Supply Chain Research

U.S. Trade Representative nominee Robert Lighthizer has committed to “develop a trade and investment policy that promotes a stronger bilateral relationship with Taiwan”, Bloomberg reports. That may include improved trade terms as well as direct investment by Taiwanese companies. One example could be a potential display manufacturing plant reportedly under consideration by Taiwan-domiciled Foxconn, as discussed in Panjiva research of February 22.

So far the U.S. is actually a relatively small part of Taiwan’s exports. In the 12 months to February 28 it accounted for 11.8%, and actually fell 0.6% on a year earlier despite an 8.6% rebound in the month of February.

Calculations based on Ministry of Finance data for Taiwan Source: Panjiva

Going into negotiations Taiwan would likely fall foul of the Trump administration’s fixation on trade deficits. In the 12 months to January 31 it ran an average monthly surplus of $1.1 billion vs. the U.S. Trade between the two has stagnated recently though, with U.S. exports unchanged on a year earlier and Taiwan’s exports to the U.S. falling.

Upper panel shows Taiwan trade surplus vs. the U.S., lower panel shows 12 month trailing average based on U.S. export and import data. Source: Panjiva

The main complexity in trade talks will be the geopolitical angle with China, and its insistence on the “one China” policy regarding global relations with Taiwan. While President Trump has effectively acquiesced to this policy, the BBC reports, it will inevitably spill into trade talks. If nothing else, Panjiva analysis shows that arms and aerospace are significant parts of U.S. exports to Taiwan at 10.82% and 2.54% of the total in the 12 months to January 31. Taiwan was the second largest buyer of U.S. munitions (HS 9306.90) and a top 20 aerospace customer last year.

The two countries are also tightly tied together in high technology supplies. The U.S. exported $2.88 billion of semiconductor fabricating equipment to Taiwan in the past 12 months, while the two countries exchanged $5.95 billion of semiconductors (the U.S. had a surplus).

In common with many other Asian countries Taiwan may have leverage over the U.S. in agricultural products, which currently account for 11.5% of U.S. exports to Taiwan. Taiwan on the other hand still has sensitivities in steel products, which cover 7.4% of its shipments to the U.S., and telecoms equipment (including phones and network equipment).

Chart shows each country’s exports to the other as a percent of the total, segmented by HS code (lower axis labels) Source: Panjiva