Taiwan Economic Outlook – October 2018

U.S.-China Trade War Draws Attention

News reports indicate that at a number of Taiwanese firms are considering abandoning their Chinese production bases and returning to Taiwan to avoid being caught in the U.S.-China trade war. Although Taiwan has not been directly targeted by either country, many Taiwanese manufacturers have moved their production sites to China, and products exported from there would be considered Chinese goods under the U.S. tariff regime. So far the impact has been negligible, but the Trump administration’s latest round of tariffs targets include high-tech goods that could impact Taiwanese manufacturers.

“Some 20 Taiwanese businesses have already expressed their desire to relocate here,” Taiwan’s Minister of Economic Affairs Shen Jong-chin told reporters on September 18, adding that the government is offering support for companies inclined to make the move.

Regardless of the trade war, Taiwan’s exports – the key to growth in this trade-dependent economy – have continued to rise, increasing by 8.9% year-on-year for the first eight months of 2018 to reach US$220.48 billion. China remains by far the largest destination for Taiwanese exports, taking over 28% of the total exports, which rises to 41.3% when Hong Kong is included. Exports to China/Hong Kong rose 11.8% compared to the same period last year to reach US$90.44 billion. Trade with the United States was up 6.6% year-on-year as of August to reach US$25.46 billion. As the second-largest destination for Taiwanese exports, the United States takes 11.5% of the total.

Trade with the European Union has also surged in 2018, with exports to the EU rising by 11.5% year-to-date to reach US$19.59 billion, 8.9% of the total. Trade with ASEAN remains significant, with exports at US$38.76 billion, 17.6% of the total, but growth has slowed to only 1.4% year-on-year.

The Machinery and Electrical Equipment sector remains the key component of Taiwan’s exports, comprising 56.3% of total exports for the month of August and 55.2% for the year to date, for a total of US$119.85 billion in the first eight months, a 7.2% gain.

Leading indicators are likewise positive. The Purchasing Managers Index (PMI) as measured by the Chung-Hua Institution for Economic Research declined slightly in August, falling to 56 from 56.1 in July, but remains in positive territory. New export orders posted growth of 7.1% year-on-year in August, according to the Ministry of Economic Affairs, to reach US$43.68 billion, a gain of 4.5% over the previous month.

Consumer confidence remained buoyant, rising slightly in August to 82.56 from 82.38, as measured by the National Central University’s Center for Taiwan Economic Studies. Taiwan’s Directorate General of Budget, Accounting and Statistics (DGBAS) reports that the Consumer Price Index dropped slightly, from 1.75% in July to 1.53% in August. DGBAS currently forecasts 2018 GDP growth at 2.69%.

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