11 July 2019
Taiwan's Beleaguered Tech Sector Pins its Hopes on Year-End Upturn
With the US-China trade dispute now entering its second year, Taiwan is one of the many economies that has had to contend with its fallout. Although its electronics exports continue to tumble, it is now seeing some cause for optimism.
It's now more than a year since Donald Trump, the US President, imposed punitive tariffs on US$60 billion worth of China-origin imports, triggering a tit-for-tat trade war that – despite one or two recent concessions – shows little sign of abating. While these two trading superpowers slug it out, one of the many territories to have been caught in the crossfire is Taiwan, where its economic impact is already more than apparent.
With exports accounting for about 65% of its GDP, external trade is an essential part of Taiwan's economy. Now, 12 months on from the outbreak of hostilities, the territory is reeling from the knock-on consequences of the prolonged trade dispute. As of May this year, its export level had shrunk for seven consecutive months, triggering widespread concern as to its future economic wellbeing.
According to its Ministry of Finance's own figures, the overall value of the territory's exports in May was down 4.8% year-on-year, an outcome that fell well short of market expectations. It is believed that this decline will have continued into June, with the final figures expected to show a year-on-year fall of 2-4.5%.
Of course, Taiwan is not the only East Asian economy to be suffering on account of the China-US spat. South Korea, for instance, has seen its export levels shrink by 7.5% year-on-year, while Hong Kong has suffered a shortfall of 2.4% over the same period. China itself, however, seems to have suffered less. In the first five months of this year, it sustained export growth of 0.4% compared to the same period in 2018, while its imports dropped by 3.3%. Despite its export growth being up again in May – by 1.1% – its import level dropped by 8.5%, the poorest performance for 33 months.
Focusing back on Taiwan, however, the Ministry of Finance has attributed its poor May export performance to three particular factors. Firstly, its exports for May 2018 were valued at US$29.1 billion, an unusually high amount and, in fact, the fifth highest figure ever recorded.
A second factor was the early May US announcement that the tariffs on $200 billion worth of Chinese goods would be raised from 10% to 25%. This led many major manufacturers, on a global basis, to adopt a wait-and-see approach with regard to their spending plans, resulting in investment and, consequently, production being put on hold in many territories.
Thirdly, the price of many raw materials, including metals and chemicals, fell by about 20%, a sure indication that demand was dropping on an international basis. This, again, has been largely seen as a consequence of the US-China trade war.
Taking something of an historical perspective, Taiwan enjoyed a relatively prosperous 2018 with its exports growing 5.9% to $335.9 billion, a record high in value terms. Although 7.3% year-on-year growth was recorded for October, it proved to be something of a turning point, with a decline of 3.4% showing for the following month, the first fall in two years. As predicted, this shrinkage occurred exactly six months after the first China-US trade skirmishes, with this half-year interval seen as the typical time it takes major political / economic events to impact on market performance.
In December, Taiwan's total exports fell by a further 3%, partly on account of the unexpectedly sales of high-end iPhones, which led to cutbacks along the Apple supply chain in the territory. Come the new year, things didn't get any better.
For the first four months of the year, export levels continued to deteriorate – January (-0.3%), February (-8.8%), March (-4.4%) and April (-3.3%). With the May figures added in, , Taiwan's cumulative export value for the first five months of this year was $129.88 billion, a drop of 4.2% compared to 2018. Imports also fell over the same period – dropping to a total of $113.78 billion, a 1.2% year-on-year decline.
In terms of future exports – a primary economic indicator – on 20 June, the Ministry of Economic Affairs (MoEA) of Taiwan announced that orders worth $38.72 billion had been secured. While this was the second highest figure ever recorded, it was still down 5.8% compared to June 2018. Overall, in the first five months of 2019, Taiwan's export orders fell by 6.9% year-on-year.
Looking on the bright side, the MoEA, maintained that the May figure was higher than expected, indicating that the decline was slowing. Orders were, in fact, boosted by higher-than-expected demand for IC designs, batteries, thermal modules and petroleum products. The rise in high-end notebook computer orders also exceeded expectations.
Traditionally, electronic parts and components have been Taiwan's primary export items, accounting for about 30% of all external trade. From January to May this year, however, the export value of such items dropped by $2.28 billion compared to last year, a decline of 5.2% and one of the main reasons for the overall fall. According to the MoEA, the saturation of the global smartphone market and the poor sales of new iPhones were both contributory factors.
As a possible sign that the worse is over, however, Taiwan's export of electronic parts and components grew 0.49% year-on-year in May, taking it to a total value of $9 billion. Despite this, few are confident that the technology sector is set for sustained growth. Indeed, it will require expansion to be maintained throughout the rest of the year, a development that will ultimately depend on the impact of the agreements reached between Trump and Xi Jinping, the Chinese President, when they met at the Osaka G20 summit at the end of June.
Prior to the summit, the US had threatened to impose additional tariffs of $300 billion on Chinese imports. Thankfully, the meeting between the two leaders was successful enough to see this proposed tranche of tariffs put on hold, a development that reassured many of the major players in the tech sector and could see global trade accelerate in the second half of the year.
Trump's move to lift some of the restrictions on Huawei, the Shenzhen-headquartered telecoms giant, has been seen by many in the tech sector as one of the most positive outcomes of the Osaka summit. As it produces many of the parts and components Huawei relies upon, this is expected to benefit Taiwan in particular. Indeed, in the wake of the decision, some in the territory's tech sector are hoping that electronics exports will pick up dramatically in the latter half of the year, a development that could transform Taiwan's overall export performance.
Robert Kang, Special Correspondent, Taipei