Since taking office, US President Donald Trump has aimed to restore America's greatness through reciprocal tariffs. For the automotive industry, this is not only an issue of national pride but also one of economic substance. Under the pressure of these tariffs, Taiwan's automotive sector now finds itself walking a fine line, with nearly 300,000 jobs at stake, depending on the government's next move.
In late March, Trump confirmed that starting in April, a 25% tariff will be imposed on imported cars and auto parts that are not made in the US. This, combined with the existing 2.5% tariff, will result in a total tariff rate of 27.5%.
Although Taiwan's exports of complete vehicles to the US are relatively low, the impact on the industry is still significant. Beyond the 17.5% import tariff, Taiwan will also be subjected to an additional 25% goods tax. In comparison, the 2.5% tariff on Taiwanese car exports to the US is considerably lower, which makes it clear that the US wants Taiwan to reduce its auto import duties.
Thus, within 24 hours of Trump's tariff announcement, the Taiwan Transportation Vehicle Manufacturers Association (TTVMA) raised concerns, warning that the government should not unconditionally and proactively reduce the import tariff on passenger vehicles. If the import tariff on small cars were to drop from 17.5% to 0% or 2.5%, it would not only result in a loss of national tax revenue but also cause Taiwan's automotive industry to lose its competitiveness. This would have a ripple effect on the entire domestic automotive supply chain and vehicle electronics development.
Historically, Taiwan's automotive industry has been divided into two camps: exporters and small-to-medium-sized manufacturers focused on the domestic market. For the exporters, the tariff issue is nothing new. However, for smaller manufacturers, a reduction in the price of imported cars could prove to be the final blow.
Many of these small businesses specialize in the production of large, difficult-to-transport products like car frames and are highly dependent on the demand for domestic cars. Conversely, domestic car manufacturers also view these small businesses as indispensable partners.
In Taiwan, car buyers are often attracted to domestic cars that provide high value for money, while brand image also significantly influences purchasing decisions. Although domestic cars, particularly those that have dominated the market for several years, continue to hold a substantial market share, imported cars still achieve strong sales figures. This is partly due to the limited number of homegrown car brands in Taiwan. Overall, the demand for imported cars in Taiwan is undeniable.
The domestic-focused automotive supply chain has admitted that for years, they have barely been profitable, with some barely breaking even. They are already walking on the edge, and how the government responds to Trump's tariff threat could determine whether they survive or fall off the cliff.
Article translated by Elaine Chen and edited by Jack Wu
