Coronavirus: US firms expect outbreak to hit Taiwan economy, with China trade war fears also lingering

Half of American companies with operations in Taiwan now expect the island’s economy to weaken in 2020 due to the fallout from the coronavirus outbreak, a new study found.

A further three-quarters of US firms reported that their business has been adversely affected by the long-running US-China trade war, according to the survey by the American Chamber of Commerce (AmCham) in Taipei.

Some 60 per cent of American companies surveyed from mid-January to mid-February expressed confidence about Taiwanese growth over the next 12 months. However, that percentage fell to 53 per cent after the announcement of the coronavirus outbreak in late-January, down from 73 per cent before the extent of the virus became public.

“The big drop after the virus story broke was apparently due to a realisation that the outbreak would cause significant economic damage and disruption,” said AmCham Taipei president William Foreman. “The inability to predict when the outbreak would end also caused uncertainty that weighed heavily on sentiment and eroded confidence in the economic outlook.”

The coronavirus outbreak is hitting companies in the civil aviation and hotel sectors particularly hard, the chamber said, without identifying specific firms.

Despite concerns on near-term growth, 72 per cent of those surveyed believe the island’s gross domestic product (GDP) will be firm over the next three years.

“Of course, in these 12 months, everyone knows the economic situation might contract a bit, but over the future three years there’s a whole lot of confidence in Taiwan’s economic prosperity, so the figure goes up,” AmCham Taipei chairman CW Chin said.

Taiwan’s handling of its own disease cases may inspire some confidence in the economy going forward, Chin said. The deadly respiratory disease that the virus causes, Covid-19, has spared Taiwan with less than 50 reported cases out of the nearly 98,000 worldwide as of Friday. Schools and workplaces remain on normal schedules in Taiwan despite disruptions in other parts of Asia.

Most virus cases – 80,000, with more than 3,000 deaths as of Friday – are in mainland China, where the virus was discovered in December.

In February, the Taiwan government’s Directorate General of Budget, Accounting and Statistics forecast that the US$654 billion economy would grow by 2.37 per cent this year, down from its earlier forecast of 2.72 per cent. AmCham Taipei did not make a GDP forecast based on the survey results.

About three quarters of companies surveyed said the trade war that began in 2018 had affected their businesses, though just under 11 per cent reported that the impact was “large”.

“Many of our members have complained that the China-US trade dispute has caused disruptions in the supply chain and other types of uncertainty that has delayed procurement decisions, causing a slowdown or decline in orders,” Foreman said. “Tariffs have also increased costs for some companies.”

Taiwanese companies should see the virus outbreak as a new reason, along with the trade dispute, to diversify away from the mainland as a manufacturing site, said Ma Tieying, an economist with DBS Bank in Singapore.

American firms, such as Google and Intel, work closely with some of Taiwan’s consumer electronics firms that are fanning out operations beyond China.

The trend of Taiwanese companies moving some or all of their operations back to Taiwan – “reshoring” – that has emerged since the China-US trade war broke out in 2018 “is likely to be further reinforced”, Ma said. “Diversifying into Southeast and South Asia could also be an option considered by Taiwanese manufacturing firms in the longer term.”

The AmCham survey showed expectation for “substantial investment returning to Taiwan from China” as a possible reason for respondents’ positive outlook for GDP growth over the longer term. Taiwanese companies have already brought back billions of US dollars worth of capital to avoid US trade tariffs on exports from the mainland, where their factories have traditionally operated to save costs.