The Appreciation of the New Taiwan Dollar Squeezes Profits; June Manufacturing Business Climate Turns Blue

The Taiwan Institute of Economic Research (TIER) released the June manufacturing sector business climate indicator on July 31. Despite Taiwan’s continued year-on-year growth in export orders, the momentum of the global manufacturing recovery remains weak. Traditional industries have been impacted by rising trade protectionism and the appreciation of the New Taiwan Dollar (NTD), which have compressed the profit margins of export-oriented manufacturers and dragged down overall performance. As a result, the June manufacturing business climate index stood at 9.41 points, a slight increase of 0.07 points from the previous month, yet still flashing a blue light for the second consecutive month, signaling a recession.

Global Recovery Still Lacking Momentum

TIER noted that after the United States and China reached a tariff agreement, both countries’ manufacturing sectors saw significant rebounds in their Purchasing Managers’ Indexes (PMIs) due to resumed procurement and expanded production capacity. However, overall indicators remain in contraction territory. Meanwhile, industrial confidence in the eurozone declined following the expiration of tariff exemptions, further highlighting the insufficient recovery momentum of the global manufacturing sector.

In Taiwan, strong demand for artificial intelligence (AI), high-performance computing (HPC), and cloud services has supported the growth of export orders. Nevertheless, traditional industries are under pressure from trade protectionism, a significant year-on-year appreciation of the NTD, and intensified low-price competition, partially offsetting gains in export and production indices and weighing on indicators related to raw material input and selling prices. On the other hand, Taiwan’s stock market strengthened, driven by easing geopolitical tensions in the Middle East and rising U.S. tech stocks, which boosted the business environment indicator.

Currency Appreciation Compresses Profits

According to TIER, the slight increase in the June manufacturing climate index was mainly due to the rally in Taiwan’s stock prices and trading volumes, which improved the business environment component. However, the sharp appreciation of the NTD compared with the same period last year widened the year-on-year decline in producer prices. This in turn reduced product prices and revenues in U.S. dollar terms, compressing the profit margins of export-oriented industries and weakening price-related indicators.

Traditional Industries Weigh on Overall Performance

U.S. tariff policies prompted downstream customers to pull forward orders, supporting strong export growth for ICT products, audiovisual equipment, and electronic components. In contrast, traditional industries—such as machinery, basic metals, plastics and rubber, and chemicals—remained sluggish, offsetting part of the export momentum. Furthermore, the year-on-year growth rate of imports in NTD terms narrowed significantly from May, while the growth in the manufacturing production index moderated, both of which weighed on raw material input indicators. Consequently, the business climate indicator for June stayed in blue-light territory, reflecting a recessionary outlook.

Outlook: Key Risks Ahead

Looking forward, the outcome of Taiwan-U.S. tariff negotiations will be a critical factor for the manufacturing sector. In addition, the U.S. has launched a Section 232 national security investigation into semiconductors and downstream products. Any subsequent tariff hikes could push up end-product prices, dampen demand, and hurt Taiwan’s ICT exports.

Meanwhile, in China, deflationary pressures, weak domestic demand, low consumer confidence, and long-standing overcapacity issues persist. If the U.S. raises tariffs on Chinese imports, low-cost Chinese goods may be redirected to third-party markets, heightening global trade protectionism and trade frictions. As a result, Taiwan’s manufacturing sector is expected to face intensified competition from Chinese products in these markets, creating additional headwinds for the industry.