Taiwan is facing multiple economic challenges due to internal and external pressures. Internal challenges include energy transition, upgrading industries, a declining birthrate and an aging population. External challenges are technology competition between the US and China, international supply chain restructuring and global economic uncertainty. All of these issues complicate Taiwan’s economic situation.
Taiwan’s reliance on fossil fuel imports not only threatens the stability of energy supply, but also goes against the global trend of carbon reduction.
The government should continue to promote renewable energy sources such as wind and solar power, as well as energy storage technology, to diversify energy supply. It is also important that it promotes smart power grid technology to ensure the stability of energy supply.
The technology and manufacturing industries are the two major economic pillars of Taiwan, which face competition in the global market and in technological innovation. Businesses must focus on research and development, especially on artificial intelligence, automation and green technology. A green transition and digital transformation are keys to enhancing international competitiveness.
The declining birthrate is shrinking the working population, which is unfavorable to the long-term development of all industries, while the aging population burdens society with caring for medical care and social welfare.
The government should offer demand-oriented vocational training to young jobseekers. It should also promote a “silver economy” to improve the quality of life of older people and reduce social pressures through medical technology, healthcare and industry innovation. Extending the retirement age and promoting a flexible employment policy could also expand the workforce and vitalize the economy.
Low salaries and high housing prices are another source of pressure for young Taiwanese. To raise salaries and avoid a brain drain, the government should encourage industries to upgrade through innovation, the knowledge economy and high-value-added industries. To lower housing prices, it should increase public housing and take further measures against real-estate speculation, which would ease young people’s burden of buying a home and increase consumption.
Technology competition between the US and China imposes one of the biggest external economic challenges. The nation’s semiconductor industry is an integral part of the global supply chain. Uncertainty stemming from US export controls and China’s countermeasures must be considered.
Taiwan should step up its cooperation on technology development with the EU and countries such as the US and Japan. To reduce its reliance on a single market and open up a diversified market, Taiwan should fight for accession to international trade agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
Amid global supply chain restructuring, Taiwan, as a small open economy, should choose its strategy carefully. It should consider the properties of different industries instead of choosing sides.
Taiwanese enterprises should expedite their green transitions to meet the carbon neutrality demands of the global market. The government should help these businesses meet those targets with policy support and financial assistance.
The economic challenges facing Taiwan stem from internal structural problems and external uncertainty. The government should address these issues with concrete solutions and strategies.
Liao Ming-hui is an assistant researcher at the Chung-Hua Institution for Economic Research.
Translated by Fion Khan
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