On April 3, 2024, U.S. President Trump announced high tariffs on imports from multiple nations, citing trade deficits as the justification. Taiwan was hit with a 32% tariff, a move that caught both the government and the industry off guard. According to Bloomberg estimates, if these tariffs are fully implemented, Taiwan's exports to the U.S. could shrink by a massive 63%, and its GDP could contract by 3.8%, posing a significant shock to Taiwan's economic strength, national defence, and global standing.

While the government is formulating plans to expand imports of Alaskan Liquefied Natural Gas (LNG) to balance the trade deficit, there is an urgent need for a more strategic response plan to help Taiwan break through the current crisis of international economic restructuring. This article proposes recommendations across three dimensions: short-term, medium-term, and long-term.

 

Short-term Strategy: Negotiate with the U.S. Based on Actual Product Gross Margins

 

U.S. Secretary of Commerce Bessent has hinted that current tax rates remain flexible, suggesting that if other countries take countermeasures, the U.S. might raise tariffs further; conversely, this implies there is still room for negotiation. The Trump administration’s decision to use trade deficits as the standard, rather than existing tariff frameworks, overlooks the differences in actual product gross margins.

In 2024, Taiwan's top five export items to the U.S. included automatic data processing (ADP) machines and their units, computer parts, integrated circuits (currently excluded from the list), switches, and automotive components. Among these, ADP machines and computer parts account for nearly 60% of exports, yet their average gross margin is only 8–12%. In contrast, U.S. military and high-tech products exported to Taiwan can command gross margins of 50–70%.

To mitigate the impact, Taiwan should make "actual product gross margin" the core of its negotiations, highlighting that while Taiwan's export value is high, actual profits are limited, thereby arguing for a reasonable reduction in tariff standards.

 

Medium-term Strategy: Focus on Low-Tariff Nations and Adjust Global Supply Chains

 

The current tariffs cover many of Taiwan's traditional offshore manufacturing hubs, including China (20% + 34%), Vietnam (46%), India (26%), Thailand (36%), and Malaysia (24%); almost none were spared. In contrast, Saudi Arabia is subject to only a 10% levy, indicating that its investment and trade deficit with the U.S. remain within a manageable range. Saudi Arabia has been actively developing its technology and financial sectors in recent years, offering substantial subsidies and tax incentives, making it a potential investment location worthy of attention for Taiwanese enterprises.

The Taiwanese government should actively integrate the resources of overseas missions, think tanks, and the industrial sector to master the tariff and investment policies of various countries. Furthermore, it should provide factory establishment subsidies, tax incentives, and financing assistance to companies intending to relocate to low-tax countries, thereby assisting them in optimising their global capacity layout and reducing the risk of relying solely on the U.S. market.

 

Long-term Strategy: Elevate R&D Energy and Strengthen High Value-Added Manufacturing

 

Currently, over 70% of Taiwan's consumer electronics products remain focused on low-to-mid-end contract manufacturing (OEM), characterized by low gross margins and weak resilience against risk. Moving forward, Taiwan must accelerate its transformation, focusing on high value-added fields such as AI, robotics, energy solutions, and autonomous vehicles, thereby strengthening its R&D and brand capabilities.

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