The export landscape for Taiwan is expected to change drastically after US President Donald Trump’s “reciprocal” tariffs take effect tomorrow. That is because Trump is to impose higher-than-expected levies on Taiwan and China, and hefty tariffs on countries under local firms’ “China Plus One” investment strategy — especially ASEAN members. That would include countries such as Cambodia, Indonesia, Myanmar, Thailand and Vietnam, making it difficult for Taiwanese businesses to continue sourcing intermediate goods from those nations, assembling them into final products and shipping them to the US.
Taiwanese exporters expected ASEAN members to become the new pathway to the US market, following the tariffs Trump imposed during his first term, which were primarily targeted at imports from China. As a result, Taiwanese businesses — from electronics and textiles to footwear, furnishing and auto parts — avoided an overconcentration on China, diversifying their supply chain risks and reducing production costs. However, as the new tariffs are more significant and broader than projected, such expectations have quickly diminished.
Taiwan’s exports last year rose 9.9 percent year-on-year to US$475.07 billion, the second-highest ever, with shipments to the US reaching a record US$111.4 billion and those to ASEAN members hitting a record US$87.8 billion, Ministry of Finance data showed. While China and Hong Kong remained the leading destination for Taiwan’s exports and accounted for 31.7 percent of the nation’s total outbound shipments last year, their share fell to the lowest level in 23 years. In contrast, exports to the US comprised 23.4 percent of the total last year, the second-highest destination, and those to ASEAN members accounted for 18.5 percent, the third-highest.
The calculation for the tariffs is questionable and unimaginable. It was based on the levies required to balance US trade deficits, rather than reflecting their tariff rate differentials, value-added taxes, currency exchange rates or other non-tariff trade barriers, as initially anticipated. It is Trump’s tactic to force countries to negotiate with the US on ways to reduce trade deficits and direct more manufacturing to the country.
The brutal reality is that the US is imposing massive tariffs on countries that Chinese companies use as bases to rebadge products to evade US tariffs. No matter where firms set up factories abroad, there is nowhere to hide from US levies. If the tariffs remain unchanged following trade negotiations with Washington, it would inevitably have a direct effect on Taiwan’s exports to the US and an indirect impact on shipments to Southeast Asian countries, which would require Taipei to adjust its foreign trade strategies and companies to rethink overseas production.
Broadly speaking, Trump’s tariffs would likely spike US inflation and hamper the country’s economic growth. It would also have negative implications for Asian economies’ growth this year and beyond. However, Taiwan is particularly vulnerable, given its high exposure to the US market and the high 32 percent tariff, as well as the rise in local firms’ investments in emerging nations in Southeast Asia and overall exports contributing 60 percent or more to Taiwan’s GDP.
As government agencies assess the tariff’s effects on domestic industries and prepare relief programs for affected businesses, Taipei must seek to negotiate with Washington to bring down the duties or limit their scope, although it might take some time and require a complex process to achieve any acceptable outcomes. In the meantime, policymakers should consider expanding purchases of US energy, agricultural products and aircraft, adjusting Taiwan’s import tariff structure and removing non-tariff barriers to address the “unbalanced” Taiwan-US trade. Over the long term, Taiwan must accelerate its industrial upgrades and market diversification.
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