Taiwan's economic overdependence on semiconductors and its limited presence in software and AI applications emerged as central national security concerns on the second day of the "2026 Political, Economic, Military, and Psychological Situation Tabletop Exercise" on April 16.Two simulation tracks, “Industrial Competitiveness and Economic Resilience” and “Semiconductor and AI Response Strategy,” formed the centerpiece of the day’s agenda.Industrial competitiveness and economic resilienceIn the industrial competitiveness simulation, expert participants analyzed the impact of rapid shifts in the global economic structure, including rising trade protectionism, supply chain “de-risking,” and policy adjustments among major economies. These trends were seen as posing significant challenges to Taiwan’s export-oriented economy.Sun Lih-chyun (孫立群), a professor at the University of Taipei and a member of the exercise’s professional simulation team, said in the final report that Taiwan’s economy remains robust, driven largely by semiconductors and the artificial intelligence boom. Information and communications technology (ICT) exports account for nearly 80% of total exports, with Taiwan maintaining a substantial trade surplus with the United States.However, Sun warned that this strong performance masks underlying structural vulnerabilities, particularly an overreliance on a single industry and the US market, leaving Taiwan exposed to shifts in global demand and geopolitical risks.He stressed the importance of sustaining traditional sectors such as textiles and machinery, noting their continued economic links with China, which remains a key partner despite political tensions. Experts also highlighted risks stemming from China’s economic slowdown, as well as domestic challenges including widening inequality and the potential displacement of entry-level jobs by AI, Sun mentioned.Sun emphasized that AI literacy should become a foundational skill within Taiwan’s education system. He also pointed to Taiwan’s lag in artificial general intelligence (AGI) development as a strategic concern, noting that while Taiwan leads globally in hardware manufacturing, it has a limited presence in software and AI applications, particularly compared with China’s rapid advancement in both civilian and military domains.Sun told TCN that Taiwan has historically occupied a lower position in the global technology ecosystem, focusing on manufacturing rather than applications, making it difficult to define a clear long-term strategy as competitors expand across the full value chain. Experts participating in the 2026 TTX conduct an economic security simulation. (TCN) Structural risks and “Dutch disease” concernsWhen asked whether Taiwan faces symptoms of “Dutch disease,” Liu Da-nien (劉大年), director of the Regional Development Study Center at the Chung-Hua Institution for Economic Research, told TCN that Taiwan does not exhibit the classic form of the condition but does face similar structural risks.Liu noted that resources have become heavily concentrated in the integrated circuit (IC) sector, crowding out other industries and contributing to uneven wage growth. He called for stronger policy support for traditional sectors and adjustments to mitigate potential imbalances.“The overall economy remains positive, but these risks should serve as a warning for future challenges,” Liu said.Sun echoed these concerns, stating that Taiwan’s heavy reliance on the IC industry has increased export risks compared to previous decades. He added that traditional industries still employ a significant portion of the workforce, and their decline — combined with AI-driven job displacement — could lead to rapid deterioration in income and wealth distribution.Chen Shin-horng (陳信宏), vice president of the Chung-Hua Institution for Economic Research, told TCN that Taiwan’s traditional industries had previously maintained competitiveness by moving up the value chain, but this strategy has become more difficult amid China’s rise.Chen suggested that future growth may lie in cross-sector innovation, citing examples of traditional firms successfully transitioning into semiconductor supply chains as evidence that industrial integration is a viable path forward.SemiconductorDiscussions in the semiconductor track placed greater emphasis this year on the implications of Taiwan Semiconductor Manufacturing Company’s (TSMC) global expansion, moving beyond earlier exercises that focused primarily on the semiconductor industry itself.Chi Yu (游智瓊), managing director of InfoVision Optoelectronics Holdings, said TSMC’s accelerating investments in the US, Japan, and Europe have made its international strategy a central issue. He described the company’s overseas expansion as an inevitable response to Taiwan’s constraints in labor, energy, and land resources.While acknowledging short-term challenges such as labor disputes and cultural differences, Yu said these issues are part of the transition toward becoming a global enterprise.Concerns were also raised over whether TSMC’s expansion abroad could weaken Taiwan’s so-called “silicon shield.” However, Yu argued that the semiconductor ecosystem remains highly interconnected globally, and with the company’s most advanced research and development and manufacturing still based in Taiwan, its overseas investments are unlikely to undermine national security. Experts deliver a final report on the industrial competitiveness and semiconductor strategy simulations. (TCN) In the final report on semiconductor and AI response strategy, Konrad Young (楊光磊), former director of TSMC’s Basic Engineering Department and Office of Advanced Technology Management, highlighted significant challenges facing the company’s Arizona operations.These include talent shortages and substantial cultural differences between Taiwan and the US. Differences in work practices and education systems, along with US policies favoring local hiring, make it difficult for TSMC to replicate its Taiwan-based model, which relies on a highly educated workforce, Young said.He added that the US semiconductor ecosystem places greater emphasis on innovation and system integration rather than manufacturing, requiring Taiwanese firms to adapt their strategies accordingly.Like Yu, Young described TSMC’s expansion into the US as “inevitable,” driven by pressure from customers and supply chains, while also offering opportunities to overcome Taiwan’s domestic constraints.He concluded that TSMC’s global expansion is unlikely to weaken Taiwan’s competitiveness, and may instead facilitate its transformation into a truly global enterprise while serving as a model for other Taiwanese companies seeking to expand overseas.