Navigating US Tariff Uncertainty: A Guide for Taiwanese Businesses in Mexico
Taiwanese companies with operations or planned investments in Mexico face a period of uncertainty as the United States navigates new tariff policies. Recent threats from the U.S. to impose a 30 percent tariff on Mexico, potentially effective August 1, have prompted scholars to advise caution before making significant strategic adjustments. This guide offers insights for Taiwanese businesses looking to protect their investments and maintain competitiveness.
Why Taiwanese Companies Should Exercise Caution
Dr. Dachrahn Wu, Director of the National Central University Research Center for Taiwan Economic Development, emphasizes the importance of a wait-and-see approach. While U.S. President Donald Trump has a history of using high tariff announcements as leverage for trade concessions, the proposed rates are not yet finalized, leaving room for negotiation.
"Taiwanese firms should not act hastily," advises Wu. Large capital outlays involved in land purchases and factory construction mean that a premature response, such as pulling out investments, could lead to significant financial losses and sharp declines in asset values. He suggests holding off on revising overseas investment strategies until after August 1, when the U.S. trade policy landscape is expected to become clearer.
The Impact on Taiwanese Firms in Mexico
In recent years, Mexico has become a popular destination for Taiwanese overseas investment, with over 300 Taiwanese companies establishing manufacturing facilities. This trend, driven by "nearshoring" strategies, leverages Mexico's close proximity to the U.S. market.
However, if the proposed tariffs are indeed implemented, Taiwanese firms operating in Mexico will likely experience rising costs and a decline in competitiveness. Despite this, Wu points out that even if a 25 or 30 percent tariff were eventually levied on Taiwan itself, there might still be opportunities for negotiating a reduced rate.
Broader Implications and Taiwan's Position
Echoing Wu's sentiments, Darson Chiu, an economist at Tunghai University, reiterates that while countries have received tariff notifications, the rates are not final, and negotiation remains a possibility. However, the recent moves by the U.S. have undoubtedly added complexity to Taiwan's ongoing trade discussions.
Chiu highlights that even with significant investments like Taiwan Semiconductor Manufacturing Co.'s (TSMC) announced US$100 billion investment in the U.S. for advanced chip manufacturing, the U.S. administration's priority is often the "full acceptance" of its terms during trade negotiations. He cites Japan's experience, where a firm stance on certain sectors led to a higher tariff rate despite multiple rounds of talks.
Regarding Taiwan specifically, Chiu notes President Lai Ching-te's and the Executive Yuan's recent reaffirmation of protecting public health in U.S. trade negotiations. This stance could signal a continued refusal to ease regulations on U.S. pork and beef imports. Nevertheless, Chiu suggests there's no need for immediate concern if the U.S. threatens high tariffs on Taiwan in the future, as negotiations would still be a viable path.
Source: CNA Taiwan