TAIPEI (Taiwan News) – Taiwan faces a host of credit risks relating to the U.S.-China trade war, deteriorating relations with China, and an aging population, according to a recent report by U.S. financial services giant Moody’s.
Taiwan’s robust fiscal condition, as well as its strong trade and investment position leaves it in good standing to counter these risks, Moody’s analysis shows.
Taiwan, as an open and trading nation, is vulnerable to cost distortions from increased tariffs instigated by the U.S.-China trade war. The report suggests that Taiwan’s electronics sector is particularly vulnerable.
The assertion supports comments made by TSMC (台積電) CEO and Vice President C.C. Wei (魏哲家), who said that the trade war will affect Taiwan’s semiconductor industry, because of the prominence of electronic components in an incredibly wide array of products.
The trade war also has the potential to depress Taiwanese exports, which have performed well so far this year.
The report goes on to link likely effects of a more severe U.S.-China trade war to Taiwan’s international position, suggesting it could amplify geopolitical risks.
The main geopolitical risk is Taiwan's relationship with China, which the report characterizes as becoming more “acrimonious” in recent times. A declining international trade environment could add additional stress to the cross-strait relationship.
Lastly, the report identifies Taiwan’s aging population as a potential limiter to growth potential, which could have flow-on effects to Taiwan’s savings rate and fiscal strength.
To counter these risks, Taiwan is in a good position, the report suggests, pointing to Taiwan’s low debt burden, expansive scope for fiscal stimulation, and abundance of foreign exchange reserves.