- Taiwan’s major US exports are information and communication products, especially AI servers.
- Taiwan's direct semiconductor exports to the US are modest.
- Replacing Taiwan-made chips with US production is a challenge.
- We estimate a potential 0.1-0.9ppt GDP loss but maintain our 2025 GDP forecast at 3.0%.
- A fiscal policy response is more likely than a monetary one.
US President Donald Trump has started imposing tariffs on specific countries and products. On February 1, he issued executive orders imposing a 25% tariff on Mexico and Canada (though implementation was delayed by 30 days), and a 10% tariff on China. Additionally, he threatened to introduce reciprocal tariffs on a wider range of countries, with an announcement expected as soon as today or tomorrow. On February 10, Trump signed orders to implement a 25% tariff on steel and aluminum imports, and made further threats to levy tariffs on other products, including semiconductors, automobiles, and pharmaceuticals.
Reciprocal tariffs
Taiwan could be a potential target for reciprocal tariffs. In 2024, Taiwan was the sixth-largest contributor to the US trade deficit, with a deficit of USD 74 bn, following China, Mexico, Vietnam, Ireland, and Germany. According to WTO data, Taiwan's simple average tariff rate for most favored nations is 6.5%, about 3 ppt higher than the US rate of 3.3%. This tariff disparity is particularly notable in the agricultural and transport equipment sectors.
Taiwan’s total exports to the US amounted to USD 111.4 bn in 2024, accounting for 23% of Taiwan’s total exports. Key export products to the US include information and communication products (particularly AI servers), which totaled USD 68 bn in 2024. The US accounted for 51% of Taiwan's information and communication product exports in 2024. Conversely, in the US import market, Taiwan holds a 33% share of computer accessories imports, 16% of computer imports, and 10% of telecommunication equipment imports. Other primary sources of these products for the US include China, Mexico, and Vietnam — countries that could also face reciprocal tariffs. As a result, unless domestic production in the US can quickly scale up, tariff costs are likely to be absorbed by US manufacturers or passed on to consumers.
Semiconductor tariffs
Contrary to some expectations, Taiwan's direct semiconductor exports to the US are relatively modest. In 2024, Taiwan’s electronic part exports to the US amounted to USD 8.6 bn, or just 5% of Taiwan’s total electronic parts exports. Taiwan is the second-largest source of semiconductor imports to the US, accounting for 19% of total US semiconductor imports in 2024, after Malaysia. Many of Taiwan's chips are assembled into AI servers, mobile phones, and computers either in Taiwan or third-party countries before being exported to the US. As a result, most Taiwanese semiconductors reach the US market as finished electronic products, not raw semiconductor components. Imposing tariffs directly on Taiwan’s semiconductor exports may not achieve the intended effect.
Increasing US domestic chip production to replace Taiwan-made chips is not an easy task. According to a 2022 BCG analysis, Taiwan dominates global advanced logic chip fabrication, holding a 69% share in chips smaller than 10nm (98% of chips below 3nm). In contrast, the US has minimal domestic capacity for fabricating advanced logic chips, DRAM, and NAND. However, the US does have some domestic production capacity for more mature technologies, such as logic chips in the 10-22nm range, suggesting that substitutes may be available for these product categories.
Forecast implications
We maintain our full-year 2025 GDP growth forecast at 3.0%. If reciprocal tariffs of 3% were imposed on Taiwan’s exports to the US, the potential loss to GDP growth is estimated at around 0.4 ppt. If 25-100% tariffs were imposed specifically on semiconductor exports, the potential GDP loss could range from 0.1 to 0.5 ppt. These impacts could be mitigated through bilateral negotiations, such as Taiwan reducing its import tariff rates on US goods, increasing imports of agricultural products, energy, and automobiles from the US, and boosting semiconductor investments in the US.
We expect Taiwan’s central bank to maintain the policy rate unchanged at 2.00% throughout the year. With CPI inflation at 2%, real interest rates around 0%, property prices remaining high, and a possible electricity price hike in April, the central bank will face challenges in easing monetary policy. A fiscal policy response is more likely, with targeted support for industries and companies negatively impacted by tariffs.
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Ma Tieying 馬鐵英, CFA
Senior Economist - Japan, South Korea, & Taiwan 經濟學家 - 日本, 南韓及台灣
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