Taiwan Dollar‘s Rise: How Exporters Adapt to Currency Fluctuations

Taipei – The Central Bank of the Republic of China (Taiwan) reports that Taiwanese exporters are successfully navigating the challenges posed by a strengthening Taiwan dollar through strategic investments and adaptations. Despite the currency’s recognition, particularly against the U.S. dollar, the competitive edge of Taiwanese firms in the global market remains robust.

Taiwanese Firms Combat Currency Headwinds

According to a recent report from the central bank, ample investments in advanced processes, especially within the semiconductor industry, have bolstered the competitiveness of Taiwanese companies. This has allowed them to effectively meet the sustained global demand for emerging technologies, offsetting potential adverse impacts from currency fluctuations.

Despite a sharp appreciation of the Taiwan dollar in may, Taiwan’s exports surged by 32.3 percent in Taiwan dollar terms. This growth was fueled by strong demand for artificial intelligence applications and preemptive orders from foreign buyers aiming to avoid potential tariffs [1].

Did You Know? Taiwan’s semiconductor industry is a global leader, accounting for a significant portion of worldwide chip production.

Currency Appreciation and Central Bank Intervention

The Taiwan dollar has risen by over 11 percent against the U.S. dollar this year. In May alone,the local currency jumped NT$2.088, nearly 7 percent, amid speculation that the U.S. was pressuring Taiwan to allow currency appreciation during trade and tariff negotiations.

The central bank acknowledged intervening in the market to support the U.S. dollar and prevent further appreciation of the Taiwan dollar. however, it denied any external pressure from the U.S. regarding currency policy, especially during ongoing trade discussions [2].

In June, the Taiwan dollar’s appreciation continued amidst escalating conflict in the Middle east, reaching NT$29.460 at one point, the highest in over three years.

impact and Adaptation Strategies

The central bank notes that a stronger Taiwan dollar presents both challenges and opportunities. While it can lead to foreign exchange losses for exporters, it also reduces costs for companies importing equipment or raw materials, potentially boosting profit margins.

Data from 2015-2024 indicates that companies listed on the local main board and over-the-counter market accumulated forex gains of NT$358.2 billion (US$11.01) after offsetting forex losses. Between 2015 and 2021, these companies generated NT$14.8 trillion in combined operating profits,significantly exceeding their forex losses of NT$116.7 billion.

Pro Tip: companies can mitigate forex risk by employing hedging strategies and diversifying their revenue streams.

Many Taiwanese exporters have adjusted their production and sales models. In the short term, they have raised product prices and reduced orders on products with lower gross margins. In the long term, they are focusing on increasing value-added products and diversifying their product portfolios.

Central Bank’s Commitment

the central bank has affirmed its commitment to maintaining order in the forex market and ensuring the Taiwan dollar moves in a dynamic equilibrium. Governor Yang chin-long stated that the currency’s strength this year is acceptable, anticipating a moderation in appreciation as Taiwan’s economic growth slows and U.S.tariff policies become clearer in the latter half of the year.

Taiwan-U.S. Trade Relations

The United States and Taiwan continue to strengthen their economic ties. The first agreement under the U.S.-taiwan Initiative on 21st Century Trade was signed on June 1, 2023, and went into effect on December 10, 2024 [3]. This initiative aims to foster closer trade and economic cooperation between the two economies.

In 2023, the U.S. was Taiwan’s 7th-largest merchandise trading partner, with total goods trade reaching $128 billion [1]. U.S. agricultural exports to Taiwan amounted to $4.4 billion, and service exports totaled $11.9 billion.

How do you think the ongoing trade negotiations between Taiwan and the U.S. will impact the Taiwan dollar? What strategies can smaller Taiwanese businesses adopt to mitigate forex risks?

Disclaimer: This article provides general facts and should not be considered financial advice. Consult with a qualified professional before making any investment decisions.

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