Analysis: Taiwan's Economy in Light of New Tariff and Economic Package

TaiwanPlus News

Taiwan’s Cabinet announced a US$12.6 billion economic package to boost the economy and reduce the impact of U.S. tariffs. TaiwanPlus spoke with Nick Marro from the Economist Intelligence Unit to discuss how both U.S. tariffs and domestic budget cuts could reduce growth but Taiwan's outlook is still likely better than most other Asian countries.

Transcript

00:00Nick, let's start with this more than 12 billion US dollar package the cabinet has just announced.

00:05Do you think it's enough to offset the potential damage from US tariffs?

00:09Well, I mean, whether it's enough is very much going to depend on kind of the final

00:13composition of these tariffs. But what we do know is that government spending this year was

00:17slated to be slashed by quite a historic amount. And so when we think about our own forecast for

00:22Taiwan, we were always expecting government consumption to be one of the bigger drags,

00:26given the fact that politicking in the legislative Yuen was really kind of having implications for

00:32the growth story. I mean, if the government can't execute its budget or if it's implementing its

00:37spending plans with a lot less fiscal resources than it had initially planned for, there are

00:41consequences for that. And so higher spending in the context of what was already happening in Taiwan

00:46is going to be a good thing anyway. Well, let's pull back a little bit. There have been divergent

00:51estimates on Taiwan's economic growth for this year. The IMF forecasts 2.9% growth, while local

00:58think tanks here gave estimates as low as 0.16%. Where do you fall on this question?

01:04Well, there is a very wide range of forecast calls right now, which I think is reflective of how

01:09uncertain the global environment is at the current time. Tariffs are really going to make or break

01:14Taiwan growth story this year. Now, for us at EIU, we are more bullish than I think the rest of the

01:19market. Our growth forecast is around 3.5%. And the reason why it's so high is because when we look

01:24at Taiwanese exported semiconductors, Taiwanese exported electronics, they're what we call

01:28inelastic goods. These are goods that are hard to substitute. And so even despite everything that's

01:34going on with the tariffs, we're expecting there to be exemptions. We're expecting there to be

01:38negotiations that would insulate Taiwanese trade flows. Taiwan is irreplaceable in many ways.

01:43And that's going to be something that not only Taiwanese policymakers have to think about,

01:47but also U.S. policymakers in terms of how aggressive they can push their hawkish trade

01:51policy. So do you see this as the anti-tariff version of Taiwan's so-called silicon shield?

01:58I think it is. I mean, I think silicon shield is an interesting concept in the sense of,

02:01you know, how it relates to national defense. But Taiwan indisputably occupies a very advantageous

02:09part of the global value chain. I think even the concerns that we have around Taiwan,

02:15you know, Taiwanese companies investing in other markets and whether this is going to

02:20reduce that silicon shield, I think those are somewhat misplaced given that the crown jewels,

02:25the most innovative semiconductors, the most advanced production, that all still seems to

02:28be very much localized in Taiwan. And we don't see that changing anytime soon.

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