The US government’s 10 percent tariffs on US$200 billion worth of Chinese goods, which take effect today, will have a limited effect on Taiwan, even though the latest tariff list covers a wider rage of products than the US$50 billion of goods hit in the first round, DBS Bank Ltd (星展銀行) said last week.
The US$200 billion of Chinese goods range from agricultural goods to home appliances, and from bicycles to automobile parts, but some key electronics products, such as computers and mobile phones — pillars of Taiwan’s manufacturing sector — continue to be excluded, DBS said.
“Taiwanese firms producing in China and those exporting intermediate goods to China are mostly from the electronics sector,” Ma Tieying (馬鐵英), a Singapore-based economist at DBS Bank, said in a report on Tuesday.
“Semiconductors, flat panels, various other types of electronic components, together with the finished electronic products, account for 65 percent of Taiwan’s total exports to China,” Ma said. “Most of these products are spared from the US$200 billion tariff list.”
As for the labor-intensive textile and clothing sector, Taiwanese firms have gradually reduced their exposure to China and increasingly focused on Southeast Asian countries like Vietnam, DBS said.
“Taiwanese manufacturers have also been diversifying their overseas production bases in recent years to meet the challenges from rising labor costs and other structural changes in the Chinese economy,” Ma said.
Taiwanese firms have sought to increase their presence in China’s domestic market and reduced engagement in the traditional processing trade — such as producing intermediate goods and assembling them into finished products in China before shipping them to the US — that prevents them from being further hurt by the escalation in trade skirmishes between the two sides, DBS said.
Overall, the effect of Washington’s new tariffs on Taiwan would be modest, at about 0.3 percent of GDP for this year and the next, it said.
“This will be reflected in next year’s growth numbers more than this year’s. Accordingly, we are trimming GDP growth forecasts to 2.7 percent [from 2.8 percent] for 2018 and to 2.2 percent [from 2.4 percent] for 2019,” Ma said.
That compares with the estimates made last month by the Directorate-General of Budget, Accounting and Statistics of 2.69 percent growth for this year and 2.55 percent for next year.
Accordingly, the central bank is not likely to normalize monetary policy soon as it opts to bolster sentiment and shore up the domestic economy, she said.
The central bank is to hold its quarterly board meeting on Thursday, with a possible decision to keep its policy rates unchanged for a ninth consecutive quarter in view of a slower growth outlook dampened by a deteriorating trade environment.
“We no longer expect rate hikes during the 4Q18-1H19 period,” Ma said. “An outright shift towards monetary and fiscal policy easing remains unlikely, in our view.”
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