TAINAN, Taiwan -- When U.S. leader Donald Trump applied a 20% tariff rate to Taiwanese goods at the beginning of August, Taiwan's President Lai Ching-te assured the public the hit would be "temporary." Nearly three months later, the island's businesses remain in limbo: impacted by the tariff, anticipating a rumored deal and unsure what that would entail.
"Over 70% of traditional industries are undoubtedly affected," said Jacob Wu, CEO of auto component maker Coplus, referring to sectors besides Taiwan's world-beating semiconductor industry. "The impact of tariffs is certainly significant, as traditional industries don't have high profit margins. If you add tariffs of over 20% today, whether consumers will buy them is another matter."
Coplus produces lights, engine cooling systems and other vehicle components, employing about 130 people. The U.S. is its biggest market.
Speaking with Nikkei Asia at the company's headquarters in the southern city of Tainan, Wu credited the government for quickly stepping up with subsidies to cushion the pain.
"The entire assessment process has been much faster than before, and they've provided us with the most support when we're most vulnerable," he said. "The government's approach this time has given traditional small and midsize enterprises a shot in the arm. It truly feels like a blanket has been given to us in our coldest days."
Lai himself has acknowledged that the chill is acute. "The U.S. tariff policy has delivered a blow to economies and industries alike" across the world, he said in his National Day speech earlier this month. He highlighted his government's proposed 93 billion New Taiwan dollar ($3 billion) plan to support affected enterprises and workers, including the agriculture and fisheries sectors.
The issue is a major test for Lai's diplomacy with Taiwan's most important backer, the U.S. -- an essential partner for deterring China, which considers Taiwan its territory. Any deal Lai strikes with Washington could also turn into a political landmine at home, as there is a risk of the opposition-led legislature voting it down.
In the meantime, businesses are left with an unshakeable anxiety.
"The market and the industry will adapt ... but what's dangerous is the impermanence of the current situation," said Deana Lam, CEO of Taipei-based bicycle company VooDoo Cycles. "Are the tariffs staying or not? What's more annoying for companies -- in terms of the B2B (business-to-business) market -- is that buying has decelerated because [customers] may wait for any other law changes before making major decisions."
Lam said the cycling industry is among the top three most-impacted sectors. She said the government's grants and reimbursements show "how heavily our industry has been affected."
"The traditional industries, especially the import-export supply chain, are now facing the biggest recession in decades," she said.
Statistics have started to highlight the consequences.
In September, the Ministry of Labor said the number of workers in formal furlough programs had exceeded 7,300, with more than 6,000 placed on unpaid leave.
Huang Chi-ya, who heads the ministry's Department of Labor Standards and Equal Employment, said the increase largely arose from the export-oriented manufacturing sector, which has experienced heavy pressure since the tariffs took effect in August.
Huang added that manufacturers accounted for 6,870 furloughed workers, or more than 90% of the total, with the machinery and equipment industry worst hit.
Manufacturing activity continued to shrink in September and the sector's purchasing managers' index (PMI) was 48.3, marking its fourth consecutive month below the 50-point threshold that separates contraction from expansion, the Chung-Hua Institution for Economic Research reported earlier this month.
In the southern city of Kaohsiung, too, companies are awaiting the results of the tariff negotiations between Washington and Taipei, dreading the uncertainty.
"The greater risk is that if Taiwan's 'reciprocal' tariffs are higher [than those] for neighboring countries, the impact on the industry will be significant," said Barry Tsai, assistant vice president at Sheh Kai Precision, a screw manufacturer based in Kaohsiung.
In Northeast Asia, South Korea and Japan secured 15% rates through negotiations with the Trump administration. "If Taiwan's tariff rate is indeed set higher than other countries, it'll be a devastating blow to the whole industry," said Tsai, whose company employs around 300 people. "The gross profit margin for screws isn't very high, only around 10% or 20%. If the equivalent tariff starts at at least 20%, then we have no profit margin at all."
Rupert Hammond-Chambers, president of the U.S.-Taiwan Business Council, recently expressed optimism that a deal to lower the tariffs could be imminent. "My understanding is that we are extremely close now to getting a formal announcement of an agreement," he said at a Taiwan Foreign Correspondents' Club briefing.
But he compared the tariffs to other jolts, including the first Trump administration's change to U.S. policy on China in 2017. "It wasn't a ripple, was it? It was a tidal wave that broke over the supply chain and it broke over Taiwanese businesses within the supply chain. And they've had shocks like COVID-19." Hammond-Chambers expects Taiwan's businesses will continue to have to adjust to the challenge.
All of the businesspeople Nikkei Asia spoke with also framed the current moment, in some respects, as an opportunity.
Tsai, at the screw maker Sheh Kai Precision, said the industry is being forced to "rethink how to transform and increase competitiveness."
"The government has been more proactive in driving overseas market expansion visits. In addition to the U.S. market, we'll also be actively involved in these tours in order to diversify to other regions and mitigate the risks," Tsai said. If the high tariffs on Taiwan persist, he will consider relocating the business to Vietnam, where a sister company also operates.
Lam at VooDoo Cycles said: "This is also a time for the industry to revolutionize and grow, as during economic downturns there are always new opportunities. This may be the perfect time for new collaborations and innovation to occur."
Coplus' Wu also struck a positive, forward-looking note.
He said that China faces significantly higher tariffs than Taiwan. And as Chinese rivals often rely on rapid replication of products and price wars, with "some negative effects in our market," he said the levies may even help restore a fairer competitive landscape.
"Trump's tariffs are changing the overall environment," Wu said. "It's not necessarily a bad thing. If we can turn the tide right now ... it will make us go further."