Taiwan’s vulnerabilities: from energy to semiconductors

Taiwan‘s economy faces several vulnerabilities, including its high dependence on energy imports and the concentration of its exports on semiconductors.

The Taiwan Fund, an investment fund with a portfolio of more than $ 320 million in assets, made a brief argument about it, broken down below.

Taiwan is a small island state with few raw material resources and limited land area, and is heavily dependent on imports for its basic commodity needs.

Any fluctuation or shortage in the commodity markets could have a negative impact on the Taiwanese economy.

In addition, as another of Taiwan’s vulnerabilities, the continued outsourcing of labor can negatively affect its economy.

In general, the Taiwanese economy is closely linked to the economies of Asian countries that have experienced excessive credit extensions, frequent and pronounced currency fluctuations, currency devaluations, monetary repatriation, rising unemployment, and fluctuations in inflation.

The Taiwanese economy is largely dependent on the economies of China, the United States, Japan, and Hong Kong as its main trading partners, and negative changes in their economies or a reduction in purchases by either of them are likely to occur. Taiwanese products and services.

Taiwan vulnerabilities

Given Taiwan’s limited natural resources and dependence on foreign sources for certain raw materials, Taiwan is vulnerable to global price and supply fluctuations.

This dependence is especially pronounced in the energy sector, as Taiwan imports almost 98% of its energy consumption, most of which consists of fossil fuels from turbulent areas.

Therefore, Taiwan is unusually vulnerable to energy market risks, particularly during a time when volatility has increased in the world’s major oil-producing regions (i.e. the Middle East).

Resilience

In the past, Taiwan has demonstrated its ability to thrive in a competitive environment through product quality, efficiency, and responsiveness to market demand.

This ability will continue to be tested in the future as Taiwan’s export economy faces competition from producers in other countries with lower wage levels than those generally prevalent in Taiwan.

While Taiwan’s economy grew more than 3% during 2020, largely due to record exports in the semiconductor and technology components sector, dependence on that sector carries risks.

If China and the United States reduce dependence on Taiwan in the semiconductor sector, it is likely to have a negative impact on the Taiwanese economy.