On July 8, Taiwan’s Ministry of Finance announced that the island’s exports in June reached USD 53.32 billion, marking a new record high for a single month. However, what is noteworthy and concerning is that exports to the United States accounted for 32.4% of Taiwan’s total exports, significantly surpassing the 27.3% share of exports to Mainland China and Hong Kong. Meanwhile, the proportion of exports to ASEAN countries declined to 16.8%, and exports to Europe made up only 6.4%. At a time when Trump is imposing high tariffs globally, Taiwan’s rapidly increasing export dependence on the U.S. runs counter to the prevailing trend and carries considerable risk.
On July 7, Trump sent letters to 14 countries, unilaterally announcing the tariff rates that the U.S. would impose on these countries, stating that they would take effect from midnight on August 1. Trump remarked that the August 1 effective date is “certain, but not necessarily 100% certain,” as there may still be room for negotiations if these countries are willing to offer terms favorable to the United States.
At present, Taiwan has not received any notification, but both Japan and South Korea have been notified that a 25% tariff will apply. Compared to the “Liberation Day” tariffs announced on April 2, most countries’ rates remain largely unchanged or have been slightly reduced. For example, South Korea’s 25%, Thailand’s 36%, and Indonesia’s 32% are all the same as before. There are, however, some exceptions: Japan and Malaysia both saw an increase from 24% to 25%; Laos and Cambodia have seen larger reductions but still face high tariffs—down from 48% to 40% and from 49% to 36%, respectively.
Last year, the top three sources of the U.S. trade deficit in Asia were Mainland China, Vietnam, and Taiwan, with deficit amounts of USD 295 billion, USD 123 billion, and USD 74 billion, respectively. Of these, the U.S. has a provisional agreement with Mainland China, and Vietnam, after rounds of negotiations, ultimately made comprehensive concessions (zero tariffs on all imports from the U.S.) in exchange for a 20% tariff rate on its exports to the U.S.; if the goods are re-exported through Vietnam, however, a 40% tariff will apply. Taiwan’s tariff rate has yet to be announced.
From the currently known tariff rates, there does not appear to be a direct correlation with the trade deficit figures. For example, the countries ranked fourth to ninth in the U.S.–Asia trade deficit are Japan, South Korea, Thailand, Malaysia, Indonesia, and Cambodia, with deficits of USD 68 billion, USD 66 billion, USD 46 billion, USD 25 billion, USD 18 billion, and USD 12.3 billion, respectively. Yet their tariff rates are 25%, 25%, 36%, 25%, 32%, and 36%, respectively. This indicates that although Trump has not explicitly stated his basis for setting the rates, it is clear that factors beyond simply reducing the trade deficit are at play.
For instance, Trump has claimed that Thailand, Malaysia, and Indonesia pose economic and national security threats to the U.S., which could partly explain the relatively high tariffs on Thailand and Indonesia. Additionally, the 40% tariff on re-exported products from Vietnam and the 36% tariff on Cambodia may be intended to block China from using indirect routes to circumvent U.S. tariffs by “origin washing.” Given Taiwan’s close supply chain ties with Mainland China, Taiwan’s exports to the U.S. could easily be suspected of being re-exports, which raises the risk that Taiwan’s tariffs could be unreasonably increased.
Securing the most favorable terms for Taiwan in negotiations is therefore an urgent priority. However, Taiwan’s trade surplus with the U.S. in June reached USD 13.37 billion—more than double last year’s monthly average of USD 6.17 billion—which is not conducive to negotiating a lower tariff rate.
Moreover, since the beginning of this year, the New Taiwan Dollar (NTD) has appreciated 12.3% against the U.S. dollar, the highest among Asian currencies; since “Liberation Day” on April 2, it has appreciated a further 13.8% in just three months. In the non-deliverable forward (NDF) market, the one-year NTD NDF indicates that the market expects this appreciation trend to continue (one-year NTD NDF stands at USD 1 = NTD 28.42). This strengthening currency will have a broad impact on Taiwan’s exports and will further drag down economic growth in the second half of the year.
The latest data shows Taiwan’s June Consumer Price Index (CPI) grew by only 1.37% year-on-year, an early signal pointing to an economic slowdown ahead. Regardless of what the final tariff rate for Taiwan will be, it will be higher than the current 10% rate, meaning that exports to the U.S.—which account for 32.4% of Taiwan’s total exports—will take the brunt of the hit, directly harming Taiwan’s economy.