Asian currencies rallied in recent days, with the Taiwan dollar rising more than 5% against the U. S. dollar, its biggest intraday gain since 1988. Taiwan’s export-oriented economy has been hit hard, and public opinion in the island is widely worried that this is another“Hand-in-hand gift” for Taiwan’s tariff negotiations with the US.
From“Surprise” to“Shock”
According to a report by Taiwan’s“Economic Daily” on May 6, the new Taiwan dollar surged again on the 5th, rising by more than 1 yuan within 15 minutes of opening in the morning, directly breaking through the 30 yuan round number barrier, re-create the“2”. Foreign exchange market from“Surprise” to“Scared”, Taiwan stocks then by red turn black, forming stock exchange double kill. In the afternoon, after Taiwan’s“Central Bank” announced that President Yang Chin-long had held an impromptu press conference, the rate of increase slowed down somewhat, and the closing price was 30.145 yuan, still surging by 9.19 jiao, it was the strongest in 26 months (2023 since Feb. 11) and gained 3.05 percent. Foreign exchange turnover reached $4,388.5 million, the third-highest on record.
Taiwan’s“China Times” reported on the 6th that“Buying foreign currency” has suddenly become a nationwide activity on the island, including Taiwan’s“China Trust”, Taishin, Cathay Pacific, Yongfeng County and other banking apps, on the morning of the 5th, I had to queue for at least 5 minutes, or I couldn’t log in because of too many people. Banks said the surge was mainly due to a surge in demand for foreign exchange, which exceeded the App’s capacity.
On the afternoon of the 5th, Yang Chin-long, president of Taiwan’s Central Bank, held an emergency press conference to express confidence that the central bank’s efforts to regulate the foreign exchange market would gradually increase and that this unusual situation would“End here.”. He also said that the“Central Bank” and the United States have always maintained close consultations and mutual trust and cooperation, the United States has not made specific demands on the Taiwan dollar exchange rate. On the same day, William Lai also put forward a five-point explanation, saying that this wave of Taiwan dollar appreciation is mainly caused by the expectation psychology of the foreign exchange market. The Taiwanese economy is strong and resilient, and foreign capital is remitted to buy ultra-taiwan shares, “It shows that foreign investors still have great confidence in Taiwan’s industry, even in the face of us tariff policy challenges.”. He claimed that the taiwan-us supply chain is mutually beneficial and complementary, and the cause of the taiwan-us trade deficit has nothing to do with the exchange rate. The exchange rate issue will not be mentioned in the bilateral negotiations. “Please stop deliberately spreading false information.”. Taiwan’s“Economic and trade negotiation office of the Executive Yuan” also claimed that the taiwan-us economic and trade working group set up last November and the negotiation team with the US led by“Vice Premier” Cheng Li-chun, none of the members included the central bank, and the two sides did not touch on currency issues during economic and trade talks in Washington on May 1.
The export industry is in danger of being shut down
The Taiwan dollar has appreciated more than 10 percent since April and is up 8.74 percent this year. The sharp appreciation of the Taiwan dollar has had a big impact on US dollar-denominated exporters. According to a report by Taiwan’s“Industrial and commercial times” on the 6th, the island’s machinery and tool machine industry simply can not respond in time. The industry frankly says that it will not die if it does not do business in the US market, but if the Taiwan dollar continues to appreciate rapidly, taiwan’s export industry will collapse. On April 2nd President Donald Trump suddenly announced“Reciprocal tariffs” of up to 32% , although he gave the island a 90-day grace period, however, a 10% import tariff will still be imposed. The industry originally relied on the NTD/USD exchange rate to maintain a low level of 32.5-33 yuan, and can barely afford some of the tariffs. Recently, the NTD exchange rate has appreciated rapidly, “The situation can be described as a leak happened overnight rain”. Taiwan Machinery Industry Association chairman Zhuang Dali said that the global recession, Taiwan’s machinery industry while facing Japan, South Korea and other competition, operating very hard. Now the new Taiwan dollar rose above 30 yuan in just a few days, and some companies had to suspend shipments. Since each machine has different profits and sales, it is difficult to estimate the impact.
The screws and fasteners industry is also suffering. Tsai Yung-yu, president of the Taiwan screws association, said yesterday that the industry’s average gross margin was only 15 per cent and that the sharp rise in the Taiwan dollar had turned Mori into a zero or even negative figure overnight. “Don’t do it at all and you’ll lose less,” he said. If the Taiwan dollar appreciation continues, Taiwan’s screw fastener industry will see a large-scale closures.
