Taiwan has fallen into the paradoxical trap of 'reciprocal tariffs'

Editor's note: Liu Kuangyu is an associate research fellow with the Institute of Taiwan Studies under the Chinese Academy of Social Sciences. The article reflects the author's opinions and not necessarily the views of CGTN. 

Ahead of the August 1 deadline, the Trump administration announced that further modified reciprocal tariff rates on Taiwan region were provisionally set at 20 percent, with numerous uncertain conditions potentially attached. In fact, the logic behind the US's "reciprocal tariffs" is not merely trade protection, but part of a fiscal and tax pressure adjustment mechanism. Tariff wars are escalating from economic tools into geopolitical weapons, and the 20 percent tariff is only the initial explicit cost that Taiwan has paid in this round of exploitation and extraction.

The Lai authorities are continuously eroding their bargaining chips in US talks, betraying Taiwan's interests 

In the tariff negotiations with the US, the Lai authorities have persisted in a kowtowing stance of "zero tariffs, no countermeasures," presumptuously vowing to expand TSMC's (Taiwan Semiconductor Manufacturing Company, hailed as Taiwan's "divine mountain protecting the island") investment in the US by an additional $165 billion.

Meanwhile, they have pledged to drastically expand purchases from the US and lower "non-tax trade barriers," remaining passive and submissive throughout the negotiations—capitulating before the battle even begins—and continuously sacrificing Taiwan's interests.

Taiwan's "effective tariff rate" is far higher than the nominal figure

Over the past three months, the New Taiwan dollar has surged a staggering 12 percent in a historic rally. Driven by factors such as large-scale US tax cuts from the "One Big Beautiful Bill Act", a weak dollar strategy manifested in the rumored Mar-a-Lago Accord, and market expectations of Fed rate cuts and US debt reduction, the New Taiwan dollar still faces upward pressure in the foreseeable future.

Unlike Japan and South Korea, which use currency depreciation to offset tariffs, this abnormal "double-kill of currency appreciation and tariffs," is essentially the result of shadowy dealings between the Lai authorities and the US—where Taiwan is trading New Taiwan dollar appreciation for lower nominal tariffs. Taiwan's actual tariff rate should be calculated by adding the cumulative impact of the New Taiwan dollar appreciation.

The Lai authorities' tariff negotiations have exacted enormous costs from Taiwan

First, the US aims to plunder Taiwan's core strengths in high-tech industries, where semiconductor tariffs will have a far greater impact than "reciprocal tariffs". According to Taiwan authorities' statistics, up to 80 percent of its exports to the US could be subject to "Section 232 investigations," facing sector-specific tariffs of at least 25-50 percent.

During negotiations, the US has demanded the relocation of Taiwan's entire semiconductor upstream and downstream industries to the US, pressuring TSMC to hand over core technologies to American firms, and using high tariffs to extort the relocation of Taiwan's industries to the US.

Second, "reciprocal tariffs" could devastate Taiwan's export-oriented economy. The "reciprocal tariffs" on it are higher than those of Japan, South Korea, and Indonesia—nearby economies with highly homogeneous exports to the US—plunging Taipei into a comparative disadvantage in exports. The already meager profits of 99 percent of Taiwan's small and medium-sized enterprises (SMEs) could be erased, dealing a heavy blow to traditional industries and the mainstay of employment.

In this round of tariff wars, the US has launched nearly indiscriminate high-tariff assaults on economies across the Asia-Pacific region. Meanwhile, it has set "transshipment" clauses to advance the "displacement of China from supply chains."

Against this backdrop of comprehensive considerations, the US finds it difficult to show leniency to Taiwan and allow it to become a "tariff haven" within the region to facilitate transshipment trade. The US is only willing to turn Taiwan region into a key node for containing and isolating Chinese mainland, rather than its sole breakthrough point.

Third, the US is "squeezing the lemon" to comprehensively expand its economic exploitation and penetration of Taiwan. Beyond previously promised participation in a $44 billion Alaska natural gas investment, additional purchases of US energy, and scaling up arms purchases from the US to 647 billion New Taiwan dollar (accounting for 2.5 percent of Taiwan's GDP), Taiwan is reportedly also planning to establish a $300−600 billion investment fund for the US, sign large procurement orders, open its agricultural and automotive markets to the US, and even absorb US Treasury bonds.

Taiwan has become a dumping ground and cash cow for the US

By comparison, Japan's promised $550 billion investment in the US represents only 1/8 of its GDP, while Taiwan's GDP is less than $800 billion. The $300-600 billion investment funds alone would equate to around five years of Taiwan's fiscal revenue, burdening each Taiwan residents with approximately $20,000 in debt.

Under the dual pressures of tariffs and currency fluctuations, Taiwan risks further losing its momentum for economic development and autonomy, becoming a dumping ground and cash cow for the US—with no sector, from high-tech and traditional industries to public health and safety, spared.

(Cover via VCG)