Taiwan's Manufacturing Sector Faces Headwinds Amid Tariff Uncertainty

Trump's Trade Policies Cast a Shadow Over Economic Growth

Taipei, Taiwan - The Taiwanese manufacturing sector is showing signs of strain, according to the Taiwan Institute of Economic Research (TIER). The economic composite index, a key indicator of the sector's health, declined significantly in March, primarily due to the economic uncertainty stemming from former U.S. President Donald Trump's tariff threats.

The index dropped by 4.54 points from the previous month, reaching 12.12 in March. This resulted in a "yellow-blue" light, signaling sluggish growth, a shift from the "yellow-red" light seen in February and a "yellow-blue" light in January.

The TIER uses a five-color system: "red" indicates overheating, "yellow-red" represents fast growth, "green" signifies stable growth, "yellow-blue" indicates sluggish growth, and "blue" denotes contraction.

The think tank attributes the downturn to Trump's unpredictable tariff policies, which have heightened risks to global trade. These policies included initial announcements of reciprocal tariffs, potentially impacting Taiwan with a 32% import duty before a subsequent 90-day pause.

While the information and communications technology and electronics component sectors continue to benefit from strong global demand for emerging technologies, the TIER noted a moderation in growth within these areas. However, Trump's trade policies have also affected the stock markets, impacting manufacturer sentiment.

Analyzing the March composite index, the sub-indexes for demand, the general business climate, raw material purchases, and pricing all declined. Only the sub-index on costs saw an increase.

By sector, the electronics component and computer/optoelectronics sectors showed a green light in March, reflecting a slowdown. The base metal industry, impacted by a weak global steel market and decreased orders from Europe and China, flashed a blue light. The machinery industry also showed signs of slowing, moving from a red light in February to a green light in March, influenced by China's push for domestic products.

Looking forward, the TIER anticipates increased risks to global trade due to Trump's tariff policies. These uncertainties are expected to negatively influence business confidence and global supply chain expansion strategies, which could, in turn, affect the strength of Taiwan's manufacturing sector.

Moreover, potential tariffs on semiconductors, combined with U.S. sanctions on chip exports to China, pose significant challenges for Taiwan's high-tech sectors, the TIER cautioned.