A climate of unprecedented uncertainty, characterized by accelerating technological disruption, volatile markets and intensifying geopolitical competition, has set the stage this year. Their convergence necessitates a fundamental recalibration of Taiwan’s economic diplomacy strategy.
Two developments have amplified the extent of unpredictability that critical and emerging technologies industries now confront. First, DeepSeek’s distillation methodology in artificial intelligence (AI) has disrupted expected correlations between resource allocation and computational efficiency, suggesting a paradigm shift in the conceptualization of technological progress.
Second, US President Donald Trump’s Stargate pledge — a US$500 billion initiative to build AI infrastructure — and threats of tariffs on Taiwan-manufactured semiconductors indicate rising geopolitical competition in high-tech sectors.
That technological inflection point, the US’ proposed manufacturing repatriation policies and Trump’s “fair and reciprocal” trade initiatives present strategic implications for Asia’s manufacturing-dominant landscape.
The semiconductor industry is in a transformative phase, driven by rapid innovation and geopolitical considerations. Furthermore, AI’s meteoric advancement in computational capabilities suggests potential transcendence beyond Moore’s Law, or an observation that the number of transistors on a microchip would double about every two years.
However, advocacy for domestic semiconductor manufacturing in the US fails to fully acknowledge and appreciate the complexity and interdependency of the global semiconductor supply chain. The supply chain is inherently resistant to complete geographical restructuring, which highlights Taiwan’s critical and irreplaceable role in global semiconductor manufacturing.
Trump’s tariff proposals on Taiwan-made semiconductors of as much as 100 percent demonstrate his willingness and readiness to employ economic leverage for policy objectives. Such measures would significantly impact US technology firms that depend on Taiwanese semiconductor manufacturing. However, they also give Taiwan substantial leverage in negotiations — an advantage that has not been fully recognized in Taipei.
Despite Taiwan and the US’ significant asymmetric security relations, the former’s technological capabilities are a critical strategic asset that should be better used in diplomatic negotiations. Taiwan should adopt a position of measured confidence in economic negotiations, given its indispensable role in global advanced technology supply chains.
Taiwan’s economic diplomacy has historically exhibited a cautious approach, marked by institutional conservatism and risk-averse decisionmaking. Although that ensures stability and compliance with established protocols, it potentially constrains Taiwan’s ability to maximize its strategic advantages.
Moreover, there might be an intricate relationship between Taiwan’s exceptional original equipment manufacturer capabilities and its negotiation practices. The nation’s economic development has been fundamentally shaped by its dominance in contract manufacturing, establishing the nation as a niche in global technology supply networks. However, that accomplishment has cultivated an operational paradigm that emphasizes process efficiency, which comes at the potential expense of breakthrough innovation.
The focus on serving client-specified requirements, as opposed to influencing market trajectories, has engendered a culture where technical proficiency supersedes market positioning and long-term strategic planning across governmental and corporate sectors. While Taiwan’s operational precision has established a reputation for reliability, it also cultivated a reactive approach to business and diplomacy.
Taiwanese organizations demonstrate exceptional proficiency in implementing specifications, but are usually hesitant to stake out assertive positions during international negotiations. That dichotomy significantly impacts the nation’s effectiveness in economic diplomacy and capacity to negotiate advantageous trade agreements. Therefore, maintaining Taiwan’s economic competitiveness requires a strategic overhaul of its diplomatic infrastructure, which necessitates three critical initiatives: modernizing bureaucratic processes, establishing dedicated economic diplomacy units and strengthening government-industry partnerships.
The modernization effort must focus on eliminating administrative inefficiencies, while investing in diplomatic capacity building, particularly in areas of economic negotiation, strategic planning and market intelligence. By streamlining processes, implementing new capabilities and enhancing public-private collaboration, Taiwan can transition from a reactive participant to a proactive leader in international trade.
The successful implementation of those reforms depends on developing an integrated and cohesive policy framework that harnesses the expertise of business leaders, trade specialists and strategic advisors. That would enable Taiwan to craft agile and responsive economic policies that effectively address evolving global market dynamics. Understanding Trump’s negotiation style would also be important in implementing successful economic diplomacy for Taiwan. Trump prioritizes transactional dealmaking, with an emphasis on perceived victories and public perception. Given that Trump views all matters as negotiable when they can be framed as wins for his administration, Taiwan must craft an approach that aligns with his mindset, while advancing its national interests.
There is a significant opportunity for Taiwan to enhance its diplomatic engagement by implementing a better strategic narrative. Taiwan’s semiconductor industry leads the world, standing out for its irreplaceable ecosystem, proven operational expertise and adaptable supply chain. Therefore, it is imperative that Taiwanese officials clearly, effectively and persuasively convey to Trump how Taiwan’s sophisticated ecosystem — built through decades of expertise and investment — underpins the US’ technological leadership.
To enhance its strategic position, Taiwan should implement a comprehensive diplomatic diversification strategy focused on three key pillars.
First, foster strategic partnerships with key US industry stakeholders.
Second, enhance engagement in international forums on AI governance and the Information Technology Agreement 2.
Third, expand its technological ecosystem through targeted international research-and-development collaborations.
While domestic regulations continue to protect core national advanced technologies, strategic international partnerships would strengthen Taiwan’s global position and reinforce its geopolitical significance. Taiwan’s transition from a value-based to interest-based diplomacy is also a pivotal strategic evolution that demands a comprehensive transformation in its diplomatic approach.
The nation must establish itself as an equal partner, moving beyond its role as a passive recipient of international policy decisions. While maintaining strategic ties with the US remains essential, Taiwan must leverage its technological capabilities to diversify its diplomatic portfolio. That diversification requires Taiwan to establish industry standards, drive technological advancement and develop extensive international partnerships, thereby strengthening its position within global high-technology supply networks.
Taiwan’s economic diplomacy cannot afford to remain reactive. By leveraging its strengths, asserting its strategic importance and shedding bureaucratic inertia, the “silicon island” can navigate the complexities of the Trump-era geopolitical landscape and beyond. Now is the time for a confident, forward-looking diplomatic agenda that reinforces and rebrands Taiwan’s role as an indispensable hub of global technological innovation.
Cathy Fang is a contributor at the think tank US Taiwan Watch, and an analyst at PLA Tracker and Safe Spaces. She was a policy analyst at the Project 2049 Institute and a legislative assistant at Taiwan’s Legislative Yuan.
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