Tariffs set to hit local old economy industries hardest: Scholars

Taipei, Aug. 2 (CNA) The U.S. tariff polices are expected to hurt Taiwan's old economy industries more than their tech counterparts as it is harder for the traditional industrial sector to relocate production to the American market to avoid the tariffs, according to economics experts.

Speaking with reporters on Friday, Wang Jiann-chyuan (王健全), vice president of the Chung-Hua Institution for Economic Research (CIER), said Trump's tariff policies seek to encourage manufacturers to relocate their investments to the U.S. and roll out made in U.S. products.

"However, not all local industries can afford to move to the U.S.," Wang said. "Old economy industries simply cannot avoid high tariffs imposed by the Trump administration and will bear the brunt of the levy as they will not have efficient U.S. investments."

According to Wang, an industry which is prepared to go to the U.S. needs a high gross margin to cushion high product costs in the U.S. and they also have to be equipped with advanced automation to deal with the labor shortage in the U.S.

In addition, an industry needs to build a cluster and forge a comprehensive supply chain in the U.S. market, while its investments must be made to meet client demand, Wang said.

In Taiwan, Wang said, high tech industries such as chip makers, IC packaging and testing providers, artificial intelligence suppliers are qualified to go to the U.S., while many old economy firms will be left behind.

On Thursday, the White House announced a 20 percent blanket tariff on Taiwan, down from the 32 percent it unveiled on April 2. The Taiwan government said the 20 percent is provisional and a lower levy is being sought through further negotiations with the U.S.

Unlike contract chipmaker Taiwan Semiconductor Manufacturing Co. (TSMC), which is investing US$65 billion in the U.S. state of Arizona and has pledged to invest an additional US$100 billion in the state, boasting a gross margin of more than 50 percent, many old economy companies are currently sitting on a gross margin of less than 10 percent and even 3-4 percent.

"It is hard for old economy manufactures to follow tech giants and move production to the U.S. market," Wang said.

Since 2022, many old economy industries had invested a lot in countries in Southeast Asia as many of their clients asked them to go there under the "Taiwan plus one" initiative, Wang said.

"Now several Southeast Asian countries also face tariffs imposed by the U.S. and their rates are at around the same level as Taiwan so it will not be cost-efficient for Taiwanese old economy firms to go there," Wang said, referring to 20 percent for Vietnam and 19 percent for Thailand and Cambodia.

In addition to the U.S. tariffs, Wang said Taiwanese traditional manufacturers have to deal with other issues like the need to build an industrial cluster and deal with labor and electricity issues in Southeast Asia.

The old economy sector will also have to take on the impact resulting from a stronger Taiwan dollar, which has soared 9.18 percent against the U.S. dollar since the beginning of this year, Wang said.

Echoing Wang, Pai Tsung-cheng (白宗城), head of the Supply Management Institute, Taiwan, said many old economy industries, which have already been in trouble, are expected to go from bad to worse due to the impact of tariffs and forex losses.

Citing fasteners, like screws and bolts, Pai said production has a small profit margin so many manufacturers just gave up, but these items are fundamental to many industries which need them to roll out products.

"The government should not ignore traditional industries as many, including hand machines, machine tools, and metal parts makers, are likely to be hit hard by the tariff," Pai said.

"These old economy firms could go under without assistance, which is expected to dent the supply chain," Pai said.