Taiwan’s economy grew at an accelerated pace in the second quarter, rising 7.96 percent year-on-year, faster than the 5.48 percent increase in the previous quarter and exceeding the Directorate-General of Budget, Accounting and Statistics’ (DGBAS) 5.23 percent forecast in May, the agency reported on Thursday. On a quarter-on-quarter seasonally adjusted annual basis, GDP rose 12.89 percent, faster than the 7.25 percent expansion a quarter earlier, the agency said.
Last quarter’s GDP growth was the best quarterly performance in four years, the DGBAS said, attributing it mainly to robust exports and domestic investment driven by steady demand for electronic components (including semiconductors) and information and communications technology (ICT) products amid the artificial intelligence boom, as well as front-loading by global customers ahead of the expiration of a US tariff suspension.
However, private consumption slowed in the second quarter, with an annual growth rate of 0.56 percent, which was worse than the agency’s projected 1.47 percent increase and the lowest figure in nearly 15 quarters. The main reasons included a significant drop in the number of vehicle deliveries, a negative wealth effect linked to stock market corrections and a surge in overseas travel that squeezed domestic consumption, the DGBAS said.
Overall, the economy expanded by an annual rate of 6.72 percent in the first half of this year. However, that had much to do with global customers placing orders amid uncertainty about US President Donald Trump’s tariff policy, and the effect might fade in the second half of the year as Washington’s tariffs are implemented. Tariff pressure on companies to adjust orders and inventories would pose a challenge to the nation’s foreign trade and domestic demand, resulting in decelerated GDP growth in the second half, with many research institutes predicting growth of about 1 percent from a year earlier.
The Trump administration’s aggressive tariffs — at 20 percent for Taiwan, higher than the 15 percent for Japan, South Korea and the EU — are not the only risks Taiwan’s economy faces. An ongoing investigation under Section 232 of the US Trade Expansion Act of 1962 could result in tariffs on semiconductors and ICT products, which account for more than 70 percent of Taiwan’s exports to the US.
Indeed, a tariff on semiconductors could have a bigger impact on Taiwan’s economy than the 20 percent “reciprocal” tariff the White House announced. The Section 232 investigation on chips covers not only semiconductor products, but also chipmaking equipment and any end products containing semiconductors, such as electronic devices, smartphones and data center equipment. The results of the probe are expected to be announced in two weeks, and the most important part for Taiwan is whether the country can secure more favorable tariff terms for semiconductor exports than those for its trade rivals.
Challenges abound for Taiwan’s economy, and the effects on the nation’s traditional industries are likely much higher than that of their tech counterparts. Trump’s tariff hikes are also expected to trigger turmoil in global trade and a decline in demand. Compared with the dotcom bubble crash in 2000 and the global financial crisis of 2008, the US president’s tariff policy has brought far greater uncertainty and risk to global trade than before, with Taiwan set to bear the brunt of the impact as an export-oriented economy in the upcoming months. The negative effects could emerge in local employment, domestic consumption and debt repayments, among others, and the government must not take it lightly.
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