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U.S.-China trade war to push companies back to Taiwan: think tank

2019/05/11 20:39:21

Taipei, May 11 (CNA) The ongoing trade dispute between Washington and Beijing will compel more Taiwanese firms operating in China to return to Taiwan to avoid the United States' punitive tariffs on goods made in China, a think tank predicted Friday.

Gordon Sun (孫明德), director of the Taiwan Institute of Economic Research's (TIER) Economic Forecasting Center, told CNA that Taiwanese companies may have no choice if the situation continues to deteriorate.

No agreement was reached in the latest round of talks as the trade friction between the U.S. and China escalates, which could lead to the U.S. imposing punitive 25 percent tariffs an additional US$325 billion worth of imported products made in China that are not already facing punitive duties.

U.S. Trade Representative Robert Lighthizer said his office is preparing those new tariffs.

"The US$325 billion worth of Chinese goods involve major electronics gadgets, such as smartphones and computers many Taiwanese firms roll out in China, and the impact could be major," Sun said.

Among the goods that would be affected are iPhones, and because many Taiwanese companies operating in China are part of Apple Inc.'s supply chain, they could suffer major blows from new tariffs, the analyst said.

"But let's think about the issue in a positive way," Sun said. "The development will lead more Taiwanese companies in China to speed up the pace at which they relocate operations back to Taiwan.

"Their investments are expected to become a driver of Taiwan's gross domestic product (GDP) growth in the second half of this year," he said.

After China apparently reneged on some of the understandings that had already been reached in trade negotiations between the two countries, the U.S. increased tariffs already imposed on US$200 billion worth of imported Chinese goods to 25 percent on Friday, from the previous 10 percent.

Many fear that could hurt global economic growth and demand and have negative consequences for Taiwan's export-oriented economy.

But while the TIER left its forecast for Taiwan's 2019 GDP growth at 2.12 percent, it did raise its projections for capital formation and private investment growth for the year because of the potential return of overseas Taiwanese companies.

It raised its forecasts for 2019 capital formation growth to 5.36 percent, from a 4.60 percent estimate in January, and for 2019 private investment growth to 4.10 percent, from an earlier estimate of 3.18 percent.

Data compiled by the Ministry of Economic Affairs (MOEA) showed that 52 Taiwanese companies operating abroad have pledged to invest NT$279.5 billion (US$9.05 billion) in Taiwan so far this year amid trade worries.

The MOEA offered an incentive package in January to encourage Taiwanese companies that shifted their operations overseas in recent decades, especially to China, to return to Taiwan to invest.

The incentives include better access to bank loans, a simplified process for recruiting migrant workers, and services tailored to their needs.

According to the MOEA, the 52 firms are expected to create more than 27,000 new jobs for Taiwan. Their pledges have topped a goal set by the government to encourage NT$250 billion in investment by these companies, and on Thursday, the Executive Yuan raised the 2019 goal to NT$500 billion.

The Bureau of Foreign Trade (BOFT) said the tariff hikes on US$200 billion worth of Chinese goods have affected China-based Taiwanese makers of internet communications devices, low to mid-range bicycles and electronics components, and vendors in those product categories seem most eager to return to Taiwan.

The BOFT cited the latest trade data to show that many overseas Taiwanese businesses have taken steps to adjust their production by relocating funds back to Taiwan to diversify risk amid the U.S.-China trade dispute.

According to the data, while Taiwan's exports in the first four months of 2019 fell 4 percent from a year earlier amid slower global demand and an unfavorable trade environment, its exports to the U.S. market were up 19.9 percent year-on-year.

Roy Chun Lee (李淳), deputy director of the Taiwan World Trade Organization and Regional Trade Agreements Center of the Chung Hua Institution for Economic Research, said Taiwanese companies in China should reduce their share of production in Chinese factories in view of the trade tensions.

"But do not withdraw completely from China for the moment as it remains possible that the two economies pull off a surprise and resolve their dispute," Lee said.

"We have to keep in mind, however, that the trade issue has been brewing for a long time, so what Taiwanese companies should do is hedge their bets over the longer term by diversifying production."

While welcoming more overseas Taiwanese businesses returning home, Sun was still concerned about the impact of tariffs on the additional US$325 billion worth of Chinese goods.

Sun said he was afraid that the escalation in trade tensions would send ripples through global financial markets, which Taiwan would not be able to avoid.

A report from UBS concluded that the Chinese yuan could suffer further volatility if trade tensions get worse, which could affect regional currencies.

The yuan fell 1.4 percent against the U.S. dollar this week, reversing an uptrend seen since November 2018 when it nearly hit 7 yuan to the dollar.

It lingered at the 6.7 yuan level for much of April before weakening to 6.82 against the dollar on Friday.

(By Pan Tzu-yu, Tsai Peng-min, Chiu Po-sheng and Frances Huang)