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Tariff Policies and China's Overcapacity Drive Divergent Global Economic Performane
Taiwan-U.S. Tariff Talks Concluded, Tech Giants Bullish on Taiwan AI, Both Exports and Domestic Demand Expected Stable |
The global economy maintains resilience, though 2026 growth momentum is expected to moderate or remain flat versus 2025. Key factors include AI industry development, U.S. tariff policies, and China's overcapacity, with varying impacts across economies. The U.S. shows robust growth from AI investment and policy support; the eurozone and UK face weakening momentum from tariffs, Chinese competition, and fiscal constraints; Japan's exports remain tariff-constrained despite key industry investments; China faces pressure from weak domestic demand and sluggish property markets, creating a differentiated global economic landscape.
In domestic manufacturing, strong demand from AI, high-performance computing, and cloud services drives robust product momentum. As Trump tariff uncertainties fade and tech giants remain optimistic about AI prospects, the December indicator continued rising. Services benefited from Christmas, New Year's Eve, year-end banquets, and concerts, plus operators' partnerships, promotions, and new products alongside overseas expansion, improving hospitality sector sentiment versus the prior survey.
In construction, year-end public works acceleration and ongoing semiconductor facility projects improved current sentiment. However, new soil disposal regulations create emerging challenges in disposal channels and execution, potentially affecting project progress and leading to neutral six-month outlook. In real estate, concentrated new housing deliveries and slight policy adjustments drove month-on-month December transaction growth, though year-on-year declines indicate low transaction levels. Mortgage policies, continued credit controls ...Read more |
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| Investing in America: A More Rational and Beneficial Response Than High Tariffs |
| Taiwan has run substantial trade surpluses for over four decades. The United States now seeks to address this imbalance through high tariffs, commitments for significant investments, or New Taiwan Dollar appreciation. Each approach carries distinct costs. This article analyzes these options based on surplus causes and current conditions to identify the optimal response. Trade surpluses stem from five sources: First, currency undervaluation or low wages in the surplus country. Second, tight money supply or high savings rates. Third, unfair policies providing improper subsidies to specific industries. Fourth, superior competitiveness in certain sectors driving exports, such as oil or Taiwanese semiconductors. Fifth, excessive imports by the deficit country. Potential responses include: First, non-intervention, relying on market forces and foreign responses. However, this may trigger inflation or wage increases that erode competitiveness, or invite unfavorable foreign policies. Since markets respond to factors beyond trade alone, this cannot guarantee surplus reduction without side effects. Second, boosting domestic spending, though difficult to implement. Third, currency appreciation—yet when surpluses stem from specific industries, broad appreciation disproportionately harms less competitive sectors, creating inequity while potentially affecting labor income and foreign investor returns, paradoxically causing stock declines. Fourth, deficit country tariffs. While competitive industries absorb impacts through cost pass-through, this similarly harms weaker sectors. Fifth, policy-driven procurement of deficit country products, with limited effects. Sixth, purchasing deficit country assets. While excluding assets from trade calculations reduces balance of payments surplus and limits reserve accumulation, such purchases may provoke resentment. Seventh, recycling surplus funds to deficit countries to mitigate financial damage, like the petrododollar model. Eighth, direct investment in deficit countries to boost their production capacity and income, reducing imports and deficits. This may raise concerns about domestic investment crowding-out and competitiveness loss. Historical petrodollar recycling demonstrates how appropriate direct investment creates mutual benefits. Taiwan's U.S. investment represents partnership, not tribute. |
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Taiwan Economic Research Monthly
2026 International Economic Landscape and New Paradigms for Taiwan's Industrial Development |
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The global economy in 2025 has been shaped by the United States' new tariff policies, sustained U.S.-China tensions, and the ongoing Russia-Ukraine conflict, resulting in volatile international political and economic conditions. Nations worldwide are confronting multifaceted challenges across political, economic, social, and technological dimensions. Beyond U.S. tariff policies and multinational supply chain restructuring emerging as global focal points, energy and resource constraints, carbon emission regulations, and net-zero mandates have elevated resource productivity as a critical metric for national competitiveness. Major economies universally recognize artificial intelligence as a transformative technology driving industrial structural shifts from America's AI Action Plan, the EU Artificial Intelligence Act, to Japan's AI Basic Plan, demonstrating that AI sovereignty, computing infrastructure, trustworthy data governance, and cross-disciplinary talent development have become strategic priorities. AI represents not merely a technology but a common platform through which nations enhance resilience and support industrial innovation. This month's special feature, "2026 International Economic Landscape and New Paradigms for Taiwan's Industrial Development," analyzes the potential impact of U.S. tariff policies on Taiwan's exports to America and clarifies emerging trends in U.S.-bound exports. Simultaneously, it examines evolving patterns in nations' AI sovereignty strategies while assessing Taiwan's challenges and opportunities in energy supply, resource efficiency, and industrial innovation.
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