Cautious Optimism as Tariff Risks Loom
Taiwan’s economy showed continued signs of moderate recovery in April, driven by resilient semiconductor demand and steady domestic consumption. However, mounting unease over U.S. trade policy and a cooling property market have dampened optimism, casting a more cautious tone for the second half of the year.
Uncertainty over U.S. trade policy has emerged as a key risk. On April 2, President Donald Trump proposed “reciprocal” tariffs targeting imports from countries with large trade surpluses with the United States – including a proposed 32% levy on Taiwanese goods. The announcement triggered a sharp sell-off in Taiwanese equities and a depreciation of the New Taiwan dollar.
The White House later suspended the 32% tariff for 90 days and imposed a temporary 10% levy on a broader range of imports, excluding key electronics like smartphones and PCs. While the move brought short-term relief, concerns linger. Taiwan’s government continues to seek exemptions through talks with U.S. counterparts and is promoting imports of American goods to narrow the trade gap. Officials have also proposed a bilateral economic dialogue to formalize cooperation.
In early April, the Executive Yuan approved an NT$88 billion (US$2.66 billion) support package, including subsidies and tax breaks for export-oriented industries and targeted aid for agriculture. On April 24, the government proposed a further special budget of up to NT$410 billion (US$12.6 billion) to support affected sectors. The proposal requires legislative approval, where opposition parties hold a majority.
On April 7, Taiwan’s benchmark stock index plunged 9.7% – the largest one-day drop in its history. The sharp decline was attributed to investor anxiety over the tariffs.
Taiwan’s export performance, while strong in early 2025, began to ease in April after a March surge. The Ministry of Finance reported March exports jumped 18.6% year-over-year (YoY) to US$49.57 billion, lifted by front-loaded orders ahead of expected tariffs. First-quarter exports rose 17.5% YoY to US$129.6 billion. April exports are expected to show a more moderate YoY increase of about 5%, due to the high base and easing urgency among overseas buyers.
March export orders rose 12.5% YoY to US$54.1 billion, supported by strong global demand for AI-related components. The trade surplus reached US$6.95 billion, though imports surged 28.8% YoY, driven by machinery purchases and rising energy costs. The Ministry of Economic Affairs projects April export orders to grow between 6% and 10%.
Industrial production remains on an upward trend, led by semiconductors. March data showed companies expanding capacity to meet AI and cloud infrastructure demand. TSMC reported a 60% YoY increase in Q1 net profit and maintained its full-year guidance, citing strong momentum in advanced node technologies. Other tech firms also posted strong results, though some reported softer demand from China.
Private and public investment continue to drive growth. Approved foreign direct investment (FDI) in Q1 totaled US$3.2 billion, up 19.6% YoY, with strong interest in high-tech and renewable energy. Government infrastructure efforts – focused on digital infrastructure, offshore wind, and housing – are supporting employment in construction and manufacturing. The Council of Agriculture also launched new rural revitalization funding to bolster agricultural exporters.
Spending Slows as Rates Hold
Consumer sentiment weakened in April. The confidence index fell to 68.21, its lowest in a year, from 71.86 in March. All sub-indices declined, with notable drops in expectations for stock investments and durable goods purchases.
March unemployment stood at 3.35%, with labor force participation at 59.35%, the highest for that month in over three decades. Wage growth and steady job creation have helped sustain consumption. The Ministry of Labor reported ongoing strength in manufacturing employment, though service-sector vacancies are rising.
Inflation edged higher. The Consumer Price Index (CPI) rose 2.29% YoY in March, driven by fruit price spikes from earlier weather disruptions. Core inflation remained moderate at 1.63%. The government froze electricity rates and continued subsidizing fuel import costs. The Directorate General of Budget, Accounting and Statistics (DGBAS) projects full-year CPI growth below 2%, barring external shocks. The Taiwan Institute of Economic Research noted that wage growth and fiscal measures have helped preserve household purchasing power.
Taiwan’s housing market continued to cool after aggressive policy tightening. Q1 transactions in the six largest municipalities fell 23.6% YoY – the steepest drop in a decade. Central Bank credit controls – tighter loan-to-value ratios and second-home restrictions – curbed speculative buying. Developers slowed new launches, and sellers are offering discounts. Some local governments are reviewing tax incentives to aid first-time buyers.
Despite the slowdown, the Central Bank kept its benchmark rate at 2.00% for a fourth straight quarter, citing stable inflation and external risks. Policymakers said existing credit controls would remain to ensure market stability. Lending to the construction sector has also moderated amid increased risk scrutiny.
The New Taiwan dollar fluctuated sharply in April. It weakened to NT$33.2 per U.S. dollar early in the month, then rebounded to NT$32.0 after the temporary easing of trade threats. The Central Bank intervened to limit volatility. Analysts expect the currency to remain sensitive to further U.S. policy developments. Taiwan’s strong foreign reserves offer a buffer against short-term capital flight.
Looking ahead, economists continue to describe Taiwan’s economy as fundamentally sound, supported by high-tech exports, robust investment, and a stable labor market. But while the current outlook remains positive, continued vigilance will be necessary to maintain momentum through the second half of 2025. DGBAS is scheduled to release revised GDP forecasts in June, will reflect updated assumptions on trade, consumption, and investment.
