On Friday, when the US announced a 20 percent tariff on Taiwanese goods — although negotiations are ongoing — a wave of pessimism and even panic spread, as the levy is heftier than the 15 percent imposed on Taiwan’s trade rivals Japan and South Korea.
At first glance, 20 percent might seem unacceptably high, but a closer look shows that it is not egregious, with some economists holding a neutral view about the rate, especially as only about 30 percent of goods are subject to it.
Japan’s deal is expected to help it escape a major economic fallout, with some analysts estimating that the 25 percent rate set in April would erase 0.2 percentage points from the country’s already fragile GDP. Japan’s new 15 percent rate is applicable to some key items, including vehicles, and the country is not disadvantaged by tariffs on chips. In exchange, Japan has agreed to invest US$550 billion in the US, among other conditions, while a 50 percent duty on steel and aluminum remained in place.
Likewise, the auto industry is a significant contributor to South Korea’s economy and it is heavily reliant on the US to sell vehicles. Tokyo and Seoul had to strive to lower the country-specific tariffs through negotiations with the US to minimize the economic impact.
Taiwan has a different raft of export categories to the US than Japan and South Korea. About 70 percent of Taiwanese exports to the US are subject to yet-to-be-determined industry-specific levies, including one for semiconductors and information and communications technology (ICT) products. Washington has national security concerns over ICT products and tends to levy higher duties on them than its country-specific rates.
Taiwan’s trade surplus with the US rose 54.6 percent annually to a record US$73.92 billion last year, attributable to growth in ICT exports amid demand for artificial intelligence (AI)-related applications.
To reduce the economic effects of the US’ tariff policy, Taiwan’s negotiators are expected to be focused on ICT and semiconductor products.
Taipei might be able to negotiate a better deal for the industry, given local manufacturers’ central role in the global AI supply chain, as well as partnerships with US AI chip suppliers and cloud service providers, giving its negotiators an advantageous position.
Moreover, there are few substitutes for many Taiwanese ICT products, ranging from AI chips and AI-enabled servers to power supplies, which is likely to mean that local suppliers pass tariff-induced cost increases on to their customers.
Taiwan Semiconductor Manufacturing Co, a major AI chip supplier to Nvidia Corp and AMD Inc, has increased its US investments to US$165 billion to build six chip manufacturing facilities, two chip packaging plants and a research-and-development center. When construction is completed, the US would have the ability to make advanced chips at home. AI server manufacturers are also accelerating efforts to build new manufacturing sites in the US to avoid tariffs, with Wistron Corp’s US$455 million and Inventec Inc’s US$85 million investment plans approved last week.
Taiwan is right to concentrate on seeking a better tariff deal by leveraging its strengths. Negotiators should not give up the possibility of a lower industry-specific levy, as Taiwan’s chips account for about 40 percent of overall US chip imports, surpassing Malaysia’s 15.1 percent and South Korea’s 11 percent, while about 61 percent of US imports of ICT products are from Taiwan.
Those data do not seem to have been factored into the capricious tariff decisions of the US government.
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