US-China trade war also endangers Taiwan firms

Taipeh – Taiwanese businesses are weighing up whether to move manufacturing operations from the Chinese mainland if the US trade dispute worsens. Such a move would be hugely expensive, but the island’s companies are likely to be one of the main losers in the event of a full-blown trade war between the world’s two largest economies.

Some estimates say almost of fifth of Taiwanese companies could suffer from the fallout. Taipei says about 50,000 Taiwanese have set up companies and invested on the mainland as of July last year and the self-ruled island is also a major supplier of components to mainland China.

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These exports, which make up around 2 per cent of Taiwan’s gross domestic product according to Capital Economics, are used to make smartphones and other electronic devices.

Many of these are shipped to America and could, therefore, also be seriously affected by US tariffs.

The first set of punitive 25 per cent US tariffs are due to come into force on Friday, affecting more than 800 Chinese imports worth US$34 billion.

Washington is expected to announce a second round of tariffs on a further US$16 billion of goods within two months and the combined penalties will target everything from machine tools and aircraft to touch screens.

If Beijing retaliates, US President Donald Trump has threatened a further 10 per cent of tariffs on US$200 billion of goods.

The threats have left Taiwan business executives who have production facilities on the mainland worrying about their future.

Sam Wang, the chief executive of a firm making DRAM semiconductors said he was afraid his company would be seriously affected as electronic products were most likely hit if the next round of US tariffs comes into force.

Wang established his facility in Shenzhen, the southern megacity that borders Hong Kong, 12 years ago, and supplies chips to mainland companies, which use them in products that are then shipped to the US.

“Actually, a number of businessmen based on the mainland are really worried about the latest development,” he said, adding they were concerned that the mainland might cut back their purchases of Taiwanese parts and components as a result.

Wang said his company has already tried to cut down its investment on the mainland and move part of its facilities to other countries like Vietnam or India.

“But this is a long-term plan as it takes time to establish the connection, obtain permission from the authorities for operation and recruit efficient staff and workers,” he said, adding most Taiwanese businesses hoped Washington and Beijing would resolve their dispute.

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The move by the US is part of Trump’s strategy to force Beijing to increase its imports of American products to reduce the long-time trade surplus the mainland has enjoyed in the past decades.

Beijing responded to his measures with retaliatory tariffs that will also begin on Friday targeting US$34 billion in American products, including agricultural products, cars and seafood.

Around 40 per cent of goods produced in Taiwan are exported, including semi-finished items and components that are shipped to the Chinese mainland.

Semiconductors made up 62.6 per cent of Taiwan’s total hi-tech exports in the first 10 months of 2017, according to Ministry of Finance data.

“At least 16-17 per cent of the Taiwanese businesses are tipped to suffer because many goods exported from the mainland to the US are assembled there, with much of the manufacturing actually being done in Taiwan,” said Lin Po-feng, chairman of the Taiwan-based Chinese National Association of Industry and Commerce.

Lin said local businesses with investments on the mainland would suffer eventually as the costs imposed by the US tariffs would eventually work their way back to Taiwanese businesses.

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William Foreman, president of the American Chamber of Commerce in Taipei, said: “It’s a concern for Taiwanese companies because Taiwanese companies are an integral part of the global supply chain so many of the markets that are facing these trade sanctions are producing products that have Taiwanese parts in them, so its definitely a concern for Taiwanese companies. Where all this is going to go, we still don’t really know, but there’s definite concern here about what it could mean for Taiwanese companies,” he said.

Last week, Foxconn, the world’s largest electronics contract manufacturer and a major supplier for Apple, said the US-China trade tensions were the biggest challenge it faced.

“In terms of how we manage and adapt, this is something all our high-level managers are making various plans on,” the group chairman Terry Gou told the company’s annual general meeting.

The Taiwanese government has so far downplayed the possible impact of a trade war. In late June an assessment by the island’s National Security Council said the “list one” of US sanctions, due to come in to force on Friday, would have little effect on Taiwan’s related industries and Taiwanese companies based in China”.

It also said that the “list two” would also be limited as Taiwanese firms were not major suppliers to the industries that would be affected.

But presidential spokesman Alex Huang admitted that if Trump wanted to levy a 10 per cent tariff on US$200 billion worth of other mainland Chinese goods, the impact on Taiwan would be more severe.

Tsai Ing-wen’s government has suggested that Taiwanese businesses either directly invest in the US or move operations back to Taiwan or to other countries. Source: SCMP