Early Morning Financial News Analysis: April 15, 2025

Welcome to the early morning financial news analysis. It's April 15, 2025, 8:31 AM Taipei time. I'm Yu Ting-Hao, and every morning, we're here half an hour before the market opens to analyze international financial news and real-time changes.

US Trade Policy and Potential Tariff Exemptions

This time, we'll specifically examine the semiconductor tariff talks that were supposed to happen on Monday. As of now, there have been no official interviews or statements. Instead, on Monday, Trump hinted at measures to help current automotive manufacturers gain short-term tariff exemptions.

This led to gains in the Japanese stock market, particularly for Toyota, as well as in European and American auto stocks, including Ford. The market is also focused on Trump's suggestion on Sunday of a possible tariff exemption for Apple, the world's largest smartphone brand. We'll discuss how this might impact Taiwanese companies in the coming rebound.

Examining the Timeline of Tariff Inflation

Looking closely at the announcement on April 9th, which suspended equivalent tariffs for 90 days for countries other than China, the timeline for the transmission of tariff inflation has been extended. With only a 10% base tariff currently in place, the internal inflationary pressure is limited. The significant stockpiling in the first half of the year may even offset the deflationary pressures in the second half.

The Interplay of Inflation and Deflation

The excessive stockpiling has created a surplus, potentially leading to price declines due to oversupply. Conversely, the anticipation of tariff inflation from the second half of the year into the first half of next year will cause an interplay between inflationary and deflationary forces.

Based on past research on tariff transmission, textiles, furniture, and plastic products in highly competitive end markets with weak price leadership will have limited room to adjust prices. Especially with production capacity in Southeast Asia and Mexico. Electronic components, as long as prices remain stable, are unlikely to trigger a new wave of uncontrolled inflation in the second half of the year.

US-China Trade and the iPhone Question

Given this situation, the market will pay close attention to whether the US might grant tariff exemptions for iPhones.

• The US exports \$143.5 billion in goods to China.
• It imports \$438.9 billion.

This represents a roughly 1:4 ratio. The US trade deficit with China is a significant \$295.4 billion. Moderate tariff exemptions for electronic components could address more than half of this trade deficit.

Therefore, we'll examine whether Trump will announce semiconductor tariffs this week and whether he will establish humanitarian corridors with special tariff exemptions for the automotive industry and iPhone manufacturers.

Apple's Production Capacity

Apple's production capacity varies across different product lines.

• iPhone: 85% of iPhone production and assembly is in China. Even if production were to shift to India, it would likely be for the I17 or I18, as the I16's production is currently heavily reliant on China.
• MacBook: 75% of MacBook production is in China, making a shift to India somewhat feasible.
• AirPods: AirPods production is mainly in Vietnam, with 90% assembled there and only 10% remaining in China.
• Apple Watch: 100% of Apple Watch production is in China.
• iPad: 95% of iPad production is in China.

Therefore, only AirPods production can readily adapt to current tariffs. The launch of the I17 could face significant challenges. The global notebook (NB) market is also heavily reliant on China, with 70-80% of assembly taking place there.

While some supply chains have moved since 2018, these are primarily in traditional industries like footwear and textiles. Most electronic components, requiring high-precision assembly, remain in China.

Challenges in India's Manufacturing Sector

India has seen significant growth in its stock market and foreign direct investment, however, there are differences between manufacturing in India and China.

China's labor costs are now 1.5 to 2 times higher than Vietnam's. However, China still possesses substantial production capacity because its production efficiency is relatively higher. Similarly, Taiwan's wafer foundry production efficiency is higher than other countries.

Due to US-China geopolitical tensions, some production capacity will inevitably shift back to India. However, this may impact production efficiency and yield rates. Foxconn's investment in India is taking further steps, with plans to establish a new production base in northern India. This is primarily to meet Apple's supply chain demands.

Currently, the basic tariff rate for smartphones and smartwatches is 10%, whereas goods produced in China face a 20% tariff due to Section 301, IEEPA, and equivalent tariffs. Foxconn, a major OEM spanning China, Taiwan, India, and other locations, is undergoing a new round of production location reshuffling.

