The Taiwanese economy has been very resilient to the multiple external shocks of the past two years. The export sector has benefited greatly from the rise in global demand for high-tech goods. In addition, domestic demand has benefited from fiscal support and an accommodative monetary policy [...]
Taiwan’s export sector has been hit by the slowdown in trade between China and the United States since spring 2018, but it has also benefited rapidly from some of the positive effects of the trade war. US importers have replaced certain Chinese products with goods purchased directly from Taiwan. Plus the US-China trade war provides Taiwanese manufacturing corporates an incentive to leave Mainland China and relocate production in Taiwan, with firm government support [...]
Export and real GDP growth have started to suffer from US-China trade tensions and from the mounting difficulties of China’s external trade sector. Taiwan is highly exposed to this type of external shocks due to its heavy reliance on exports of tech products to the Chinese and US markets. However, Taiwan is also well-armed to absorb shocks. External accounts and public finances are strong, and the authorities have a good margin of leeway to act [...]
Taiwan is a very open economy, which enjoys a solid industrial export base and an exceptionally strong external financial position. Its average real GDP growth slowed to 2.8% per year in 2011-2019 from 5.6% in 2003-2007, but dynamics have reversed since 2020. Covid shock was well managed; real GDP grew by 3.1% in 2020, and neither external nor public accounts deteriorated. Instead, Taiwan took advantage of the surge in global demand for tech products. Moreover, its medium-term economic prospects have improved in the last few years thanks to an steady increase in investment, the government’s measures aimed at improving the island’s competitiveness and solid export prospects. Taiwan could benefit from the relocation of some production units away from mainland China to the island, as Taiwanese enterprises – strongly encouraged by the authorities – are changing their output strategy in response to the US tariff hikes on Chinese imports and rising labour costs in China.
Tensions with mainland China have worsened since the election of President Tsai Ing-wen of the Democratic Progressive Party (DPP), in 2016. President Tsai was re-elected in January 2020 and the DPP has maintained a majority in Parliament. Difficult relations with the mainland are leading to Taiwan’s diplomatic isolation, hampering its relations with other countries and representing a permanent downside risk on its economic prospects and stability.
