On April 2, 2025, U.S. President Donald Trump, under the authority of the International Emergency Economic Powers Act (IEEPA), announced an executive order imposing a uniform base tariff of 10% on goods imported from all trading nations. The Trump administration also pursued additional "reciprocal tariffs" ranging from 1% to 40% on approximately 60 trading countries. This move to impose sweeping reciprocal tariffs raised serious concerns about a potential global trade war, causing a downturn in global stock markets. In response, President Trump made a policy shift on April 9, suspending the "reciprocal tariffs" on most countries for 90 days. Despite the suspension, the new minimum 10% tariff has been applied to goods imported from all countries, excluding semiconductors, pharmaceuticals, and critical minerals, since April 5. Trump's erratic policy changes have caused extreme volatility in global markets. Despite the suspension, the new minimum 10% tariff has been applied to goods imported from all countries since April 5, excluding semiconductors, pharmaceuticals, and critical minerals.

Another source of uncertainty for many East Asian countries is the Trump administration's pursuit of sector-specific tariffs targeting products that the U.S. government deems as threatening to national security. This practice includes the Trump administration's imposition of a 25% tariff on all steel and aluminum imports in February 2025, based on the Secretary of Commerce's investigative report under Section 232 of the Trade Expansion Act, and the imposition of a 25% tariff on automobiles and certain auto parts imported into the United States in March 2025. In this context, concerns have been raised about the potential for the Trump administration to impose new tariffs on semiconductors and electronic products. The U.S. administration has implicitly used the threat of punitive tariffs to pressure trading countries to increase investment in the U.S. or demand economic concessions, causing economic uncertainty for many major trading partners.

East Asian countries have consistently ranked high on the list of countries facing high tariff rates. Taiwan was subjected to a high tariff of 32%, and several Southeast Asian countries designated by the Trump administration faced tariffs between 32% and 49%. In contrast, Japan and South Korea faced tariffs of 24% and 25%, respectively.

Immediately after President Trump announced the 32% tariff on Taiwanese products, Taiwan's Executive Yuan (Cabinet) issued a statement criticizing the high tariff rate as unfair. Executive Yuan spokesperson Li Meng-yen pointed out the opacity of the U.S. tariff imposition method and emphasized Taiwan's significant growth in exports to the U.S. and high demand for semiconductors and AI products.

In Taiwan, there is widespread concern about the challenges and uncertainties ahead. Economically, there are significant concerns about the tariff's effects on export competitiveness and profitability. According to trade statistics from Taiwan's Ministry of Economic Affairs, as of March 2025, the U.S. market accounts for approximately 25.7% of Taiwan's total exports, making it the largest export destination.

Major export items include non-semiconductor industrial materials such as servers and network equipment, machinery, auto parts, petrochemical products, plastics, rubber, and hardware. According to data from Taiwan's Ministry of Finance, the U.S. market accounts for the largest share of exports of these industrial products, ranging from nearly 50% to 75% of export value. Many of these industries are small and medium-sized enterprises (SMEs) distributed across six manufacturing clusters, with exports to the U.S. exceeding NT$1.3 trillion.

The imposition of a 32% tariff by the U.S. will directly impact many local jobs and households. Some telecommunications and electronic products and equipment, previously exempt from tariffs under the World Trade Organization's (WTO) Information Technology Agreement (ITA), will now be subject to a minimum 10% tariff, potentially affecting up to NT$1.5 trillion in production value. The relatively high tariffs imposed on Taiwanese companies will place them at a disadvantage in trade competition compared to other Asian competitors facing lower tariffs. The high tariffs imposed by the U.S. on Southeast Asian countries, exceeding 40%, have also caused a surge in costs for Taiwanese companies that have invested in Southeast Asia.

To mitigate tariff risks, Taiwanese companies have considered increasing investments in the U.S. or relocating production bases to regions with lower tariff rates. However, both strategies face uncertainties. TSMC (Taiwan Semiconductor Manufacturing Company) has pledged to invest an additional $100 billion in the U.S. in response to potential semiconductor tariffs.

Other large-scale industries (e.g., electronics, petrochemicals) may inevitably follow suit. However, this requires significant capital and technology transfer, which is too burdensome for SMEs. The impact on Taiwan's domestic economy if Taiwanese companies relocate high-value-added production overseas is also unclear. Trade experts also warn that adjusting supply chains to exploit tariff differences is complex and depends on the U.S. administration's enforcement of new trade rules. Relocating production bases to new countries can be risky, as President Trump can change tariffs based on each country's actions.

While building overseas facilities can strain corporate resources, tariffs and the resulting inflation can dampen U.S. and global demand. This can also put downward pressure on Taiwan's imports and growth. Recent warnings suggest that trade conflicts could spill over into currency and monetary policy, potentially causing a sharp appreciation of the New Taiwan dollar, which could have new impacts on Taiwanese companies.

