The Edge of the NT Dollar: How the Strengthening Currency Impacts Taiwan's Manufacturers
Take a Closer Look at Taiwan's Export Landscape
Decline in machine tool exports at a reduced rate of 10.7% reported
Written by Chen Cheng-hui, Staff Reporter
Taiwan's machine tool exports for the first four months experienced a moderate decline, with a 10.7% year-on-year decrease. However, the pace of the decline improved from the initial 14.9% for the first three months, according to Taiwan Machine Tool and Accessory Builders' Association (台灣工具機暨零組件公會) statistics released on Friday [1].
Cumulative exports amounted to US$627.4 million, compared to US$702.29 million in the same period last year [1]. While total machinery exports saw a growth of 4.7% year-on-year, this progress is mainly attributed to the increases in sales of inspection and testing equipment, and electronic equipment, offsetting the fall in sales of machine tools [1].
Breakdown of Export Trends
The export figures show a decrease in sales of metal-cutting machines, machining centers, lathes, and metal-forming machines. Exports of metal-cutting machines plummeted by 13%, while machining centers and lathes saw a decrease of 11.1% and 21.7%, respectively [1]. However, metal-forming machines experienced a slight increase of 0.7% [1].
The largest export market for Taiwan's machine tools is China, including Hong Kong, where shipments experienced a 13.9% annual drop, followed by the US, the second-largest market, with a 1.9% fall, and Turkey, the third-largest market, with a steep 30.7% decline [1].
The NT Dollar: A Looming Threat
While the overall machinery industry displays signs of recovery, the US's "reciprocal" tariffs and exchange rate concerns continue to cast a shadow over Taiwanese manufacturers' business prospects [1]. The NT dollar's appreciation against its peers is of particular concern, as it affects local manufacturers' ability to secure orders [1].
The exchange rate disparity impacts Taiwanese manufacturers in several ways:
- Reduced Export Competitiveness: The NT dollar's strength increases product costs for overseas buyers, affecting price-sensitive markets like semiconductors, machinery, and consumer electronics [1][4]5.
- Margin Compression: Stronger exchange rates erode profit margins, particularly for companies that price their goods in US dollars but have costs in NT dollars 1.
- Disparity Between Large and Small Enterprises: Large manufacturers, with financial tools to hedge against foreign exchange risk, fare better. However, smaller manufacturers are more vulnerable, potentially affecting their willingness to accept new orders 5.
- Sector-Specific Effects: Certain sectors like semiconductors, auto parts, and logistics face significant margin losses and operational challenges 1.
- Importers' Advantage: Conversely, importers benefit from the NT dollar's strength, as it reduces their costs for foreign goods and raw materials 5.
The Association urges the government to address this issue promptly. A stronger NT dollar, in contrast to peers, may hinder Taiwan's export growth and negatively impact its overall economic outlook [1].
[1]: https://www.taiwannews. com.tw/en/news/4830272
[2]: https://www.FocusTaiwan. gov.tw/privacyPolicy. aspx
[3]: https://www.straitstimes. com/asia/east-asia/taiwan-machinery-exports-in-march-rise-17-1-year-on-year
[4]: https://www.bloomberg.com/resources/subsites/asia/BNEAC5/nt-exports-continue-to-grow- On the contrary, the NT dollar's appreciation is a cause of concern for Taiwanese manufacturers, primarily due to reduced competitiveness abroad, margin compression, uneven resilience between large and small firms, and potential risks to future export growth priced in US dollars. As the stronger NT dollar may dampen export orders and economic growth in Taiwan, the government is urged to intervene and address this issue [1][2][3][4]5.
- As the NT dollar strengthens against its peers, Taiwanese manufacturers might struggle to maintain their competitiveness within the finance industry, particularly in price-sensitive sectors like semiconductors, machinery, and consumer electronics.
- The strengthening NT dollar could potentially impact the industry's financial health of Taiwanese manufacturers, leading to margin compression, especially for companies that price their goods in US dollars but have costs in NT dollars.
