Taiwan cuts GDP outlook amid tariff concerns, China pressure
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The news: Taiwan has revised down its 2025 GDP as the threat of potential US tariffs and parliament-imposed budget cuts add uncertainty to the island’s economy.
The numbers: The country now expects 2025 GDP to grow 3.14%, having previously forecast a 3.29% expansion, which had not accounted for aggressive US tariffs on its key semiconductor exports.
The context: Taiwan is home to the world's largest contract chipmaker, Taiwan Semiconductor Manufacturing Co (TSMC) with the US as its second-biggest export destination after China. President Trump has floated a minimum 25% tariff on chips, and repeatedly stated his desire to boost local manufacturing and increase investment in the US industry.
Taiwan expects to begin feeling the impact of US tariffs from the third or fourth quarter this year, as the duties come into effect.
Despite being exposed to impending US tariffs, head of the Taiwan statistics bureau Chen Shu-tzu pointed to budget cuts as a more telling data point for the GDP revision. Taiwan’s opposition slashed government spending earlier this year, while lawmakers also made some defence funds, such as for the submarines and drone development, contingent on projects passing their review.
The GDP revision comes as China claimed that Taiwan wanted to give its semiconductor industry to the United States as a "souvenir" and leverage it to seek political support from Washington, on unconfirmed reports that TSMC is in talks to build a stake in US firm Intel.
China also took a tougher tone on Taiwan this week, after Beijing announced it would carry out military exercises near the island. Taiwan’s Defense Ministry said China had notified them about upcoming drills around 40 nautical miles from its coast, but did not specify when they would take place. High ranking Beijing official Wang Huning, who oversees Taiwan affairs, also used aggressive language to when calling for “resolute efforts to advance the cause of national reunification” on Wednesday, according to the Xinhua News Agency.
Earlier in the week, a Togo-registered freighter crewed by 8 Chinese nationals was caught ‘in the act’ of severing an undersea communications cable to Taiwan. Taiwanese coastguards detained the crewmembers and are investigating the incident as a potential act of sabotage.
The sources: Xinhua News , Reuters, Bloomberg
