I. Reciprocal Tariff Negotiations are Ongoing
Hsien-Ming Lien, President of the Chung-Hua Institution for Economic Research (CIER), emphasized that reciprocal tariffs are generally additive, with non-additive clauses being exceptions, and Taiwan’s current tariff rate is “provisional” as negotiations remain ongoing. Securing non-additive clauses requires significant investment or procurement trade-offs, necessitating a societal evaluation of costs versus benefits. Reciprocal tariffs have a greater impact on traditional industries, and negotiation efforts should focus on securing more favorable terms.
II. U.S. Uses High Tariffs to Drive Investment in America
The U.S. imposition of 20% reciprocal tariffs on certain products and 100% tariffs on semiconductors has spurred major Taiwanese companies to accelerate investments in the U.S., with Texas emerging as a key hub. The Ministry of Economic Affairs plans to establish a trade and investment center and a technology industrial park in Texas to facilitate large enterprises in supporting overseas expansion for smaller businesses.
Jiann-Chyuan Wang, Vice President of CIER, noted that companies capable of setting up factories in the U.S. must have high profit margins, advanced automation, industry clustering effects, and international customer demand, primarily in sectors such as semiconductors, high-end servers, and machine tools.
III. Cooling Cross-Strait Trade and Weakening Investment Momentum
The data shows cross-strait trade volume is still declining as U.S.-China trade friction persists, despite a recent “truce” agreement. Taiwan’s export share to mainland China and Hong Kong fell from a peak of 43.9% in 2020 to 31.7% in 2024, and dropped further to 28.3% in Q1 of 2025. Taiwanese investment in mainland China plummeted by 60% in the first 4 months of 2025.
Guo-Chen Wang, Assistant Research Fellow at CIER, pointed out that Taiwanese businesses are withdrawing capital equipment to Taiwan or redirecting it to other regions, diminishing the “investment-driven trade” momentum. Although some production capacity has shifted to ASEAN and India, direct trade has decreased. However, indirect trade through third regions continues, indicating supply chain restructuring rather than a complete withdrawal.
IV. China’s Weak Domestic Demand Restricts Industry Transformation
Amid U.S.-China competition, some Taiwanese businesses have exited China or relocated to Southeast Asia, while China encourages a shift toward its domestic market. However, China’s retail sales of consumer goods in 2024 reached RMB 48.79 trillion, RMB 11.7 trillion below the projected 8% growth, signaling weak consumption momentum.
Guo-Chen Wang, Assistant Research Fellow at CIER, noted that while de-sinicization policies appear to create opportunities for Taiwan’s traditional industries, some sectors face challenges due to the earlier relocation of key equipment and components to China. Despite technological advantages, these industries struggle to secure orders, creating a “visible but unattainable” dilemma. Additionally, some enterprises’ transformations focus on chasing policy subsidies rather than long-term industrial strategies, highlighting persistent structural challenges.
CIER Editorial Team
Date: August 11, 2025