A predicted sharp rise in Chinese imports of US goods as part of a “phase one” trade deal signed by the nations last week would squeeze other trade partners, but should have a limited impact on Taiwan, DBS Bank Ltd (星展銀行) said on Friday.
Taiwan has been a major beneficiary of the US-China trade dispute and reaped the rewards of order transfers since the tit-for-tat tariffs began in July 2018. However, China’s pledge to purchase US$200 billion of US goods and services over the next two years has raised concerns that demand for Taiwanese goods could fall.
Singapore-based DBS economist Ma Tieying (馬鐵英) said it is unlikely that Taiwanese exports to China would be replaced by US goods, if China is to honor its purchase commitments.
“The overlap of the US’ and Taiwan’s export structure is low,” Ma said in a report, adding that China’s imports from Taiwan are largely concentrated in electrical machinery and equipment, while its US imports are equally comprised of agricultural goods, transport equipment and electrical machinery.
“Moreover, China’s imports from Taiwan are partly driven by intracompany supplies, ie, the purchase of semiconductors and other components by Taiwanese tech firms based in China from their parent companies. Substitution of these products should be unlikely,” Ma said.
As for China’s pledge to open its financial services sector to US firms, including banking, securities, insurance, asset management and credit-rating services, the impact on Taiwan’s financial institutions should be small, she said.
“Taiwanese financial institutions operating in the Chinese market currently focus on providing corporate banking services for the Taiwanese firms based there,” Ma said. “Direct competition with US counterparts is limited.”
However, as the US-China trade dispute has shifted to focus on technology, the risk of supply chain disruption has not fully subsided, despite the preliminary trade agreement addressing intellectual property and technology transfer, the DBS economist said.
Last week, Reuters reported that the US government would still push for tougher rules to block shipments of foreign-made goods to Chinese telecommunications giant Huawei Technologies Co Ltd (華為).
“From a long-term perspective, Taiwanese tech firms would still find it necessary to shift sensitive production out of China and to diversify their supply chains,” Ma said.
The sentiment was echoed by S&P Global Ratings, which on Friday said: “The chance that negotiations for a final agreement will stall, or enforcement of the phase one deal doesn’t materialize, continue to cast uncertainties over corporate supply-chain strategies.”
Yuanta Securities Investment Consulting Co (元大投顧) analysts, led by Calvin Wei (魏建發), on Thursday said a more stringent ban on sales to Huawei would negatively affect the 5G supply chain and undercut the global economy, as Huawei is not only the world’s largest supplier of mobile base stations and optical communication equipment, but also the second-largest smartphone brand on the planet.
It would also adversely impact Taiwanese firms in the supply chains of networking, handset, semiconductor and printed circuit board (PCB) sectors, Yuanta analysts said in a report.
“Based on our analysis, optical communication and base station equipment suppliers in the networking sector would see the greatest impact on sales (by 10 to 30 percent), followed by handset sector (10 to 25 percent), semiconductor sector (15 percent) and the PCB sector (10 percent),” they said.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
The New Taiwan dollar and Taiwanese stocks surged on signs that trade tensions between the world’s top two economies might start easing and as US tech earnings boosted the outlook of the nation’s semiconductor exports. The NT dollar strengthened as much as 3.8 percent versus the US dollar to 30.815, the biggest intraday gain since January 2011, closing at NT$31.064. The benchmark TAIEX jumped 2.73 percent to outperform the region’s equity gauges. Outlook for global trade improved after China said it is assessing possible trade talks with the US, providing a boost for the nation’s currency and shares. As the NT dollar
PRESSURE EXPECTED: The appreciation of the NT dollar reflected expectations that Washington would press Taiwan to boost its currency against the US dollar, dealers said Taiwan’s export-oriented semiconductor and auto part manufacturers are expecting their margins to be affected by large foreign exchange losses as the New Taiwan dollar continued to appreciate sharply against the US dollar yesterday. Among major semiconductor manufacturers, ASE Technology Holding Co (日月光), the world’s largest integrated circuit (IC) packaging and testing services provider, said that whenever the NT dollar rises NT$1 against the greenback, its gross margin is cut by about 1.5 percent. The NT dollar traded as strong as NT$29.59 per US dollar before trimming gains to close NT$0.919, or 2.96 percent, higher at NT$30.145 yesterday in Taipei trading