Taiwanese technology companies will be affected by the US-China trade war due to their heavy revenue exposure to technology products sold in the US, with many of the products manufactured or assembled in China, Taiwan Ratings (中華信評) said yesterday.
The local partner of Standard & Poor’s (S&P) made the warning after raising its forecast for Taiwan’s GDP growth this year to 2.8 percent, saying the effects of the trade war are malleable in the near term, but might become more evident next year.
“We expect the tariff dispute between the US and China to have a negative effect on Taiwanese technology and transportation sectors, while the impact on other sectors are likely to be minimal,” Taiwan Ratings analyst David Hsu (許立德) told a media briefing in Taipei.
The first wave of tariffs did not change the global economic scene materially, although it has lifted consumer prices modestly, Hsu said, citing an S&P report.
The second wave of tariffs pose a bigger risk and it remains unclear how industries will respond, given their dependence on imported raw materials and intermediate products, Hsu said.
If the trade spat dampens corporate confidence, it could disrupt supply chains, decrease production efficiency, raise production costs and subdue competition, Hsu said, adding that companies would also be less willing to raise headcounts, the report said.
Additional tariffs could drive up production costs and prices of consumer electronics, industrial equipment, cars and medical equipment, it said.
Demand for electronic manufacturing services, components and other intermediate products made by Taiwanese companies could soften, it added.
Higher tariffs could also have a negative effect on Taiwan’s air freight market, because an escalating trade row could result in a decline in container freight demand on routes between East Asia and North America, it said.
Dry bulk shipping would also take a hit if Chinese demand for raw materials dampens, the report said.
The trade war aside, foreign-exchange volatility remains a downside risk on corporate credit profiles in the next few quarters, Taiwan Ratings analyst Lan Yu-han (藍于涵) said.
A majority of Taiwanese manufacturers settle their accounts in US dollars, which provides a degree of hedging and lower exposure, Lan said, adding that the depreciation of the New Taiwan dollar over the past few months would help ease margin pressures on local exporters.
However, exchange-rate volatility would push up hedging costs and weaken local life insurers’ profitability and capitalization, Lan said.
Foreign assets account for two-thirds of domestic insurers’ investments, making their earnings ability vulnerable to foreign-exchange risks and hedging costs, she said.