Thu, Jan 23, 2025 page8

• EDITORIAL: Adapting to Trump’s tariffs

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  Taiwanese CEOs, especially those in the technology sector, have been anxious about US President Donald Trump’s new trade policies since he won a second term, as the tariff-free regime established under the Information Technology Agreement (ITA) would be severely challenged amid an escalating US-China technology race.

  A wide range of electronics, such as computers and mobile phones, are exempted from tariffs under the original ITA, which was signed by WTO members. However, Trump is highly likely to carry out his campaign promises by slapping aggressive tariffs on semiconductor and information and communications technology (ICT) products.

  Taiwan is a major ICT producer, from Apples Inc’s iPhones and MacBook computers to the latest artificial intelligence (AI) servers for Nvidia Corp and the world’s hyperscalers, including Alphabet, Amazon.com, Meta and Microsoft. These manufacturers are facing imminent US tariffs starting at 10 percent.

  Earlier this month, Minister of Economic Affairs J.W. Kuo (郭智輝) said that although Taiwan would be at least mildly affected by the looming 10 percent tariffs, its technological advantages would allow it to mostly absorb their impact. Taiwan would therefore be in a relatively better position than countries such as Mexico, Canada and China, which could face tariffs of 60 percent or even higher, he said.

  However, only a small portion of ICT products are exported directly from Taiwan. A much bigger portion is shipped to the US from manufacturing sites in China, Mexico and Southeast Asian countries, including Thailand and Vietnam, where local manufacturers relocated their Chinese production after Trump won his first term. Since then, local companies have been asked by customers to set up new manufacturing facilities outside of China and Taiwan under the “China+1” or “Taiwan+1” policy to strengthen supply chain resilience amid worsening US-China relations and cross-strait tensions.

  As of the end of November, about 93 percent of Taiwan’s ICT exports were produced abroad, while about 35 percent of chips and other electronics were made at foreign sites, according to statistics compiled by the Ministry of Economic Affairs.

  The issue is more complicated than building more resilient supply chains, as Trump’s threat to raise tariffs would also significantly increase manufacturing costs. The challenges for the CEOs are how to find multiple places to build production sites that would minimize US tariffs. It is no longer as easy to profit from large-scale production lines. More likely, they would start building smaller factories in more locations to adapt to the ever-changing external environment, some industry experts said.

  A recent survey released by KPMG found similar results. Executives of Taiwanese companies with an annual revenue of US$500 million or more last year ranked geopolitical factors as the third-biggest risk facing their business, up from No. 7 in 2023. Meanwhile, supply chain management was their No. 4 concern, up from No. 5. The CEOs would have to grapple with issues that come with an increasing number of supply chains, including localization and green energy concerns, as well as preventing disruptions from rising manufacturing costs, according to the survey.

  Lately, more companies are starting to build production lines in the US to avoid supply chain disruptions and higher manufacturing costs due to heavier tariffs. In the past, high labor costs, a culture gap and complicated rules have scared away Taiwanese businesses. However, the ministry has encouraged domestic chip-related companies to shift production to the US and offered assistance to do so.

  As supply chains become fragmented and more expensive the bigger challenge for Taiwanese CEOs would be operating those new production sites as cost-effectively as at home and in other countries, while providing equally high-quality products.
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