Since the announcement of global tariffs by President Trump, Alex Tang, owner of a lathe-making factory in central Taiwan, has been preparing his workers for challenging times ahead. His business, like many others in Taiwan's export-dependent manufacturing sector, could face significant impacts.
The 90-day pause on most tariffs provided temporary relief for Taiwan, which now faces a 10 percent tariff on many products, rather than the previously threatened 32 percent. However, the tariffs imposed on China, Taiwan's major manufacturing rival, could also have repercussions for Taiwanese exporters.
Mr. Tang emphasized the need for agility in adapting to the evolving global trade environment, particularly given the possibility of future tariff increases. Although his company, Aegis CNC, does not export directly to the U.S., many of its customers in Taiwan and Southeast Asia do.
Uncertainty surrounding U.S. trade policies has led some American traders to pause orders from Taiwanese suppliers, creating additional challenges for businesses like Mr. Tang's. During interviews with various manufacturers in central Taiwan, many echoed similar concerns; while the tariffs themselves are burdensome, the uncertainty they create is equally problematic.
The Taiwanese manufacturing sector is recognized for its semiconductor production, which remains exempt from tariffs due to its significance to U.S. technology firms. Nonetheless, Taiwan also produces a range of consumer goods, including bicycles, car parts, and kitchen appliances, alongside machinery used in manufacturing these products.
Many Taiwanese manufacturers are small or medium-sized businesses. Alicia GarcÃa Herrero, chief economist for Asia Pacific at Natixis, noted that while these companies have thrived by remaining frugal and debt-free, they often lack the scale to compete against larger firms, particularly from mainland China.
Manufacturers expressed that Trump's tariffs are the latest in a series of challenges they have faced, including the COVID-19 pandemic and geopolitical tensions affecting global trade. While some are able to manage the current 10 percent tariff, there are concerns that ongoing uncertainty could reduce orders significantly.
Catherine Yen, a sales manager at Aegis CNC, likened the trade disruptions to a typhoon, highlighting the immediate effects on U.S. exports and the broader implications for supply chains. She is actively seeking new markets in the Middle East and beyond to mitigate risks.
Henry Yang, who exports plumbing products to the U.S., expressed sympathy for Trump's objectives but questioned the feasibility of quickly rebuilding American manufacturing capabilities. He acknowledged the challenges of finding skilled labor, even in Taiwan, where many factories rely on migrant workers.
Mr. Yang noted that manufacturers will likely have to absorb some of the new tariffs' costs, while also recognizing Trump's rationale for implementing them. He and other manufacturers have historically relied on a network of suppliers to fulfill orders from the U.S. and other markets.
Despite challenges from larger Chinese competitors, Taiwanese manufacturers have adapted by focusing on small orders and diverse offerings. Jack Lee, chairman of 7-Leaders Corp., highlighted Taiwan's competitive edge in flexibility and customer service.
With approximately 144,000 small and medium-sized manufacturing firms in Taiwan employing around two million workers, these businesses account for 12 percent of the island’s manufactured exports. Their decentralized production models contribute significantly to their competitiveness.
Concerns remain that Chinese companies could increase efforts to undercut Taiwanese firms, potentially aided by government subsidies. However, some Taiwanese manufacturers, like Samuel Hu of Astro Tech, view the situation as an opportunity to enter the U.S. market, with increasing inquiries from potential American customers.