Trump’s tariffs spell trouble for Taiwan’s economy

Trump’s tariffs on Taiwanese exports have sparked economic concerns.

Taiwan has played a key role in global trade for decades, especially as a hub for semiconductor manufacturing. Often referred to as holding a “silicon shield,” the island’s tech sector has helped Taiwan anchor its international importance.

The “silicon shield” refers to Taiwan’s dominance in semiconductor manufacturing, seen as a key factor deterring military aggression due to its global economic importance.

In August 2025, Taiwan was hit with a new challenge. The Trump administration imposed a 20% reciprocal tariff on Taiwanese exports, marking a shift in trade dynamics and raising concerns about the island’s economic outlook.

The tariff trajectory

In April, President Trump imposed 32% tariffs on Taiwanese goods—excluding semiconductors, which make up about 10% of Taiwan’s exports to the US. This caused a sharp market reaction, with Taiwan’s stock index dropping 9.7% in one day and TSMC shares briefly suspended.

By August 7, the tariff was revised to 20%, which Taiwanese officials, including President Lai, referred to as a temporary rate. However, Alexander Gray, former White House National Security Council (NSC) Chief of Staff, said at the Ketagalan Forum held in August in Taipei that the tariff rate is unlikely to change, as Trump’s trade policy is separate from his strategic policy.

Taiwan still pays its usual Most-Favored-Nation (MFN) tariffs on top, resulting in an effective “20% + N” tariff that heavily impacts traditional sectors like textiles, machinery, and agriculture.

The tariff rollout has sparked growing criticism in Taiwan, with doubts about the government’s ability to safeguard economic interests. US-Taiwan Watch, an NGO focused on US-Taiwan relations, called for greater transparency, urging the government of Taiwan to clearly explain confidential negotiations and highlight tangible results to build public trust.

What’s in a number? Understanding “20% + N”

The Trump administration’s “reciprocal tariffs” add surcharges on top of existing customs duties. For example, a machine tool facing a 4.7% MFN tariff now effectively pays 24.7%. This puts Taiwanese manufacturers at a disadvantage compared to competitors in Japan and South Korea, threatening traditional industries like screws, bicycles, textiles, and fishery products.

Despite these challenges, President Lai Ching-te (賴清德) has pledged to commit to showcasing Taiwan's contribution to the development of the US economy, reducing the trade deficit between the two nations, and helping industries and companies in Taiwan that are affected. 

Labor and industry groups, including Taiwan Labour Front and Taiwan Confederation of Trade Unions, have urged Taipei to respond with active measures, including subsidies, currency stabilization, and wage support.

When being interviewed, Taiwanese economist Dr. Darson Chiu (邱達生) warned that even post-Trump, Taiwan may continue facing high tariffs. He also cautioned that potential Section 232 tariffs could further damage Taiwan’s economy. As of September 2025, Taiwanese exports to the US still face elevated tariff rates.


Semiconductor resilience

Taiwan’s semiconductor industry, led by TSMC, remains resilient despite tariffs. This is thanks to its dominant role in global foundry operations, which account for about 50% of the world market.

TSMC benefits from a tariff carve-out largely due to its growing US fabs, especially in Arizona. This exemption helped the company avoid the proposed tariffs of 100% to 300% proposed by President Trump. News of the exemption caused TSMC stocks to surge to record highs.

By mid-August, Taiwan’s exports jumped to US$56.7 billion in July, up 42% year-on-year. This surge led officials to revise full-year export growth forecasts from 8% to 24% and raise GDP growth projections from 3.1% to 4.45%.

Still, risks remain. The newsletter published by the Center for Asia-Pacific Resilience and Innovation (CAPRI) in August revealed a closed-door event held by the organization where concerns were raised that these tariff exemptions are subject to ongoing US scrutiny. Other topics discussed at the event include the fact that Taiwan faces a constrained strategic landscape with limited leverage in bilateral negotiations due to power imbalances and political limits on pursuing wider multilateral alliances.

For all its economic resilience and competitive edge, Taiwan continues to walk a fine line between opportunity and vulnerability amid growing geopolitical pressures.

The toll of tariffs

Despite a strong overall economic performance, the impact on Taiwan’s traditional sectors is significant. The “20% + N” tariffs on most Taiwanese goods—and the proposed 100% tariff on chip makers without US investments—are far from nominal. Small and medium enterprises, which make up 98% of Taiwan’s businesses and mostly operate outside high-tech, face costly challenges that could threaten their survival.

For example, Taiwanese machine tools, now facing nearly 25% tariffs, are priced out compared to competitors from countries with lower rates. Labor-intensive industries suffer from rising input costs alongside weakening global competitiveness.

Meanwhile, a 2023 US Trade Commission research on the country's exposure to the Taiwanese semiconductor industry shows that a disruption in Taiwan’s chip supply could raise US chip prices by up to 59%, highlighting Taiwan’s crucial role in global and American tech industries. Since semiconductors are essential to countless consumer and industrial products, the proposed 100% or even 300% tariffs risk raising costs across the board and could ultimately hurt US manufacturers and consumers by disrupting supply chains well beyond Taiwan.

Here comes Kung 

Amid these challenges, on  Sept. 1, Taiwan appointed Kung Ming-hsin (龔明鑫) as its new Minister of Economic Affairs. Kung has served on TSMC's board and helped lead the country's National Development Council.

At his inauguration, Kung said, “High tariffs do not mean there is no way forward.” He pledged to diversify markets, boost domestic demand, and accelerate industrial transformation, emphasizing the ministry’s continued role in maintaining Taiwan’s economic stability.

When asked about his role in US trade talks, Kung clarified that the Ministry of Economic Affairs acts as a resource hub, gathering industry input, providing expert analysis, and supporting the negotiating team.

He stressed that direct negotiations are handled by officials appointed by President Lai Ching-te and the Executive Yuan, the executive branch of Taiwan's government, saying. “Every profession has its expertise; our task is to ensure logistical and analytical support is impeccably prepared, so that the negotiations proceed smoothly,” he explained.


Between tariffs and transformation

On the outside, Taiwan may appear as a small economy caught in US-China tensions. But beneath the surface, it is a highly complex, high-tech powerhouse. The recent 20% tariffs delivered both an economic shock and a strategic turning point.

Taiwan faces a dual challenge: protecting traditional industries from tariff pressures while using semiconductor gains to drive domestic transformation. TSMC’s US investments and tariff exemptions have shielded it, but many SMEs in textiles, bike parts, and agriculture confront a tough survival test under the “20% + N” tariff.

The appointment of Minister Kung Ming-hsin, with his mix of industry experience from TSMC and policy expertise from the National Development Council, is an attempt to ensure Taiwan finds a viable path forward amid pressure and uncertainties.