With the rapid development of digital computing capabilities, the emergence of Internet of Things (IoT), cloud and big data analytics, Artificial Intelligence (AI) has become an important innovative tool for digital transformation and technological upgrading of global manufacturing. In this paper, using dynamic Computable General Equilibrium (CGE) model of MONASH-type and Taiwan’s input-output tables to capture the supply-chain interdependence and resource constraints, we present the economy-wide assessment of government policies and private companies’ investment in smart manufacturing, as well as the impact on the output and employment of Taiwan semiconductor and ICT industry. Simulation results show that, under increasing AI investment, semiconductor output will be 10.34% higher than the baseline, and employment demand will be 24.61% lower than the baseline in 2025. The result is similar on the ICT industry as well. The development of smart manufacturing is an adaptation strategy for private enterprises to cope with declining birthrate, labor shortage, and improving production yield and efficiency. At the same time, the unemployment and the uneven income distribution may be the side effect while developing the AI on manufacturing. It is suggested that in addition to focusing on AI talent cultivation and the establishment of the infrastructures, the government may also adopt fiscal and tax policies to improve the income distribution and strengthen the labor transfer.