US President Donald Trump's latest tariff strategy comes as a major blow to manufacturers who have already invested in acquiring land for factory construction in Mexico. Given that the majority of Taiwanese manufacturers' customers are in the US, it is likely that they will expand their facilities in the US in the future.
On February 1, President Trump made good on his campaign promise to impose a 25% tariff on imports from Canada and Mexico and an additional 10% tariff on imports from China. Trump's reasoning behind the tariffs is that these countries allow and facilitate the flow of illegal fentanyl into the US. Starting in mid-February, the US may also impose additional tariffs on imported semiconductors, pharmaceuticals, steel, aluminum, copper, petroleum, and natural gas.
In addition to the tariffs imposed on Canada, Mexico, and China, in response to Trump's claim that the EU has treated the US "very unfairly," it has been reported that tariffs on products manufactured in the European Union (EU) entering the US will be implemented in mid-February.
Tariff impact on Taiwan
In terms of Taiwan, the biggest concern for market observers is that most US tech companies outsource chip manufacturing to Taiwan, and Trump may impose tariffs of up to 100% on chips manufactured in Taiwan and electronics assembled in China.
Trump believes that by raising tariffs, foreign companies, including those in Taiwan, will be forced to move their supply chains to the US, driving the revitalization of the US manufacturing industry. He also believes that manufacturers should cover factory construction costs themselves and it should not be subsidized by the US government.
Taiwan's Ministry of Finance has reviewed Trump's policies and believes the focus of his second term will be lowering corporate tax rates to 15% to stimulate investment and economic activity in the US. Trump is also expected to implement strict immigration controls to reserve job opportunities for American citizens.
Tariffs as a bargaining tool
During his first term, Trump repeatedly imposed tariffs and non-tariff trade sanctions on trade partner countries in 2017, using such measures to secure renegotiation opportunities. For countries with large and persistent trade deficits with the US, the US also applied pressure through currency policy reports in an effort to adjust the US trade deficit. For example, on August 5, 2019, the US labeled China as a currency manipulator, forcing China to negotiate with the US.
It is clear that with these new tariffs, Trump's goal is not only to accelerate the restructuring of supply chains but also to increase the US' bargaining power when negotiating with trade partners.
It is estimated that the US government's increase in tariffs and changes in immigration policies will cause inflation to rise further, leading to a decrease in US consumer demand and impacting global exports to the US. The US Federal Reserve may raise interest rates, causing more frequent international capital flows. At present, currencies aside from the US dollar are under depreciation pressure, while the US dollar index has noticeably risen.
The Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA), which was signed into law in February 2016, introduced three new quantitative criteria for major US trading partners: a significant bilateral trade surplus with the US, a material current account surplus that is at least 2% of the gross domestic product over a 12-month period, and persistent one-sided intervention in the foreign exchange market.
Taiwan meets the first two criteria, meaning it will likely continue to be included on the US Department of Treasury's foreign exchange "monitoring list." However, based on the observations of various organizations, Taiwan is not likely to face US trade sanctions.
Article translated by Eifeh Strom
