Key takeaways:

This seemingly paradoxical phenomenon—simultaneously competing in export performance yet engaging as trading partners—actually reflects a new, complementary supply chain relationship between Taiwan and South Korea in the AI era.

Advanced packaging technologies require the integration of logic and memory chips—an area where Taiwan and South Korea can deepen collaboration in heterogeneous integration and 3D packaging.

To that end, governments and industries in both nations should establish mechanisms for industrial intelligence sharing, including regular exchanges on market trends, technology developments, and capacity planning.

A New Trade Structure in the AI Era

At the 2025 APEC summit, South Korean officials characterized Taiwan as "both a competitor and a partner." Indeed, compared with South Korea—another economy driven primarily by export industries—Taiwan’s performance has been equally impressive. In 2025, Taiwan’s economy demonstrated remarkable strength, with listed electronics companies generating total revenues of US$1.118 trillion, up 17.7% year-over-year [1].

Export growth has remained robust: according to Taiwan’s Ministry of Finance, total exports reached a record high of US$58.49 billion in August 2025, with electronics contributing 77.5% [2]—marking the first time Taiwan’s monthly exports surpassed South Korea’s [3]. In addition, Taiwan’s quarterly GDP growth rates reached 8.01% and 7.64%, respectively, and the Asian Development Bank (ADB) projects Taiwan’s 2025 annual GDP growth at 5.1%, compared to South Korea’s 0.8% [4]. Taiwan’s per capita GDP is expected to officially exceed South Korea’s in 2025.

The Taiwan-Korea trade relationship has also evolved alongside the advent of the AI era. In September 2024, South Korea overtook Japan to become Taiwan’s largest trade deficit partner: Taiwan’s deficit with South Korea reached US$30.497 billion in the first ten months, far exceeding deficits with Japan (US$20.189 billion) and the Middle East (US$18.293 billion) [5]. Taiwan’s October exports of US$61.8 billion again surpassed South Korea’s, which totaled US$59.6 billion [6].

This seemingly paradoxical phenomenon—simultaneously competing in export performance yet engaging as trading partners—actually reflects a new, complementary supply chain relationship between Taiwan and South Korea in the AI era. This moment calls for both nations to reflect on how to sustain healthy competition while deepening cooperation to achieve mutual gains.

Technical Specialization and Complementary Advantages

Taiwan and South Korea have each developed distinct semiconductor specializations, yet together have emerged as the most critical hardware providers in the AI era. Taiwan leads in advanced-node foundry services and the AI server ecosystem, with TSMC commanding over 90% of the global market for processes at 7nm and below.

South Korea, meanwhile, dominates the high-end memory segment: according to Counterpoint Research, Samsung and SK Hynix together captured over 95% of the global HBM market in Q1 2025, with SK Hynix alone holding a 70% market share [7], serving as the primary supplier for NVIDIA’s AI accelerators.

The current AI server supply chain demonstrates a clear division of labor: South Korea provides high-bandwidth memory (HBM) and other advanced memory products, while Taiwan handles logic chip manufacturing, packaging, and final assembly. According to Taiwan’s Ministry of Finance, Taiwan exported US$13.4 billion in integrated circuits to South Korea in 2024 (representing 8% of Taiwan’s total IC exports) [8], while importing US$43.9 billion in goods from South Korea [5], with high-end memory imports showing particularly strong growth.

Both economies benefit from the rise of the global AI economy, opening up possibilities for deeper industrial collaboration—ranging from joint advanced R&D to stronger supply chain integration and coordinated responses to geopolitical challenges.

Dual Pressures from Technology Geopolitics and the China Threat

Both Taiwanese and South Korean industries face unavoidable challenges from technology geopolitics. The two nations are key U.S. allies in the Indo-Pacific region while maintaining extensive trade relationships with China. Within the broader U.S.–China technology competition, both economies experience mounting pressure to align economic decisions with geopolitical realities.

For instance, U.S. semiconductor export controls on China—requiring compliance from allied nations—directly affect Taiwanese and South Korean firms’ operations in the Chinese market. Tariff policies also play a crucial role: if the United States imposes high tariffs on specific products or countries, Taiwan and South Korea may be forced to restructure supply chains or relocate production bases. For example, U.S. tariffs on AI server-related products would simultaneously impact Taiwan’s assembly industry and South Korea’s memory exports.

