‘Strategic shift’ as US overtakes mainland China as Taiwan’s top export market

The United States has surpassed mainland China as world hi-tech hub Taiwan’s top export destination this year in a sign that supply chain decoupling has made a palpable shift toward Western-allied markets.

Taiwan’s US$26.625 billion worth of exports shipped to the US in the first quarter beat the US$22.407 billion sent to mainland China, according to International Trade Administration data.

Mainland China has led the US as the top destination for Taiwan’s exports every year for the past decade, although the gap with mainland China fell last year to less than US$20 billion from more than US$45 billion the previous year.

Many foreign-invested importers of Taiwanese goods in mainland China, including those in the market for components for phones and PCs that are assembled for re-export, have moved operations to Southeast Asia or further afield because of trade schisms between Beijing and Washington, analysts said

US officials have placed import tariffs on goods from mainland China since 2018, while also restricting American business with a growing list of Chinese technology firms.

The US Department of Commerce’s Bureau of Industry and Security updated its export controls in 2022 to stop China from obtaining advanced semiconductors, technology and related equipment, with the controls further tightened a year later.

The Biden administration also signed an executive order in August that curbed investment in semiconductors, quantum information and artificial intelligence in “countries of concern”, including China.

The US government is also offering Taiwan chip makers, which are among the world’s most advanced, incentives to set up plants in the US.

Darson Chiu, Taiwan Institute of Economic Research

Supply chain bottlenecks in China due to coronavirus controls up to the end of 2022 also added to the shift in supply chains to outside mainland China.

Taiwan’s exports to the 10-nation Association of Southeast Asian Nations (Asean) bloc reached US$22.281 billion in the first quarter of 2024, up by 33.4 per cent compared to the same quarter last year.

The Asean bloc is an up-and-coming factory region that is seen as relatively neutral toward China and the US.

“This, I think, is a shift in supply chains,” said Darson Chiu, a ­fellow with the Taiwan Institute of Economic Research.

“There are some Taiwanese exports that had gone to [mainland] China that are now going to Southeast Asia.”

Taiwan-mainland China investment hits 22-year valley as relations sour

Investors from Taiwan with factories in mainland China once loomed larger as importers of Taiwanese parts, but US-China trade friction plus cross-strait tensions have prompted some operators to leave while others have been deterred from starting operations.

Taiwanese investment in mainland China hit a 22-year low of just over US$3 billion in 2023, according to the Department of Investment Review under Taiwan’s Ministry of Economic Affairs.

Beijing sees Taiwan as part of China to be reunited by force if necessary. Most countries, including the US, do not recognise Taiwan as an independent state, but Washington is opposed to any attempt to take the self-governed island by force and is committed to supplying it with weapons.

Taiwan’s relations with Washington have strengthened, especially since late 2022 when former US House speaker Nancy Pelosi defied warnings from mainland China and visited the island.

Tech hardware made up 31.7 per cent of Taiwan’s overall exports in the first quarter.

US importers have “lifted” Taiwan’s shipments of chips, while mainland China requires fewer Taiwanese semiconductors because it is developing its own domestic industry, Moody’s Analytics economist Harry Murphy Cruise said.

Mainland Chinese chip production “surged” by 40 per cent in the first quarter to meet demand for electric vehicles, he added.

Around mainland China, hesitant consumption, unemployment, falling home prices and perceived overcapacity in some industrial sectors have further eroded trade with Taiwan, analysts said.

‘The magic of China’: still lots for foreign firms, top business leader says

“This shift is due to the strategic plan that the US wants to construct a US-led world supply chain and market order,” said Hu Jin-li, a professor with the Institute of Business and Management at the National Yang Ming Chiao Tung University in Taipei.

Mainland China, meanwhile, is trying to form a global supply chain that is sheltered from any US intervention, Hu added.

US demand for Taiwanese chips would “remain robust” until efforts at reshoring semiconductors to the US mature, Murphy Cruise said.

Demand for other hi-tech hardware is also surging, said George Xu, director of Asia-Pacific sovereign ratings with Fitch Ratings.

“Taiwan’s record-high merchandise exports to the US in the first quarter of 2024 has been propelled by surging shipments of information and communications technology products manufactured and assembled on the island,” Xu said.

He pointed to growing demand from large US tech companies for artificial intelligence related products, such as high-performance servers and cloud computing equipment, where “Taiwanese suppliers dominate the global market”.

But mainland China’s interest in shipments from Taiwan would eventually recover, Murphy Cruise added.

Danny Ho, DMI

“A gradual revival in [manufacturing] this year will support Chinese demand for Taiwanese goods,” he said.

“But with unemployment elevated and the property market still falling, a full revival is unlikely until at least 2025.”

Overcapacity in some low-tech industries in mainland China has deterred Taiwanese investors who might require imports from Taiwan, said Danny Ho, the chief executive at DMI, an energy consulting firm in Taiwan.

“This trend is obvious and clear,” Ho said. “Because of the China-US trade issues, they’ve left for Vietnam and Indonesia, and are now considering India.”