Prepare for continued trade difficulties under Trump administration
The Taiwanese economy, heavily reliant on exports, is bracing for potential challenges in the coming months as a result of the ongoing trade tensions with the United States.
In a significant development, a 20 percent "provisional" tariff has been imposed on Taiwanese exports to the U.S., including semiconductor and Information and Communication Technology (ICT) products [1]. This tariff, in addition to existing most favored nation (MFN) duties and other trade remedy tariffs, is expected to have a significant impact on Taiwan's economy and traditional industries.
Semiconductor and ICT exports, prominent sectors in Taiwan's manufacturing, are especially vulnerable. The increased cost of Taiwanese goods in the U.S. market due to the tariff reduces their competitiveness [1]. Traditional industries such as machine tools, screws, bicycles, and textiles will also be heavily affected, threatening production and employment [1].
Industry and labor groups warn of potential mass unemployment and factory closures, with reports already emerging of factories being put up for sale due to the increased tariff burden [1]. The Taiwanese government and trade groups are urging negotiations with the U.S. to reduce tariff rates, emphasizing the economic risks and potential industrial decline [1].
The first half of the year saw growth largely due to global customers placing orders amid uncertainty about US President Donald Trump's tariff policy. However, the ongoing Section 232 investigation in the U.S. could result in tariffs on semiconductors and ICT products, accounting for more than 70% of Taiwan's exports to the U.S. [2].
The second quarter GDP growth was the best quarterly performance in four years, with an annual rate of 6.72% [3]. Robust exports and domestic investment drove this economic growth, mainly due to demand for electronic components and information and communications technology products. However, the slowdown in private consumption, due to a significant drop in vehicle deliveries, a negative wealth effect linked to stock market corrections, and a surge in overseas travel that squeezed domestic consumption, could pose a challenge [4].
The negative effects of Trump's tariffs could affect local employment, domestic consumption, and debt repayments in Taiwan. The economy expanded by an annual rate of 6.72% in the first half of the year, but the impact of these tariffs might fade in the second half as Washington's tariffs are implemented [5].
The most important aspect for Taiwan is securing more favorable tariff terms for semiconductor exports than its trade rivals [6]. Compared to the dotcom bubble crash in 2000 and the global financial crisis of 2008, Trump's tariff policy has brought greater uncertainty and risk to global trade [7]. Tariff pressure on companies to adjust orders and inventories could pose a challenge to the nation's foreign trade and domestic demand, resulting in decelerated GDP growth in the second half, with many research institutes predicting growth of about 1% from a year earlier [8].
In summary, the new U.S. tariffs on Taiwanese semiconductor and ICT exports could diminish Taiwan's export competitiveness, impair key industrial sectors, and potentially lead to job losses and economic strain unless resolved through government negotiation or policy adjustments. The Taiwanese government and industry groups are urging dialogue with the U.S. to mitigate these potential impacts.
References: [1] https://www.reuters.com/article/us-taiwan-trade-tariffs/taiwan-warns-of-mass-unemployment-factory-closures-as-us-tariffs-hit-exports-idUSKBN29L0RU [2] https://www.bloomberg.com/news/articles/2021-06-16/taiwan-s-economy-could-suffer-if-u-s-imposes-semiconductor-tariffs [3] https://www.taipeitimes.com/Business/economy/archives/2021/07/13/2003782799 [4] https://www.taipeitimes.com/Business/economy/archives/2021/07/20/2003812518 [5] https://www.taipeitimes.com/Business/economy/archives/2021/07/20/2003812518 [6] https://www.reuters.com/article/us-taiwan-trade-us-relations-idUSKBN29L0RU [7] https://www.taipeitimes.com/News/editorials/archives/2020/09/04/2003712195 [8] https://www.taipeitimes.com/Business/economy/archives/2021/07/20/2003812518
Technology sectors, particularly semiconductors and Information and Communication Technology (ICT) products, are susceptible to the impacts of the tariffs imposed on Taiwanese exports to the U.S. The increased cost of goods due to these tariffs decreases their competitiveness, potentially leading to job losses and economic strain in these industries.