Meanwhile, Chinese retaliatory measures restricting imports of key components from Taiwan and South Korea could disrupt both nations’ industrial growth. In this context, closer strategic cooperation between Taiwan and South Korea would help diversify risks and strengthen their collective leverage in negotiations with both Washington and Beijing.

China’s ambition to establish global technological dominance—and its rapid pursuit of a localized supply chain—has introduced distortions into the global market. According to DSET analysis, China is aggressively expanding mature-node production through state-level subsidies and capacity expansion, creating unfair price competition in the global mature-node chip market. This threatens to compress Taiwan and South Korea’s profit margins in mid-to-low-end markets and destabilize global supply-demand balance through oversupply.

Such dumping practices also pose risks to U.S. and allied security, given that mature-node chips are widely used in defense and infrastructure systems [9]. While Taiwan remains dominant in advanced nodes, mature-node manufacturing still accounts for a significant portion of its semiconductor output.

Similarly, South Korea’s memory industry faces growing competition from Chinese firms such as YMTC and CXMT, which engage in low-price, state-backed competition. CXMT, in particular, plays a pivotal role in supporting China’s AI development by supplying essential hardware to sectors constrained by export controls [10].

Strategic Significance of Supply Chain Regionalization

Amid rising geopolitical uncertainty and heightened demands for supply chain resilience, global supply chains may increasingly shift toward Western economies or Southeast Asia. However, for Taiwan and South Korea, retaining advanced technologies domestically and maintaining a highly concentrated, integrated industrial ecosystem remain far more advantageous—for both national competitiveness and the collective strength of democratic technology industries.

Taiwan and South Korea enjoy geographic proximity, low logistics costs, fast response times, and complete semiconductor ecosystems. Indeed, the area most comparable to Hsinchu Science Park is not Silicon Valley but South Korea’s Gyeonggi Province. Both regions feature dense semiconductor clusters, world-class R&D talent, and comprehensive infrastructure.

Strengthening supply chain linkages between Taiwan and South Korea would not only help mitigate risks associated with China’s “red supply chain,” but also enhance overall industrial competitiveness. In fast-growing sectors like AI servers, cross-border collaboration between Taiwan and South Korea can generate powerful synergies by linking their respective industrial clusters.

Cooperation Within Competition

While Taiwan and South Korea face structural competition in certain segments—such as TSMC versus Samsung in foundry services, or Taiwanese firms competing with Korea’s Amkor in packaging and testing—healthy competition ensures continued innovation. Yet, in many other areas, the two economies are complementary.

The massive new demand driven by the AI era also creates space for cooperation in expanding production capacity. For instance, advanced packaging technologies require the integration of logic and memory chips—an area where Taiwan and South Korea can deepen collaboration in heterogeneous integration and 3D packaging.

To that end, governments and industries in both nations should establish mechanisms for industrial intelligence sharing, including regular exchanges on market trends, technology developments, and capacity planning. Such initiatives can prevent redundant investment, reduce destructive competition, and enhance supply chain transparency, thereby improving overall resilience. In short, healthy competition drives innovation, while strategic cooperation creates lasting mutual benefit.

References and Data Sources

[1] Taiwan Stock Exchange "Listed Company Operating Revenue Summary", TPEx Monthly Revenue Statistics

[2] Taiwan Ministry of Finance, Customs Administration "Import and Export Trade Statistics"

[3] Taiwan's August 2025 Monthly Exports First Exceed South Korea

·       Official Statistics:

o   Taiwan MOF: https://www.mof.gov.tw/htmlList/103

o   Korea MOTIE: https://www.korea.kr/archive/expDocView.do?docId=41438

[4] Asian Development Bank (ADB) September 2025 "Asian Development Outlook"

[5] Taiwan Ministry of Finance, Customs Administration "Import and Export Trade Statistics"

[6] Taiwan Ministry of Finance, Customs Administration "Import and Export Trade Statistics"

Korea MOTIE Official Announcement “Korea’s Exports Hit New Peak for October” 

[7] SK hynix overtakes Samsung to lead global memory market for 1st time with HBM surge

[8] Taiwan Ministry of Finance, Annual External Trade Report in 2024

Taiwan Ministry of Finance, Overview of Integrated Circuit Imports and Exports in 2024

[9] DSET Policy Report: The Great Siege: The PRC’s Comprehensive Strategy to Dominate Foundational Chips

[10] DSET Policy Report: The Rise of CXMT: Inside the Hydra-like Chinese Memory Sector