- Macroeconomic impact of reciprocal tariffs has moderated since the initial assessment in April.
- Sectoral impact remains significant; financial market response is negative.
- Semiconductor tariff remains the key risk—uncertainty persists around the rate, scope, …
- … and potential preferential treatment for Japan and South Korea.
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Modification of reciprocal tariff rates
US President Trump has announced modifications to reciprocal tariff rates. Taiwan’s reciprocal tariff rate has been reduced to 20%, down from 32% in April. This adjustment brings Taiwan’s tariff rate closer to those of ASEAN countries, though it remains higher than the rates applied to Japan and South Korea within the Asia region.
On Taiwan’s side, the Executive Yuan issued a statement characterizing the 20% tariff rate as “temporary.” Taiwan and the US have not yet held a concluding negotiation meeting due to scheduling issues. Discussions will continue, and if an agreement is reached, the tariff rate could be lowered further. Taiwan is also exploring the possibility of seeking preferential treatment under Section 232 tariffs.
Reciprocal tariff impacts
From a macroeconomic perspective, the impact of reciprocal tariffs has eased compared to initial assessments in April. The reduction from 32% to 20%, along with the removal of ICT products from the tariff scope since mid-April, has limited the overall economic effect.
The sectoral impact remains significant. Taiwanese exporters in non-ICT sectors—such as machinery, industrial supplies, toys, and sporting goods—continue to face relatively high tariff burdens. Compared to competitors from Japan and South Korea, these sectors may experience losses in market share or profit margin pressures.
In financial markets, the 20% tariff rate has been met with disappointment. There had been expectations that Taiwan would follow the examples of Japan and South Korea—offering significant US-bound investments and expanded domestic market access—in return for a 15% tariff rate. The slower-than-expected progress and relatively high tariff level may raise concerns about Taiwan’s priority in the US trade negotiation agenda. That said, with semiconductor tariffs under Section 232 still pending, Taiwan may be strategically holding off on making early or excessive concessions.
Semiconductor tariffs
As emphasized in previous reports, semiconductor tariffs pose the greater risk to Taiwan. These tariffs could potentially impact up to 70% of Taiwan’s exports to the US. If imposed at high rates and applied broadly to ICT products, they could also dampen global tech demand. While AI-related demand—particularly for sovereign AI—may remain relatively resilient, consumer electronics and automotive chip demand are more price-sensitive.
The potential competition and substitution effects remain uncertain. It is unclear whether Japan and South Korea—both of which have achieved trade deals lowering reciprocal and auto tariffs to 15%—will receive similarly preferential treatment on semiconductor and ICT products.
Forecast Implications
We maintain our above-consensus GDP growth forecast of 4.0% for 2025. The 20% reciprocal tariff is estimated to reduce GDP growth by 0.3 ppt, assuming an elasticity of 0.5.
Taiwan’s 2Q GDP demonstrated robust performance, expanding 8.0%y/y, driven by a 35.1%y/y surge in exports. On a q/q saar basis, growth reached 12.9%. Even factoring in an anticipated export payback in 2H, full-year GDP growth is likely to reach 4%.
We also maintain our forecast for a modest 12.5bps rate cut in 4Q, reflecting the disinflation trend driven by currency appreciation in 1H and the lagged effects of monetary policy tightening in 2024.
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Ma Tieying 馬鐵英, CFA
Senior Economist - Japan, South Korea, & Taiwan 經濟學家 - 日本, 南韓及台灣
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