Trump's Balancing Act

Trump is reassuring consumers that he will exempt automotive components, while simultaneously pressuring manufacturers. By exempting smartphones, laptops, and automotive manufacturing, he aims to alleviate inflationary pressure on consumer products.

This strategy is intended to prevent inflation from stirring public discontent, at least with an eye on the midterm elections a year from now. However, for strategic technologies like semiconductors, Trump aims to strengthen the supply chain's relocation from Asia, through sustained tariff wars and origin tracing reviews.

While not necessarily 100% back to the US, the USMCA makes setting up factories in Mexico more attractive than in Vietnam, Thailand, or India.

Trade Negotiations and Impact on Taiwan

Currently, Taiwan, Japan, and Europe are negotiating with the United States. The progress and status of these negotiations is being closely monitored. Taiwan's Executive Yuan is attempting to leverage the 90-day grace period to improve its equivalent tariff treatment.

It is estimated that Taiwan's industrial product exports to the US could decline by 26%. The estimated impact on manufacturing output is 5%, with a potential loss of 125,000 jobs.

Various sectors, including electronics, IT, machinery, and transportation, will be affected. The overall impact on production value ranges from 3-14%, depending on the negotiated tariff rates.

Impact on Taiwan's Agricultural Sector

The agricultural sector faces significant pressure. Agricultural and related industries are subject to a 32% tariff. The industries may lack competiveness and are affected by this tariff. Tea could be sourced from the UK, tilapia and sea bass from Brazil, and mahi-mahi from Ecuador due to lower tariffs. Pineapple cakes might be the only product with brand competitiveness.

The Ministry of Agriculture's conservative estimates include:

• Orchids: Additional burden of NT\$320 million annually.
• Tea: Increased export costs of NT\$110 million annually.
• Edamame: Increase of NT\$108.84 million.
• Tilapia: Increase of NT\$460 million.
• Mahi-mahi: Impact of NT\$110 million.
• Sea bass: Increase of NT\$69 million.

While these figures may not seem substantial, they represent a significant impact on the few larger companies in Taiwan's agricultural sector.

Taiwan's Export Performance

Despite the potential disruptions, Taiwan's March exports were strong, reaching \$49.57 billion, a record high for a single month. This represents the 17th consecutive month of year-over-year growth.

This indicates that the inventory channel is still on an upward trajectory due to tariff-driven stockpiling, particularly in the downstream segment for components and semi-finished goods.

The Ministry of Finance estimates April's export value to be between \$37.4 billion and \$39.3 billion, with a year-over-year increase of 3-4%. However, this forecast doesn't fully account for the potential pulling forward of shipments in April, May, and June due to equivalent tariffs.

It is expected that April's performance may not exceed March's, it is likely to surpass the average levels of the past year.

Growth in Information and Communication Products

The surge in exports is particularly driven by high-tech products, with information and communication products showing a significant increase. The cumulative year-over-year growth rate for these products in the first quarter is 42%.

In contrast, chemicals and plastics are underperforming, likely due to increased production capacity in China and heightened competition. Electronic components and integrated circuits are growing at 15% and 16%, respectively.

The Leading Indicators: Export Orders and Imports

The leading indicators of Taiwan's export success lies within the export orders, which influences subsequent imports. With the consistent pull of export orders, there is an increasing need to import raw materials and semi-finished goods to facilitate final production for export.

March's import value reached \$42.62 billion, also a record high for a single month.

It is anticipated that both import and export values will reach historic highs in 2025. The key question is whether this represents a short-term boost followed by a longer-term decline, as the stockpiling may simply be bringing forward demand from the second half of the year.

Export Destinations

Among the major export destinations, Mexico stands out, with a remarkable year-over-year export growth of 237.5% in the first quarter.

This surge is driven by the need to avoid potential tariff changes in Southeast Asia and to assemble products near the US market in Mexico to avoid future tariffs after the 90-day period.