The island’s foundries are also affected. Reports indicate that a 1% appreciation of the NTD will exert roughly 0.3%-0.5% downward pressure on the gross margins of Taiwan foundries. So far in the second quarter, the Taiwan dollar has risen by more than 10% . In other words, the implied gross margin may detract from the 3%-5% shock. Taiwan media said Tuesday that almost all of TSMC’s revenue is denominated in US dollars, and that the strong Taiwan dollar against the US dollar has a negative impact on revenue and earnings expressed in Taiwan dollars. TSMC said every 1 per cent appreciation of the Taiwan dollar against the US dollar would reduce its operating profit margin by 0.4 percentage points. UMC also said that every 1 per cent appreciation in the Taiwan dollar was estimated to affect its Mori ratio by about 0.4 percentage points.
Weizhi Lin, executive vice president of the Intellectual Property Research Institute, concluded that this wave of appreciation has affected all the island’s export industries. Small and medium-sized enterprises are unable to move their production bases due to their weak ability to hedge against risks, and the exchange rate difference has eaten into their original profits, coupled with the end of the tax, bill pressure leading to cash flow difficulties, may appear bankrupt, unemployment wave. In addition, the appreciation of the Taiwan dollar will also have a negative impact on semiconductor revenue growth. Semiconductor analyst Lu Xingzhi believes that none of Taiwan’s foreign trade-oriented industries can run away, and then some system assembly companies with low gross margins and large amounts of US dollar cash may suddenly explode, from surplus to loss.
Worrying about a“Lost decade”
Although the DPP authorities strongly deny that the appreciation of the Taiwan dollar is related to the United States, an analysis by the China times on the 6th said that the exchange rate has fluctuated violently, but unlike in the past, Taiwan’s“Central Bank” has not actively intervened in the market, it sparked speculation that the central bank might acquiesce in a Taiwan dollar revaluation to extract concessions from the US in the talks. Wang Ju, head of foreign exchange at BNP Paribas, said: “[ the central bank’s ] attitude is not as positive as in the past, raising doubts that monetary policy has been taken into account in the trade talks.”. UBS research made a similar guess that the stock market rally is not enough to explain the large exchange rate fluctuations, “The Taiwan dollar anomaly raises questions about the absence of the ‘Central Bank’ .”.
KMT chairman Eric Chu blamed the authorities. The tariff war fell before the war, and the exchange rate war was lost before the war. The economic and Trade War has reached home, and the DPP is still fighting among itself, “Fear of replaying the 1985 sharp appreciation of the yen led to Japan’s economic bubble, ushering in a lost decade.”. He stressed that the us-taiwan tariff negotiations must reach below 10 per cent, this is not a matter of face, but the survival of Taiwan’s export industry, the authorities must defend the national livelihood and Employment Bottom Line. “Legislator” Lai Shyh-bao said that because the United States is about to publish a list of currency manipulators, the Taiwanese“Central bank” does not dare to intervene in the exchange rate now, causing the Taiwan dollar to rise all the way. In the foreseeable future, i’m afraid there will be more and more people taking unpaid leave and losing their jobs. Huang Kuo-chang, chairman of the People’s Party, said the sharp rise in the Taiwan dollar exchange rate had seriously affected industrial profit margins, but he could not see how the authorities would respond, “I only saw the ‘Central Bank’ come out to deny that the US is pressuring the Taiwan dollar to appreciate. The international media have already reported it on a large scale, but the ‘Central Bank’ is still denying it, treating the Taiwanese as fools.”.
The appreciation of the Taiwan dollar has sparked heated discussions on Taiwan’s social media platforms, some netizens bluntly said, “Since TSMC, the exchange rate, and the pace of negotiations have all given way, what is there to talk about?” Peng su-ling, director of the economic outlook center of Taiwan’s“China Economic Academy,” said that the NTD surged on the 2nd, then the“Executive Yuan” announced that Taiwan and the United States have held preliminary negotiations, the time is indeed quite coincidental.
In an article written on the 6th, scholar Zhong Chongfa said that the DPP authorities need to think carefully and take a firm stand, and figure out how to safeguard the well-being of the Taiwanese people and how Taiwan’s future path should be pursued, not just“America first”. Taiwan’s united news network ridiculed, “Talk about tariffs to send foreign exchange, thanks to the authorities never before.”.
International trade negotiations are in principle conducted in“Parcels” and no conclusion can be reached if the two sides can not reach an agreement on one, the China Times reported National Tsing Hua University he zhiyong as saying on the 6th, for example, the ongoing tariff negotiations between Japan and the United States, the Japanese side has been very tight-lipped; on the contrary, Taiwan has adopted a negotiating strategy of“Talking and letting go”. It seems that what the United States wants, Taiwan will follow up. The article also said the Information asymmetry would be even more deadly in the event of a“Failure of the authorities,” and that perhaps Taiwanese were sold not by the United States but by their own authorities. “Should we be left to our own devices?” Some scholars on the island also said that negotiations are supposed to be about bargaining, and that the United States has been“Eating Taiwan’s tofu,” while the DPP administration has made no move, he even offered to increase the purchase of natural gas from the United States in order to gain Donald Trump’s favor. This shows that the DPP authorities are incompetent. They dare not say anything at all in the face of the United States. They dare only shout at the opposition parties.