Concerns about President Trump's unpredictable policies and transactional approach are now extending to Taiwan's geopolitical standing. The U.S. pressure on Taiwan's major companies to invest in the U.S. risks weakening Taiwan's geo-economic influence.

President Trump's transactional nature and the administration's criticism of Taiwan's defense spending raise concerns that U.S. support may weaken or demand higher costs. China's retaliatory measures against Trump's tariffs are triggering new reciprocal tariffs between the U.S. and China, with tariffs between the two countries exceeding 125% to 145%. The confrontational stance between the U.S. and China could lead to a hard decoupling strategy between the two economies, potentially having broader impacts on Asian countries by pressuring them to take sides. However, President Trump's preference for managing U.S.-China relations remains uncertain, and such negotiations could take months. Nevertheless, President Trump's overall trade and security strategy is unpredictable.

The tariff effects and potential tensions have sparked domestic debates among policy elites amidst recent domestic turmoil in Taiwan due to constitutional gridlock. Recent polls show a decline in public trust in U.S. support in the event of military conflict among Taiwanese and South Korean citizens. In March 2025, only 37.5% of Taiwanese believed the U.S. would intervene in a conflict with China, down from 44.5% in July 2024. Taiwan's overall positive perception of the U.S. also fell to 20.8% under the Trump administration.

The Taiwan administration has taken steps to address some of the economic impacts. On April 6, 2025, President Lai Ching-te delivered a public address on the impact of U.S. tariffs, stating that he would pursue negotiations with the U.S. to improve tariff rates and address U.S. non-tariff barriers, concerns about the transshipment of advanced technology exports, investment, and procurement.

In a Bloomberg article on April 10, 2025, President Lai outlined Taiwan's core response principles to the U.S. reciprocal tariff policy, detailing a roadmap to strengthen Taiwan-U.S. economic relations and emphasizing shared economic and security interests. These measures aim to maintain positive relations with the Trump administration, avoid potential trade friction, and ensure continued U.S. security support. The Lai administration also announced an NT$88 billion relief package and measures to support traditional industries and SMEs affected by the tariffs.

Taiwan is strategically leveraging its semiconductor manufacturing expertise and innovative technologies for medium- and long-term benefits. President Lai's "Taiwan plus one" strategy aims to diversify supply chains while maintaining domestic industries. This initiative complements Taiwan's New Southbound Policy by encouraging Taiwanese companies to strengthen supply chain connections with the U.S., Japan, and the European Union.

This approach is not limited to the semiconductor industry, where Taiwan holds a leading position, but extends to emerging sectors such as clean energy, AI, next-generation communication satellites, autonomous vehicles, robotics, and marine industries, exploring new niche markets and industrial upgrades for Taiwan. President Lai's vision aims to ensure Taiwan's essential role in the global economy by enhancing supply chain security and fostering global partnerships in the face of geopolitical challenges.

Business collaborations are also being formed among companies in various manufacturing sectors, including those related to engineering, automation equipment, and consumable parts required for front-end semiconductor processes, to share warehouse logistics and reduce costs for customers entering the U.S.

Taiwanese companies are also transforming distribution platforms to support peers and trading partners. To enhance competitiveness and adaptability, the increasing uncertainty will require U.S. companies and local stakeholders to collaborate with international or non-state investors and industries for hedging and risk management, creating new cross-border investment and production opportunities. Recent studies indicate that collaboration, flexibility, and redundancy are essential for managing disruptions and maintaining supply chain resilience.

The Trump administration's first 100 days have created uncertainty among partners and allies. Some point to signs that President Trump may withdraw tariffs in the face of market reactions and declining approval ratings for his handling of economic issues. However, President Trump's economic disruptions are likely to persist beyond his second term.

Despite the suspension of reciprocal tariffs, the average U.S. import tariff has risen to 24%, the highest level in over a century, signaling a significant shift in U.S. trade policy. Research from the Peterson Institute for International Economics indicates that even with the 2021 U.S.-EU agreement under the Biden administration to remove steel and aluminum trade barriers, tariffs cannot return to pre-2018 low levels due to changes in production networks and regional interests during 2018-2021.

It is worth noting that the Taiwan economy has shown resilience in the face of geopolitical risks during that period. Taiwanese companies were most severely negatively impacted by the U.S.-China trade conflict during President Trump's first term due to supply chain relocation. Therefore, despite the new challenges and uncertainties posed by the Trump 2.0 tariff policy, with appropriate policy guidance, there may be new opportunities for the Taiwan economy and businesses to redesign, enter, and advance industries and competitiveness.