Written by Lotta Danielsson.
For the first year of the COVID-19 pandemic, Taiwan served as a brilliant example of how best to handle the crisis. Leaning on its experiences during the 2003 SARS epidemic, Taiwan received glowing reviews for its protective measures. Stories about long stays in quarantine hotels and the vigilant surveillance of arriving travellers spread widely online. Donations of high-quality protective gear served as public relations opportunities, culminating with “Made in Taiwan” facemasks worn at the White House. Photos from a crowded live concert in Taipei elicited envy from those still in semi-lockdown elsewhere. Some expatriate Taiwanese returned home, while foreign professionals took advantage of initiatives like the Gold Card Program to live and work on the island. In January 2021, the Lowy Institute ranked Taiwan third in its global COVID Performance Index, behind only New Zealand and Vietnam.
Taiwan’s pandemic status allowed it to keep factories, stores, and schools open for business through 2020. Rising demand for Taiwan technology exports – supplying the sudden global shift to work-from-home and an exploding appetite for consumer electronics – combined with robust domestic demand and a rebound in industrial goods exports to fuel a thriving economy. Taiwan’s 2020 GDP growth eventually outpaced that of China for the first time in 30 years. The rapid economic pace continued into 2021, building on slow but steady global demand growth and strong recoveries in the U.S. and Europe. As a result, Taiwan saw stellar GDP growth projections in the spring of 2021 and looked poised to emerge stronger than ever from the pandemic.
As the quarantine faltered and the first major outbreak of COVID-19 hit Taiwan in May 2021, the economic outlook grew uncertain. To curb further community spread, Taiwan entered a nationwide Level 3 epidemic alert on May 19. While short of a full lockdown, this closed venues like night markets and restricted in-person dining, while also adding social distancing, travel, and masking directives. Serious questions surfaced regarding the sustainability of 2020’s economic growth and the potential effects the outbreak and associated constraints would have on domestic consumption and Taiwan’s ability to meet its export orders.
Clusters of infections were reported at major tech and semiconductor companies – including at Wistron, TSMC, and Nanya Technology – and even temporarily halted operations at King Yuan Electronics, a large chip testing and packaging service provider. In addition, some foreign tech workers living in company dormitories were directed to isolate and only leave to go to work, while others were forced to furlough. Given Taiwan’s central role in the global tech sector – particularly in the already stretched-thin chip supply chain – the fast-growing outbreak led to widespread concerns over potential negative repercussions on business operations and the Taiwan economy as a whole.
Despite concerns as case numbers and deaths climbed in the early summer, Taiwan’s economy remained robust and resilient. Taiwan’s technology exporters were able to weather supply chain delays in May, expanding inventories to protect against rising costs and potential shortages of raw materials. As a result, Taiwan’s Q2, 2021 exports broke all quarterly records to exceed US$100 billion for the first time, and June 2021 saw the 12th consecutive month of export growth. The National Development Council (NDC)’s business climate monitor remained red in May for the fourth straight month, signalling a rapidly growing economy. In June, Taiwan’s Central Bank and the Directorate General of Budget, Accounting and Statistics (DGBAS) raised their forecasts for 2021 GDP growth to over 5%. Taiwan’s key semiconductor sector has also continued to strengthen, with TSMC and MediaTek both hitting record-high sales in June and UMC breaking sales records in the second quarter.
The economic outlook for the second half of 2021 is still unclear, however, as Taiwan remains under a Level 3 alert as of early July. Some nationwide pandemic restrictions are being relaxed as the number of new cases subside, although some locations may stay the course and keep more restrictive measures in place. The Taiwan government has implemented a variety of stimulus programs to keep the economy going, including employment-related and financial relief measures, in addition to the voucher incentives that primarily supported the retail and service sectors. While Taiwan is still experiencing issues procuring enough doses, the COVID-19 vaccine roll-out has begun with some assistance from the U.S. and Japan. Barring any additional major outbreaks, domestic consumption is likely to strengthen as normality returns, and consumer and business confidence rises along with the vaccination rate.
Taiwan can expect to see some weakening in technology exports as the pandemic-induced spike in demand evens out and as the global economic recovery is likely to fluctuate. The exception may be in semiconductors, as estimates suggest that current supply constraints will persist until 2023. Exports related to networking, automation, and digitization may also have a better long-term outlook given the growth in fields such as 5G, cloud computing, artificial intelligence, machine learning, and IoT. With Taiwan companies continuing to utilize government incentives to bring overseas operations back home, supportive investments could also prove beneficial. Taiwan should prepare to take advantage of post-pandemic opportunities in these crucial sectors.
To continue building on its stellar economic performance, the Taiwan government and Taiwan businesses also need to evaluate the lessons learned from the pandemic – both in general terms and during the recent domestic outbreak. That includes more focused attempts at strengthening the resilience of supply chains, along with reinforcing – to whatever extent possible – its cooperation with global partners on healthcare issues. For example, the recent Trade and Investment Framework Agreement (TIFA) talks with the U.S. covered simplification of export and import procedures for COVID-19 vaccines and could serve as an important step in the right direction.
The recent influx of foreign professionals and entrepreneurs showed the value of attractive incentives to expand the Taiwan workforce. Yet, one crucial area to reexamine in the post-pandemic landscape is the treatment of some foreign workers by Taiwan tech companies, as the outbreak highlighted labour discrimination issues and other problems affecting the vital migrant labour pool. In addition, the outbreak illuminated the lack of preparation among many Taiwan businesses for continuity of operations, with companies unable to adjust to a work-from-home model quickly. Taiwan should treat these issues like a wake-up call. To meet future challenges, Taiwan should focus on the need for digital transformation, as well as on encouraging Taiwan companies and the overall workforce to be more agile and flexible.
Lotta Danielsson is Vice President of the US-Taiwan Business Council.
This article was published as part of a special issue on Taiwan’s Covid-19 Spike.