Taiwan may take a hard hit from a possible trade war between the US and China as its exports might lose competitiveness and firms might relocate to cut production costs, experts said.

US President Donald Trump’s plan to raise tariffs on imports from China would severely hurt Taiwan, because shipments destined for the US, including those via China, account for 30 percent of overall exports, Chinese National Association of Industry and Commerce (工商協進會) chairman Lin Por-fong (林伯豐) said.

Local firms could consider moving manufacturing to the US to avoid heavy tariffs if the world’s two largest economies fail to iron out their differences.

The US and China have started behind-the-scenes negotiations to improve US access to Chinese markets. US Secretary of the Treasury Steve Mnuchin said over the weekend he had productive conversations with Chinese officials on the issue, although Trump was not ready to back down.

The TAIEX edged up 0.15 percent to 10,840.05 yesterday, after tumbling 1.66 percent on Friday, as reconciliation reports helped ease anxiety over a full-blown trade war, analysts said.

The US is the main end-market of the world’s consumer technology devices, while China is the largest destination of Taiwan-made electronic parts.

Protectionist measures might also affect local textile and machinery tool makers, Lin said.

“Against this backdrop, Taiwanese makers might have to move to the US or elsewhere, or seek new business opportunities to survive,” he said, adding that the scenario is unfavorable to the nation’s economy.

The Taiwan Institute of Economic Research (TIER, 台灣經濟研究院) shared the worry, saying local firms should brace for the potential fallout.

Local technology plays would lose their appeal among foreign investors as unfavorable trade terms are bound to dampen global demand for technology devices, TIER economist Gordon Sun (孫明德) said.

Taiwanese firms based in China would also take a blow from a trade war, and market pundits and policymakers in Taiwan should pay close attention to how they respond, Sun said.

If a trade war breaks out, global funds would take shelter in the US currency, creating wild volatility across global markets, the economist said.

The local bourse, small and open, is susceptible to external shocks, he said.

The confidence gauge slipped among firms in all sectors last month, TIER’s monthly report showed.

Sun attributed the sentiment retreat to holiday disruptions that would subside this month in the absence of major black-swan events.

A trade war would upset the landscape, he said.