The industrialized Asian island of Taiwan has depended on manufactured exports for about half a century. This year that linchpin of its half-trillion-dollar economy is in decline. The trend points to shifts across the global economy, including new consumer demand that Taiwan is not meeting.
Export orders from Taiwan fell a steep 8.3 percent in August after drops of at least five percent each month from May through July. Those figures compare to the same months last year and threaten producers of plastics, machinery and consumer electronics. The decline began in April with a four percent fall. Exports make up 60 percent of Taiwan’s economy and orders normally grow modestly month-to-month.
Wang Cheng-ching, president of the 2,600-member Taiwan Association of Machinery Industry, says machine tool exports have dropped 13 percent this year through September because of shifting demand.
Wang says demand is declining and calls the Taiwan currency, which is trending strong, another issue. He says international buyers are asking that machine tool producers lower prices and that if you don't lower prices you won't have any invoices. He adds that Taiwan exporters must make better products through more automation and customization.
Weak consumer spending in major markets China and Europe, which face their own economic problems, are hurting Taiwan's exports across categories. Lower crude oil prices worldwide since 2014 have impacted petrochemical firms that pre-purchased supplies at previously higher rates. A Taiwan dollar that has pushed to unusual highs above 32 to the U.S. dollar also makes goods unattractive when priced in foreign currencies.
The economic affairs ministry said export orders declined in August because of slowing demand for chemicals and plastics products. Orders that month came to $35 billion.
The China factor
Export orders serve as a forecast of actual value of exports from Taiwan and elsewhere in industrialized Asia. Taiwan's chief export rival South Korea has also reported steep export declines this year due to changing consumer demand in China and the devaluation of China's currency. Beijing's devaluation move in August makes China's exports more competitive.
Taiwan also faces deeper changes, including competition from export-reliant China, where the massive consumer electronics supply chain is maturing. Liang Kuo-yuan, chairman of the Yuanta-Polaris Research Institute in Taipei, says Taiwan's giant high-tech industry is too keen on hardware, while consumers want software applications. The $131 billion sector traditionally makes PCs and other gadgets on contract for foreign developers.
He says the position that Taiwan's electronics industry has pursued within the new ICT ecosystem is incorrect. Liang says that means the industry is too concentrated on the hardware segment, because now the premium parts across most of the ICT sector are in software applications. Liang says we haven't grasped that segment.
Government officials concede they are worried about shifts in global appetite for made-in-Taiwan products. Premier Mao Chi-kuo told a conference on October 5 that the island would overcome this slump as it had weathered economic hardships after the 2008 global financial crisis. He suggested that the government work with private business to find a new export formula.
He says he believes we can jointly promote a new export formula and a new industrial structure that the Republic of China, or Taiwan, needs for its future. Mao adds that to ensure the momentum of Taiwan's exports is a channel for our existence and development.
The Finance Ministry, however, forecasts that exports will keep falling through the end of the year and even longer for some industries.