Taiwan’s Economic Outlook – December 2016

Worries about Trump, as Trade Inches Upward

The election of Donald Trump as U.S. president has created anxieties in many countries around the world, as exporting nations worry that Trump’s protectionist leanings will impact global trade. Taiwan is among the most trade-dependent nations in the world, with exports totaling US$280 billion in 2015, equivalent to 53% of Taiwan’s nominal GDP, and are the main drivers of economic growth. The United States is Taiwan’s second-largest trade partner, and while only 12% of exports go to that market, compared to 39.5% to China/Hong Kong, much of Taiwan’s trade with China consists of IT components that are eventually shipped off as finished consumer electronics to the United States and other third countries. Taiwan Institute of Economic Research President Jeff Lin was quoted in the media fretting that the entire global trade order could be upended by the election results, resulting in a situation in which “enterprises like Hon Hai Precision Industry may have to relocate their production lines to the U.S.”

These concerns remain for the future, as Trump will not take office until January 20, 2017. For the time being, Taiwan’s economy continues the trend toward improvement seen in the third quarter, according to Bureau of Foreign Trade data. October’s exports posted a healthy monthly rise of 9.4% in annual comparisons to reach US$26.74 billion, although year-to-date numbers continue to lag, coming in at US$229.37 billion, a 4.5% drop. Imports, which consist largely of raw materials that are eventually exported as processed goods, rose in October by 19.5% to US$22.37 billion (US$189 billion year-to-date), contributing to a 3.6% decline in Taiwan’s positive trade balance.

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October trade figures show a healthy 14.9% rise in exports to China/Hong Kong, a 7.8% increase to the United States, and a slight 3.5% improvement to Japan. The United States takes some 12% of Taiwan’s exports, and Japan another 7.1%. Year-to-date figures continue to reflect Taiwan’s export declines earlier this year as part of a record 17-month slump that ended only in July. Year-to-date, exports to China/Hong Kong declined 4.5%, alongside a similar 4.6% decrease to the United States and a minor decline of 1.2% to Japan.

Trade to ASEAN nations, which receive over 18% of Taiwan’s exports, also rose in October by 13.2%, but have dropped by 4% for the year. Trade with the EU remains a singular bright spot, with the EU’s 8.9% share of Taiwan’s exports expanding 6.2% in October and 2.2% for the year.

The recent turnaround in exports is attributed to Apple’s introduction of the iPhone 7, which is built (in China) by Taiwan’s Hon Hai using Taiwanese-fabricated semiconductors and other components. Taiwan’s overall Machinery and Electrical Equipment sector, which accounts for 54.8% of exports, rose 13% in October year-on-year, narrowing the year-to-date decline to 0.2%.

Chemicals and Plastics, which combined make up 13.8% of exports, rose 9.9% and 1.5% respectively for October, but for the year still dropped 8.1% and 8.4%, mostly attributed to suppressed crude oil prices.

November Economic Indicators

While Taiwan’s electronics exports have revitalized in the last few months, trouble may be on the horizon, as export orders showed a 1.3% decline to the United States and a 13.1% plunge to Japan, although export orders to China remained healthy at 7.4% growth over a year ago. Total export orders for the month came to US$42.7 billion.

Unemployment continued to decline, falling to 3.95% in October from 3.99% in September, and third-quarter economic growth was upwardly revised to 2.03%, according to the Directorate General of Budget, Accounting and Statistics (DGBAS). Despite the good news, though, consumer confidence posted a three-year low in November, down 1.24 points in monthly comparisons to 77.71 on the scale as measured by National Central University, perhaps reflecting the sharp rise in the Consumer Price Index, which rose from 0.33% in September to 1.7% in October. The consumer confidence scale ranges from zero to 200, with any number below 100 considered pessimistic. Taiwan has never exceeded 100.

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