Trump’s China trade threat looms large over Taiwan

Bloomberg

Call it collateral damage. If Donald Trump delivers on threats to put punishing tariffs on Chinese goods, plenty of pain would be felt in Taiwan, a de facto US ally that Beijing considers a breakaway province.
The island would be among
the most vulnerable to economic spillover from any US-China trade war. More than 40 percent of the export powerhouse’s shipments go to China, as it plays a vital role in supplying widgets for the mainland’s manufacturing machine.
Former Taiwan trade representative San Gee is among those who say they’re nervous. “The possible effects could be quite significant,” San, an economist and academic at National Central University, said in an interview. “Everything is uncertain. Everything is dynamic and it puts us in an uneasy position.”
If Trump trade barriers cut US imports by 10 percent, or $240 billion, Taiwan would take a bigger hit than China relative to the size of their economies, according to Goldman Sachs Group Inc. Such a scenario would shave at least 0.4 percent off Taiwan’s nominal gross domestic product, Goldman said, noting that the estimate doesn’t include other factors such as possible trade retaliation.
Exports account for about two-thirds of Taiwan’s economy, and machinery and electronics make up the bulk of those exports. Taiwan now makes more than 90 percent of the world’s motherboards and notebook computers, according to a Brookings Institution report. So tariffs on Chinese electronics would be especially painful for Taiwan because a large portion are either made by Taiwanese-owned companies or are partly made in Taiwan itself.
“Because most of the value of those items is contributed by Taiwanese, other Asian and US companies, a tariff based on their value coming out of China would hurt Taiwan and others disproportionately,” said Shelley Rigger, a politics professor at Davidson College and author of the book “Why Taiwan Matters: Small Island, Global Powerhouse.”
To be sure, China and the US remain a long way from a trade war. Trump has yet to explain since he took office what action he might take on trade. He calmed nerves this month when he stepped away from a threat to upend US policy on Taiwan, promising in a telephone call with Chinese President Xi Jinping to respect the “One China” policy that has been the basis of US ties with the mainland since the 1970s.
China’s Commerce Minister Gao Hucheng said at a briefing Tuesday that history shows that the US and China can resolve their differences. He noted that the economic interests of the two countries are intertwined.
While investors and companies remain uncertain about what direction US trade policy will take, they’re working with the assumption that the two sides will reach a resolution, according to David Mann, chief Asia economist at Standard Chartered Plc in Singapore.