japanese chip-making machines, silicon wafers and chemicals; worldwide demand for computers, phones and chips. Locally rooted: family-run firms and clusters turned this into lasting growth. Next challenge: diversify beyond chips and spread growth beyond core cities. Check details (RCA licence, TSMC shareholding) against your sources. Invite questions.