Australian Think Tank: AI Development Pushes Taiwan into a 'Two-Speed Economy,' but It Is Far from Trump's Claimed 'Bargaining Chip'

In recent years, the global construction boom in data center infrastructure to train and run artificial intelligence (AI) models has triggered notable developments. In this context, Taiwan has achieved remarkable success, with its economic growth rate potentially reaching double digits this year. However, experts from an Australian think tank argue that the AI-fueled economic boom in Taiwan masks underlying struggles in certain sectors. Nevertheless, at least for now, this contradicts former U.S. President Donald Trump’s claim that Taiwan is a 'bargaining chip' in negotiations.

Is Taiwan Falling into a 'Two-Speed Economy'?

On August 7, Australia’s Lowy Institute for International Policy released a research report authored by Henry Storey, Project, Research, and Analysis Manager at Dragoman, a political risk and strategy consulting firm. The report states that although Taiwan’s economy appears robust on the surface, its period of prosperity has significantly intensified the complexity of a 'two-speed economy'—a characteristic feature of East Asian economies.

'Two-speed economy' is the standard Chinese translation of 'two-speed economy' (also known as 'two-tier economy'), often described as 'ice and fire coexisting' or 'economic polarization.' This term is used internationally to describe a situation within a country or region where different industries, classes, or regions experience vastly different rates of economic development and sentiment—one segment growing strongly while another stagnates or declines.

According to Storey’s analysis, in Taiwan’s case, the 'two-speed economy' signifies a split between globally competitive, dominant semiconductor and related product exporters, and smaller companies operating in traditional manufacturing and service sectors. 'While parts of Taiwan’s corporate sector are earning enormous profits, less visible manufacturing segments have stagnated or even contracted,' he notes.

Storey further points out that if semiconductor, AI, and server-related exports are excluded from Taiwan’s export data, the total export value would drop by a staggering 40%. Since 2022, factory output in other industries—including machinery, metals, and chemicals—has similarly declined, as these manufacturers face intense pressure from Chinese firms. 'The associated export risks from overreliance on industries vulnerable to technological innovation cycles are very real,' he warns.

Some Australian analysts believe Taiwan has already entered a 'two-speed economy' amid the AI explosion. The image shows manufacturing workers in Taipei’s Datong District focused on their tasks. Photo courtesy of Central News Agency.

Could the 'Two-Speed Economy' Affect Taiwan’s Geopolitics?

Storey highlights that China’s recent release of highly competitive AI models requiring fewer chips for training and operation has reignited international market concerns over the overvaluation of AI hardware company stocks. Notably, half of Taiwan’s exports fall into this category—a 50% increase compared to pre-pandemic levels.

Moreover, the geopolitical implications of this economic trajectory are equally significant and could influence Taiwan’s future. Storey argues that while former President Trump’s tariffs and the resulting supply chain reconfiguration have 'surprisingly' boosted Taiwan’s exports, these figures may appear 'anomalous' if U.S. AI-related capital expenditures continue to decline.

He analyzes that U.S. dependence on Taiwan is increasing—TSMC alone is investing over $250 billion in the United States, with many other server-related firms following suit. At the same time, Taiwan remains highly sensitive to the potential loss of its 'silicon shield.' Furthermore, using TSMC’s current U.S. investments as an example, these facilities remain heavily reliant on skilled Taiwanese workers.

Regarding arms sales to Taiwan, Trump once stated that Taiwan is a 'very good bargaining chip' in broader U.S.-China relations. However, in Storey’s view, Taiwan’s role as a bargaining chip in U.S.-China negotiations 'appears to be weakening.' Instead, 'Taiwan is more like a key to America’s future economic prosperity.'