Taiwan plans to spend $1B a year pivoting its economy from semiconductors to AI

• Taiwan is planning to inject $1 billion a year into its AI industry, its technology minister said.
• Wu Cheng-wen told Nikkei Asia that "AI sovereignty" is critical and benefits Taiwan's security.
• The nation has been diversifying away from semiconductors and China to strengthen its economy.

Taiwan is planning to spend about $1 billion a year on artificial intelligence as part of its efforts to shift its economy away from semiconductors.

On Thursday, Taiwan's science and technology minister told Nikkei Asia that the government would spend $3 billion over 3 years to ramp up AI data centers and their computing ability.

"AI sovereignty is a critical issue," Wu Cheng-wen told the outlet, adding that it "benefits Taiwan's security."

He also said that the country aims to generate at least a "tenfold" return on its investments.

This is a significant development for the Taiwanese economy — the world's leading producer of advanced chips. Taiwan's semiconductor industry accounts for over 90% of the global market, and contributed roughly 13 to 15% of Taiwan's GDP in recent years.

The move comes as the country is not only trying to diversify its economy toward industries like AI, but also away from China.

Taiwan has stepped up exports to the US, India, and Southeast Asian countries in recent years, but it still heavily relies on exports to China, its main trading partner.

Wu told Nikkei Asia that the pivot to AI could help his country secure better trade relations with other countries in what he termed the "democratic camp."

Earlier this month, multiple outlets, including the Financial Times, reported that Taiwan Semiconductor Manufacturing Co., or TSMC, notified its Chinese clients it would no longer be providing them with its cutting-edge AI chips and that the US would likely be involved in the approval process for any future supplies to Chinese businesses.

President-elect Donald Trump's victory earlier this month and the threat of 60% tariffs on US imports from China are also pushing Taiwan to help its companies relocate production away from China, Reuters reported.

The US overtook China as Taiwan's top export destination at the end of 2023, for the first time since 2003, Bloomberg reported in April, citing data from Taiwan's finance ministry.

Wu told Nikkei Asia that he is looking forward to cooperating with the US after Trump takes office in January.

He told the outlet that if TSMC's 2-nanometer chip plant enters "mass" production as scheduled next year, and matures successfully, "we can plan on building similar state-of-the-art 2-nanometer plants in allied nations."

TSMC announced in April it would build a third facility in Arizona to meet strong customer demand.

"The Taiwanese government and the US work very closely together," Wu said.

Taiwan's latest moves come amid growing tensions in the Taiwan Strait and concerns about a possible Chinese invasion of Taiwan, which some military analysts and defense officials said could happen in the next few years.