Taiwan came through last quarter with exports that impressively beat the government’s estimate, whereas most economies worldwide have yet to bud when it comes to recovering from the COVID-19 pandemic. Domestic exports last month expanded for a ninth consecutive month, bringing first-quarter figures to an all-time high of US$97.94 billion, up 24.6 percent from last year, as the stay-at-home economy continued to drive demand for electronics.
While strong exports bode well for the economy and the job market, digging deeper into the composition shows that the nation has increasingly risked an export imbalance over the past year. By the first quarter of this year, the trend was clear: Local manufacturers are increasingly dependent on a single market, China, and highly reliant on electronics, primarily semiconductors.
Last month, Taiwanese exports to China, including Hong Kong, surged 35.5 percent year-on-year to a historical high of US$15.91 billion, accounting for 44.3 percent of overall exports in the month. Last quarter, exports to China accounted for 42.9 percent.
This extended an upward trend from last year, when exports to China climbed to 43.9 percent, following annual growth of 14.6 percent. Exports to China greatly surpassed the nation’s exports to other markets, which was no surprise, as China has stimulated its economy and ramped up vaccinations.
A fundamental change in exports to China has occurred. Like the rest of the world, Taiwan’s exports to China have been driven more by Chinese consumption than by demand for raw materials and equipment to build up Chinese capacity, as in the past.
ASEAN economies were the second-biggest market for Taiwanese exports, with a combined share of 15.4 percent — still, no comparison with China — but exports to ASEAN members shrank 1.3 percent year-on-year. The US was the third-biggest market, with a 14.6 percent share last year. Taiwanese exports to the US rose at a moderate pace of 9.3 percent year-on-year.
Another indicator of an export imbalance is that electronic components and information technology (IT) products made up 51.8 percent of the nation’s overall exports last quarter, after expanding 28.72 percent year-on-year to US$50.69 billion.
For the first time last year, electronic components and IT products made up more than half, or 53.5 percent, of the nation’s exports, up from 47.2 percent in 2019. In terms of growth, electronic component and IT product exports last year rose 19 percent to US$184.75 billion from a year earlier, while exports from the rest of the nation’s industries contracted 7.8 percent annually to US$160.46 billion.
The government should develop new policies to diversify the nation’s exports by helping companies in traditional industries to enhance their competitiveness against their global rivals.
Stepping up free-trade agreement (FTA) talks might be the first step. Taiwan has a much lower FTA coverage — 13 percent, including exports with tariff preferences — than South Korea (74 percent), Singapore (95 percent) and Hong Kong (66 percent). Besides, Taiwan will encounter a tougher export environment as the world’s major economies sign more bilateral agreements with each other.
The government should also help local firms in the electronic components and IT industries, especially semiconductors, to maintain their competitive edge in terms of technology leadership and cost efficiency, given the growing competition around the world. The EU and Japan — not just China and the US — are planning to massively invest in domestic semiconductor capacity, as chips have become a strategic resource and elevated to a national security issue.
It will take time for them to catch up, but the threat cannot be ignored. As long as the electronic components and IT sectors are the pillars of the nation’s exports and economy, it is vital to create a friendly investment environment for those industries.
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