DBS: This economy will be hurt by US protectionist moves on tech. It’s not China

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U.S. ally Taiwan is among the economies most vulnerable to the U.S.’s protectionist moves to impose punitive measures on technology imports for China, DBS said.

The Trump administration has proposed 25 percent tariffs on imports from China, targeting products in the aerospace, information and communication technology (ICT) segment and machinery, DBS noted, adding that’s raised trade war fears.

“There are reasons to worry that Taiwan is among the most vulnerable to a U.S.-China trade war, which might potentially focus on the high-tech sector,” DBS said in a note on Wednesday. It noted that about 40 percent of Taiwan’s exports head to the Chinese market, including Hong Kong, making it the second-highest share of exports to China in Asia after Hong Kong.

Additionally, Taiwan relies heavily of tech exports, with the ICT segment, which includes computers and electronics, accounting for around 40 percent of Taiwan’s exports and 20 percent of its gross domestic product (GDP), DBS said.

“Higher tariffs imposed by the U.S. on Chinese imports will directly hurt Taiwanese firms that have production bases in China,” DBS said, noting that the overseas production ratio for Taiwan-branded computers, laptops and mobile phones was as high as 90 percent.

Additionally, Taiwanese companies that supply intermediate goods to China, such as semiconductors, will take a hit, DBS said, noting around 55 percent of Taiwan’s electrical components exports go to China and Hong Kong.

Hold your horses

But DBS noted the impact of U.S. tariffs on China’s exports shouldn’t be overestimated as the end result could just be felt by U.S. consumers.

“Given China’s dominant position in global electronics manufacturing and the sophisticated nature of electronics supply chains, it may not be easy for alternative production bases – the U.S., Vietnam, or other Asian countries – to expand capacity in a short period of time to pick up the slack from China,” DBS said, noting China accounts for 31 percent of global ICT exports and 44 percent if Hong Kong is included.

“The immediate result of U.S. tariffs could be higher prices paid by U.S. consumers on China-made electronic products,” the bank said.

DBS added that it wasn’t clear how far the Trump administration would carry its trade war threats, so it kept its forecast for the Taiwan economy to grow 2.8 percent this year.