Inventory Cycles and Market Corrections

Currently, the Taiwan Weighted Index has experienced a significant correction. Historically, such corrections have coincided with periods of declining export orders.

The current rapid growth in export orders (30%) contrasts with the significant decline in the Taiwan Weighted Index. This creates a challenging situation, requiring investors to carefully manage their capital.

Global Supply Chain Shifts and US Policy

There is a growing trend towards further dispersion of production capacity globally. Foxconn is shifting substantial production to India and Mexico, and is projected to begin new facilities in the US.

Other companies like Quanta, Compal, Wistron, and Inventec are also planning to establish factories in the US, primarily in response to Trump's short-term policies.

Some companies, particularly those in the graphics card and gaming console sectors, are directly raising prices to reflect increased costs. Sony is already raising prices for the PS5 in various regions, and a new round of price hikes is expected in the US after the 90-day period.

Currency Fluctuations and Economic Data

The recent weakening of the New Taiwan dollar (NTD) is primarily due to the short-term weakening of the US dollar driven by market uncertainty surrounding the market selling US treasury bonds. The NTD's appreciation is largely due to international capital repatriation, as Taiwanese investors are selling US dollars to meet domestic funding needs.

Taiwan's regularly employee salaries in February 2025, have risen to NT\$47,296, with a year-over-year increase of 3.02%. Thus, real wages have officially increased, reversing the previous trend where inflation outpaced salary growth.

Overtime hours and pay are also at record highs, indicating a positive outlook for Taiwan's short-term economic fundamentals. However, there is concern that this performance may be borrowing from future demand.

International Trade Negotiations and Tensions

Japan is facing pressure from the US to eliminate non-tariff barriers, including independent safety standards for imported vehicles and regulations on rice imports and beef standards.

The EU is considering resuming imports of Russian natural gas to avoid further inflation, despite the ongoing conflict in Ukraine. European tourism to the US has declined by 17% amid these tensions.

Trump's Trade Strategy and its Implications

Trump's strategy involves creating market uncertainty to contain China, shifting supply chains from China and East Asia to the US, and leveraging high-pressure tactics in negotiations.

This approach is expected to create volatility in the US stock market.

US Stock Market Performance

The US stock market performance:

• Dow Jones Industrial Average: Up 312 points (0.78%) to 40,524.
• S&P 500: Up 42 points (0.79%) to 5,405.
• NASDAQ: Up 107 points (0.64%) to 16,831.
• Philadelphia Semiconductor Index (SOX): Up 12 points (0.31%) to 4,003.

The current economic environment presents a mixed picture, with strong economic indicators and inventory restocking alongside concerns about a potential downturn due to policy uncertainty.

Investors face the challenge of balancing these conflicting signals. There is potential that current inflation data does not reflect the increase in economic pressures.

Fed Policy and Potential Rate Cuts

Federal Reserve (FED) Chairman Waller stated that if equivalent tariffs are implemented, the Federal Reserve has the monetary policy room to perform interest rate cuts. This indicates that the Fed believes that equivalent tariffs have not caused the market to fear inflation.

This echoes past instances in 2019 and 2020, when Trump successfully pressured Fed Chairman Powell to cut interest rates due to trade tensions and economic concerns.

Trump's Health and Political Outlook

A recent health check-up indicates that Trump is in good health, with a height of 190.5 cm, a weight of 101 kg (down 9 kg from his first term), a BMI of 28, and blood pressure of 128/74.

This suggests that Trump is likely to remain a prominent political force.

Risk Premiums and Investment Strategies

The current market uncertainty is driving up risk premiums, as investors demand higher returns to compensate for increased risks. A higher compensation may come from an investment or trade.

In this environment, investors may consider focusing on low-base-period assets and investing during times of economic fear and downturn.

This is also a special day as it is our editor's birthday, we wish them a happy birthday and thank them for all the support.

Thank you for joining today's morning financial news analysis. If you enjoyed our program, please subscribe, like, and share. We'll see you tomorrow morning at 8:30 for another edition. We wish you all a smooth trading day and successful market operations.