A proposed 32% US tariff on Taiwanese goods could cause a 5% drop in Taiwan’s manufacturing output, according to the National Development Council (NDC).

Deputy head, Kao Shien-quey, warned the tariff may cut Taiwan’s industrial exports to the US by 26%, possibly forcing firms to relocate production to countries like Mexico.

This shift could hurt domestic production and jobs, especially among small and medium enterprises in sectors such as hand tools and plumbing hardware.

These sectors have already suffered from previous US tariffs of 25% on steel, aluminum, cars, and car parts.

Taiwan’s statistics bureau estimates the new tariffs could lower GDP growth by 0.5 to 1.5 points, though a recent 90-day pause has reduced the rate to 10% for most countries, excluding China.

🔗 Source: Focus Taiwan

🧠 Food for thought

1️⃣ Taiwan faces divergent sectoral impacts from US tariffs

While Taiwan’s National Development Council projects a potential 5% drop in overall manufacturing, the impact would vary significantly across industries, creating winners and losers within the economy.

The semiconductor industry appears more resilient, with TSMC maintaining its robust 24-26% growth forecast for 2025 despite tariff threats, suggesting that high-value, advanced technology sectors may weather the storm better 1.

In contrast, traditional manufacturing segments like hand tools and plumbing hardware, dominated by small and medium enterprises with thinner margins, face greater vulnerability to the proposed 32% tariffs 2.

The projected 16.5% growth for Taiwan’s chip sector in 2025, reaching NT$6.17 trillion in production value, further illustrates this sectoral divergence, as AI and high-performance computing demand continues to drive growth in advanced manufacturing 2.

2️⃣ Trade tensions driving geographic manufacturing shifts

The warning from Taiwan’s NDC about manufacturers potentially relocating to Mexico reflects an established pattern of production migration in response to tariff pressures.

During the previous US-China trade war, Taiwan benefited substantially, gaining $4.2 billion from trade diversion as manufacturers shifted operations away from China, particularly in office machinery and communication equipment 3.

Mexico similarly gained $3.5 billion during that period, positioning it as a key alternative manufacturing base, particularly given its proximity to the US market and USMCA trade agreement benefits 3.