US president-elect Donald Trump on Monday last week said he would impose tariffs of 25 percent on all imports from Mexico and Canada, and an additional tariff of 10 percent on all imports from China on the first day he takes office.
He said the measures were necessary to tackle illegal immigration and imports of drugs, especially fentanyl, into the US, demonstrating how Trump is willing to use trade measures to deal with the US’ internal issues. It also shows that Trump would use the threat of tariffs as a form of diplomatic coercion.
However, judging from Trump’s actions during his first presidential term, if Canada and Mexico respond by strengthening law enforcement along the border, there is a possibility that there would be no tariff adjustments. The threat of tariffs is likely a negotiating tactic to win concessions from the US’ key trade partners and China.
Still, there are increasing concerns about global trade protectionism and a potential economic slowdown due to a US-China trade dispute after Trump’s return to the White House next month.
For example, the Bank of Korea’s back-to-back 25 basis points cut in interest rates on Thursday, which came as a surprise to the market, signaled the central bank is worried about the effect of Trump’s trade policies. The central bank also lowered its forecast for GDP growth and inflation for this year and next.
Taiwan’s economy could also be affected by Trump’s trade policies, as he has threatened to impose 10 to 20 percent tariffs on all imports into the US. Such a move would have a significant impact on Taiwan’s export sector, including information and communications technology products, electronic components, machinery products and steel.
From January to October, Taiwan’s exports to the US reached US$92.88 billion, an annual increase of 55 percent, data compiled by the Ministry of Finance showed.
Taiwan’s trade surplus with the US reached US$52.92 billion in the first 10 months of this year, a new high, and is expected to be close to that of the nation’s trade surplus with China.
With US-China trade conflicts set to intensify in the era of Trump 2.0, it remains to be seen whether Taiwan would continue to benefit from order transfers and supply chain realignment, as it did during the first Trump presidency and during US President Joe Biden’s administration, or be affected by tariff hikes.
However, one thing is for sure: The government and businesses must keep a close eye on the impact of Trump’s trade policy on foreign exchange rates, monetary policies of major central banks and the global demand outlook including the pace of China’s economic slowdown.
Another uncertainty is the US Federal Reserve’s rate cut prospects.
The US central bank cut its key interest rate in September and adjusted it downward again last month. However, further rate cuts are anticipated to be shallower due to the inflationary effect of Trump’s policies.
Any changes in the US monetary policy, even a reversal, would affect global capital flows and business investments.
Once the Fed puts the brakes on its rate cuts, international funds would stop shifting out of the US for other destinations, and the US dollar would begin to strengthen again, adding depreciation pressure on other currencies, including the New Taiwan dollar.
Trump has said that “tariff” is the “most beautiful word in the dictionary,” and firmly believes this fiscal tool can solve many of the US’ problems.
Next year is bound to be an economically tumultuous one under the new Trump administration.
It behooves the government and local businesses to quickly test the viability of their current strategies and build their capacity to respond efficiently to future challenges.
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