Financial Instability Outweighs Customs Duty Peril
In response to the New Taiwan dollar's sharp appreciation against the US dollar over the past few months, Taiwan's government and exporters are taking proactive measures to protect small and medium-sized enterprises (SMEs) in traditional export industries.
The Ministry of Economic Affairs has established a special task force to help export-oriented SMEs manage risks from the stronger Taiwan dollar. This dedicated task force will operate intensively for at least three months, monitoring exchange rates, supporting industrial upgrading, and exploring overseas market opportunities to sustain export competitiveness.
To mitigate foreign exchange volatility, the government is collaborating with state-owned banks to encourage SMEs to use hedging instruments such as forward contracts and options. Efforts include launching dedicated online platforms that simplify access to low-cost, low-risk currency risk management strategies tailored for SMEs.
To make hedging more accessible and affordable for smaller exporters, the authorities plan to streamline regulatory procedures related to hedging and urge banks to relax internal processes. Larger companies are being encouraged to procure products and services from local SMEs, helping them stabilize demand despite currency-related export challenges.
The Central Bank of Taiwan is actively working to stabilize the exchange rate to mitigate volatility and its negative effects on exporters. The bank also plans to meet with custodial banks representing foreign institutional investors to discuss enhanced oversight.
Exporters are hoping that the authorities can ensure that the local currency moves in line with that of Taiwan's trade rivals to preserve local firms' profitability and international competitiveness. Some exporters are discussing cost-sharing arrangements with customers, while others are considering price increases to offset rising costs.
Taiwanese exporters have accumulated substantial experience in managing currency risks, but sudden and sharp fluctuations still pose significant challenges. If Taiwan could secure tariff terms similar to those of its trade rivals, the adverse impact would be milder, according to some exporters.
Taiwan's broader trade strategies include leveraging recent trade agreements (such as the U.S.-Taiwan trade agreement) to improve SME access to capital and markets, enhance customs efficiency, and reduce trade barriers, which collectively help SMEs to better withstand external shocks like currency fluctuations.
Foreign investors will only be allowed to convert funds into New Taiwan dollars after executing stock purchases to prevent idle capital from remaining in NT dollar accounts for extended periods. Local machinery and equipment producers' typical gross margins under normal conditions range from 20 to 25 percent, less than half of TSMC's 58 percent in the first quarter.
In summary, Taiwan's government is mitigating the adverse effects of the Taiwan dollar appreciation on SMEs primarily through a government task force promoting currency hedging and easing regulatory burdens, encouraging domestic procurement, and monetary stabilization, all supported by trade facilitation policies that enhance SME competitiveness globally.
- The dedicated task force established by the Ministry of Economic Affairs will not only monitor exchange rates but also support industrial upgrading and explore finance opportunities in the foreign market to sustain export competitiveness of SMEs in traditional export industries.
- To ensure the sustainability of small and medium-sized enterprises (SMEs) in the industry, the government is collaborating with state-owned banks to encourage SMEs to use financial instruments such as forward contracts and options, and is streamlining regulatory procedures related to hedging.
