Taiwan PMI drops for 2nd month in July amid tariff uncertainty

Taipei, Aug. 1 (CNA) Taiwan's purchasing manager index (PMI) fell for a second straight month in July, hurt by the local manufacturing sector's drop in new orders and production amid tariff uncertainties, the Chung-Hua Institution for Economic Research (CIER) said Friday.

The PMI further dropped 1.6 points to 48 in July, after the economic indicator dropped in June to below 50, signaling contraction of manufacturing activities, the Taipei-based think tank said when presenting the latest PMI numbers.

The July decline was mainly due to uncertainty resulting from the United States' arbitrary tariff policies, putting manufacturers in a wait-and-see mode, said CIER President Lien Hsien-ming (連賢明) during a news conference in Taipei.

A small number of clients have even shifted orders to Southeast Asian countries that had reached an understanding with the U.S. on tariffs, the CIER said in a statement.

Also affecting the index were fluctuating foreign exchange rates, including the Taiwan dollar's appreciation against the U.S. dollar, which has also weighed on the export-oriented manufacturing sector, the statement said.

Among the PMI's main composite sub-indexes, the sub-index for new orders dropped 1.7 to 45.4, the biggest decline for any month since June 2023, while the production sub-index also tumbled by 1.9 to 45.1, the CIER said.

The sub-index for inventories fell below 50 to 48.5, after five months of expansion, due to a slowdown in the supply chain, according to the statement.

In addition, the index reflecting manufacturers' outlook over the next six months dropped for the fourth consecutive month in July to 38.3, 1.5 points lower than in June, according to the CIER.

U.S. President Donald Trump's tariffs announced in early April, including a 32 percent rate on Taiwan-made goods, and the expectations that arose after those tariffs were paused for more than three months, distorted the market, according to CIER Associate Reseach Fellow Chen Shin-hui (陳馨蕙).

Businesses that managed to secure orders needed to pay more attention to freight rates and delivery times, while others held back shipments because a lack of clarity on the tariffs, Chen said.

Meanwhile, the non-manufacturing index released by the CIER on Friday stayed above 50 for the fifth consecutive month in July, but still fell 1.5 points from the previous month to 52.8.

The CIER attributed the monthly decline to a slowdown in business reported by wholesalers as well as companies in the transportation and logistics sector.

Five of the eight non-manufacturing sectors tracked by the CIER showed expansion in July, but all eight were pessimistic about the next six months, with the future outlook index remaining in contraction territory, the CIER said.

On Thursday, the U.S. announced a 20-percent levy on goods imported from Taiwan, starting Aug. 7. It was the same as the tariffs set for Vietnam, Sri Lanka and Bangladesh, but higher than Japan, South Korea and the European Union (15 percent), as well as the Philippines (19 percent).