As the ongoing US-China trade war continues to rage. the large number of Taiwanese companies that have been operating on mainland China seem to be considering moving out of the mainland to lucrative locations, particularly Vietnam, Indonesia and Myanmar, though other locations such as Malaysia and Thailand, despite their higher production and labor costs, are also being considered.
“It’s the character of the modern supply chains which are, essentially, global in nature and extend beyond national borders. Many Taiwanese companies have maintained manufacturing operations in China because of its lower production and labor costs. However, these costs have dramatically risen in recent years. The US-China trade tensions have added to the worries of the Taiwanese companies which are looking for alternative manufacturing sites in the region,” explained Walter Yeh, the President of the Taiwan Trade Development Council (TAITRA), in an interview with the American Journal of Transportation in Taipei.
According to TAITRA, there are some 80,000 Taiwanese companies, including many small-sized companies, operating in mainland China. Many of these companies manufacture machinery products, electronics, automation, etc., for export to the US and other countries.
Southbound Policy
The Taiwanese government has launched its so-called “new Southbound policy” which, essentially, focuses on cooperation with Southeast and South Asia. The policy is designed to reduce dependence on China and tap the huge economic and trade potential inherent in the ASEAN region, particularly Malaysia, Indonesia, Singapore, Thailand and Vietnam, as well as India.
“With the rapid restructuring of the global supply chain, South Asia and the ASEAN have undergone incredible growth in recent years. Taiwan’s economy already has close links with the two regions. The ASEAN community is today the second largest export and investment destination for Taiwan,” the TAITRA President observed. The strategy adopted by many Taiwanese companies is to “operate from within the market”, a euphemism employed to suggest that Taiwan would have unimpeded access to a market if it sets up a manufacturing operation inside that market rather than merely export to it.
Commenting on the impact of the US-China trade tensions on Taiwan’s business, Yeh said that in the short-term, Taiwan’s companies may have to relocate their production operations, “but they could also benefit from new orders for electronics and machinery, for example, as a result of the shifting market”.
“In the mid- to long run, it would still be necessary for them to expand to other potential markets outside the US and China. Given their flexibility and resilience, Taiwanese companies are better equipped to work with interested partners, including from the ASEAN region, to develop markets outside the USA and China,” he said.
Taiwan Manufacturing
Taiwan’s two product categories – the IT and machinery sectors – are the strengths of the island’s manifold industries. Yeh pointed out that Taiwan’s machine-tool products, for example, are unique and have highly-advanced innovative features designed to handle complex manufacturing functions with the deployment of robots and automation.
“Taiwan exported in 2018 some US$ 4.565 billion worth of machine tools and components, an 8.28% increase over the earlier year. As the world’s fourth largest exporter of machine tools and components, Taiwan has averaged $ 4 billion in exports for each of the last few years drawing on a network of over 1,000 precision machinery manufacturers and 10,000 plus downstream suppliers,” he said.
Taiwan exports some 80% of its total machine-tool production to 138 countries, helping solar energy plants, major semi-conductor manufacturers, panel industries, multinational car makers and others in their innovation efforts and enhancing their competitiveness through an array of advanced machine-tool products. Taiwan’s Taichung region is home to 1500 precision machinery manufacturers.
Representatives of Taiwan companies, who have been privately telling this correspondent that they are “alarmed” by the “asymmetrical dependency” on China’s market, are in a hurry to find alternative markets. There is a revived interest in tapping the United States, once the top market for the island but ousted from this position by China since a few years.
Taiwan trade delegations have been visiting the U.S. and holding roadshows, besides participating in trade shows and meeting trade and business associations and other interest groups.
In an interview with the American Journal of Transportation, Alex Ko, the chairman of the Taiwan Association of Machinery Industry (TAMI), said that Taiwan had achieved the “all-time export record” of US$ 27.4 billion in 2018 for all segments of the machine-building industry. Ko attributed this achievement to what is described as “smart manufacturing” whose mainstay is the use of “smart technology” relying on the deployment of robots and automation in production.
“Our smart manufacturing offers the way forward. Indeed, smart manufacturing is the key to future growth and success,” Ko emphasized.
Taiwanese companies, according to Ko, have been eyeing Vietnam where they have started to invest because of its – still – lower costs of production and labor. “China cannot sustain its position as a world factory because of its rising costs and the ongoing trade problems with the USA. Thus, we expect several new factories to spring up in the region,” Ko said.
The TAMI-chairman predicted the US-China trade war would have a “short-term negative impact on Taiwan’s machine-building industry but long-term impact, in our view, is expected to be good”.
One side effect of the trade war, as US data reflects, is that President Donald Trump’s tariffs may have resulted in the gradual migration of manufacturing out of China though very little of the manufacturing has returned to the United States
Trade War Impacts
The Census Bureau’s data also shows that some countries have benefited from the trade war.
Vietnam’s exports to the US jumped 38% during the first four months of 2019, compared to last year; US imports from Taiwan have increased 22%, 17% from South Korea, and 13% from Bangladesh. US imports from China declined by some 12%.
Taiwan and other Asian experts say that US tariffs have hurt many companies which exported their products from China to the US. Many of these companies are leaving China which is losing valuable capital in an already slowing economy; that is the chief reason why China urgently wants a deal with the US.
While a clearer picture of the exact impact of the US-China trade war on Taiwan’s sea trade will emerge by year end, Taiwan’s ports are expecting a surge in shipments this year. Some of the island’s foreign trade ports are Keelung, Kaohsiung, Hualien, Taichung, Su-ao, etc.
