Taiwan’s economy, heavily reliant on exports and global trade dynamics, is feeling the strain from the Trump administration’s aggressive tariff policies. According to the Taiwan Institute of Economic Research (TIER), business sentiment in the local manufacturing, service, and construction sectors sharply weakened in March 2025 — a worrying signal for Taiwan’s near-term economic prospects.
Manufacturing Sector: Hit by Tariffs and Weakened Confidence
TIER’s composite index measuring business sentiment in the manufacturing sector fell by 2.71 points to 95.00 in March — its lowest level in five months. Although manufacturers saw a temporary boost from rush orders (as foreign buyers scrambled to stockpile inventories ahead of the U.S. tariffs), the overall outlook remains pessimistic.
In TIER’s March survey:
- 34.0% of manufacturers reported improved business (up from February’s 29.5%), mainly due to temporary rush demand.
- However, only 19.7% expect business improvement over the next six months, a steep drop from February’s 35.1%.
- Meanwhile, 29.8% foresee business deterioration in the next six months, up sharply from 12.6% in February.
This shift suggests that manufacturers recognize the short-term boost is unsustainable. As U.S. tariffs — even at the reduced 10% rate after the 90-day pause — continue, Taiwan’s export-oriented industries are bracing for slower demand and potential production cuts.
Original Insight:
While Taiwan’s manufacturing has always been resilient due to its specialization in high-tech sectors, it faces a complex environment. Manufacturers that heavily rely on U.S. exports may need to accelerate diversification into Southeast Asian markets, Europe, and domestic sales to buffer against prolonged U.S. trade barriers.
Service Sector: Equity Market Volatility Erodes Confidence
The service sector sentiment index dropped by 4.50 points to 88.51 in March — marking its lowest point in nearly five years.
The decline is heavily attributed to:
- Turbulence in Taiwan’s stock market, triggered by fears of U.S. retaliation over Taiwan’s US$73.9 billion trade surplus.
- Investors withdrawing from markets amid trade and geopolitical uncertainties.
- Financial and securities services growing more cautious as consumer and investor confidence weakens.
Original Insight:
The service sector — which relies on consumer spending, financial services, and market investments — tends to be more sensitive to sentiment changes than manufacturing. If geopolitical tensions persist, Taiwan may need fiscal stimulus or policy support to prevent a service-sector-driven slowdown.
Construction Sector: Real Estate at Risk
The construction sentiment index declined by 7.53 points to 94.34, its lowest point in almost two years. Real estate, a critical pillar of Taiwan’s domestic economy, is now under multiple pressures:
- Weak stock markets erode household wealth, reducing property buying appetite.
- Geopolitical risks make high-value investments like real estate seem less secure.
- Higher costs from land, labor shortages, and carbon emission fees limit the industry’s ability to cut prices meaningfully.
Expert View:
According to Liu Pei-chen from TIER, real estate transactions are expected to decline, particularly in oversupplied areas. However, she cautions that a sharp nationwide price fall is unlikely due to fundamental cost pressures maintaining a pricing floor.
Global Trade and Policy Context: Beyond Just Tariffs
The Trump administration’s 32% “reciprocal” tariffs targeted countries with large U.S. trade surpluses, including Taiwan. Although a 90-day pause has reduced this to a 10% duty (excluding China), uncertainties remain:
- The future of U.S.-Taiwan trade ties could hinge on the upcoming U.S. elections and broader geopolitical shifts.
- Taiwan’s continued trade reliance on a few major partners (the U.S., China) makes it vulnerable to external shocks.
Strategic Viewpoint:
Taiwan could proactively respond by:
- Strengthening supply chain localization for key industries like semiconductors and green tech.
- Deepening trade partnerships through bilateral trade agreements in Europe, Southeast Asia, and other markets.
- Promoting domestic consumption and digital economy sectors to balance the heavy external trade dependence.
FAQs
Why did Taiwan’s manufacturing sentiment drop despite rush orders?
While there was a short-term spike from rush orders before tariffs took effect, manufacturers are pessimistic about sustained growth due to ongoing trade tensions and reduced future demand.
How are U.S. tariffs impacting Taiwan’s economy overall?
Tariffs are slowing export growth, creating uncertainty in manufacturing and services, and weakening investor and consumer confidence, indirectly pressuring the real estate market.
Will Taiwan’s real estate market crash?
A full crash is unlikely due to high land costs, carbon fees, and labor shortages, but areas with oversupply could see mild price declines.
How significant is Taiwan’s trade surplus with the U.S.?
Taiwan’s trade surplus with the U.S. reached US$73.9 billion in 2024, making it a major target of U.S. trade policy actions.
What can Taiwan do to mitigate the effects of U.S. tariffs?
Taiwan could diversify its export markets, invest more in the domestic economy, and strengthen regional trade alliances outside the U.S. and China.
