Taiwan export orders hit by steepest drop in 32 months as China-US trade war takes its toll across Asia

Taiwan export orders posted the steepest decline in 32 months in December, foreshadowing a steep slowdown in manufacturing economies around Asia through the first half of the year as they face the spillover from the Sino-US trade dispute and shifts in demand for consumer electronics.

Export orders fell by US$5.09 billon, or 10.5 per cent, last month compared to December 2017, according to data released Monday by the Ministry of Economic Affairs.

The drop was more severe than forecast and will lead to further declines in orders through March before the start of a “slow uptrend” in the second half of the year, ministry department director Lin Lee-chen told a news conference.

“The figures reflect that the hit from foreign demand is big, and if it gets any bigger all the export-driven economies need to be more careful,” said Liang Kuo-yuan, president of Taipei-based think tank the Polaris Research Institute.

Chinese outbound projects plunge, investors pull back from US

Export orders often foreshadow actual shipments from Taiwan as well as trends in exports from other Asian manufacturing hubs such as Japan, South Korea and industrialised Southeast Asian countries. Sino-US trade tensions, declining interest in smartphone replacement and world oil prices underpin the trends.

“There seems to be strong co-movement across Asia, consistent with the notion that production processes are interlinked, and that the China-US trade war impact is flowing through to the entire region,” said Steven Cochrane, chief APAC economist with Moody’s Analytics in Singapore.

The Sino-US trade conflict has affected Taiwan “indirectly” by pressuring the economies of offshore markets, Lin said.

Mainland China and the United States are Taiwan’s largest markets, with orders from mainland China dropping 10.3 per cent in December, while demand from the United States rose 5.6 per cent.

“Taiwan’s economy is heavily dependent on its exports, so global events have a huge impact on Taiwan,” Cochrane said.

Investors, including many from Taiwan, that produce goods in mainland China for export to the US face import tariffs on US$250 billion worth of goods, the result of a trade dispute that engulfed the world’s two largest economies starting in July last year.

China responded with tariffs covering US$110 billion worth of US goods.

The two sides agreed a 90-day trade war truce on December 1, but the US has threatened to raise tariff rates if a trade deal is not completed by March 1.

Economies outside the trade dispute can easily be “hit indirectly through weaker demand for their own exports, either through supply chains or in response to weaker global economic growth”, market research firm IHS Markit said in a note. The world economy will grow at 3.6 per cent this year, down from 3.8 per cent in 2018, according to a forecast by Standard Chartered Bank.

Poll boost for Taiwan’s Tsai Ing-wen after tough stand against Beijing

“Taiwan export producers are still a key producer in the global supply chain, and export orders reflect a global outlook in terms of key tech sectors and also petrochemicals as well as some other key industries,” said Tony Phoo, a Standard Chartered senior East Asia economist in Taipei.

“The export order numbers from Taiwan do offer a glimpse forward on these industries.”

Orders for machinery, a signature Taiwanese export, posted the steepest drop of any category in December, falling 22.5 per cent due to the trade dispute, the ministry says.

It says orders from mainland China showed an “obvious” drop of US$330 million.

Japanese export orders also shrunk in December at their fastest rate in two years, another sign of hesitant global demand.

Machinery orders to Japan dropped 11.9 per cent, a potential issue for some of the world’s biggest producers.

Investment in machinery equipment and software is likely to expand 4.1 per cent this year, according to the Equipment Leasing & Finance Foundation after a “weak jumping off point.”

Orders for Taiwanese hi-tech equipment, an economic staple since the 1980s, fell by 13 per cent in December due to “saturation” in the high-end smartphone market, the ministry said in a statement on Monday.

Market research firm IDC expects “low single-digit growth” in smartphone sales this year after a 3 per cent contraction in 2018.

Taiwan looks on enviously as CPTPP meeting kicks off in Tokyo

Struggles to sell electronics would put pressure on Taiwan’s major own-brand smartphone maker HTC as well as numerous suppliers and contract assemblers for the world’s top vendors.

South Korea depends largely on consumer electronics exports, as well, and its flagship firm Samsung Electronics forecasts that earnings will pick up only after the first quarter. It announced a decline in third-quarter 2018 profits for the division that makes handsets.

The third major export category for Taiwan, petrochemical orders dropped 16.5 per cent in December because of lower global prices for oil and other raw materials, the ministry said.