Is Taiwan stealing China’s US export share?

The global trade environment is increasingly shaped by shifting alliances, policy uncertainty, and deepening economic imbalances. Nowhere is this more apparent than in the diverging trade fortunes of Taiwan and China—two major manufacturing hubs whose exports to the U.S. are moving in starkly opposite directions. Taiwan is riding an export boom fueled by U.S. tech demand and tariff fears, while China faces a sharp drop in American-bound shipments and mounting signs of domestic economic fragility. These trends are playing out as U.S.-China trade officials meet in London, attempting to stabilize a fragile trade truce.

Diverging trade currents: Taiwan’s export boom to the US vs. China’s slump amid trade tensions and deflation

Taiwan’s US export boom: Tech demand meets political calculus

Taiwan has emerged as one of the biggest winners in the current geopolitical and technological realignment. In May, the island’s exports surged 38.6% year-on-year to an all-time high of $51.74 billion—far exceeding the 25% gain forecasted by economists. This marks the 19th consecutive monthly rise and the strongest performance since 2010.

The U.S. has become Taiwan’s top export destination for the first time, with outbound shipments soaring 87% year-on-year to $15.52 billion. This is up from an already impressive 29.5% rise in April. Exports to ASEAN countries also posted robust gains (+52%), while shipments to Japan, South Korea, and even China (including Hong Kong) grew around 17%.

Key drivers behind the surge:

• Semiconductor-led growth: Taiwan remains a critical node in the global tech supply chain, dominated by companies like TSMC and Foxconn. The current boom in artificial intelligence has supercharged demand for high-end chips, servers, and other components, particularly from U.S. firms like Nvidia, Apple, and Microsoft. The U.S. AI arms race is translating directly into export growth for Taiwan.
• Tariff front-loading: A key catalyst behind the recent acceleration is concern over renewed U.S. tariffs under a second Trump administration. Despite a temporary 90-day pause for negotiations, the threat of a 32% tariff on Taiwanese imports prompted American buyers to stockpile inventory. This strategic front-loading has boosted export volumes but may distort future demand.

In parallel, Taiwan’s government is pursuing deeper economic integration with Washington. President Lai Ching-te has pledged increased purchases of U.S. goods—ranging from LNG to defense equipment—and is lobbying for a double taxation agreement. The American Chamber of Commerce in Taiwan is also pushing the new administration to ease trade restrictions and bolster bilateral ties.

China’s decline: Weak US demand meets domestic deflation pressures

While Taiwan thrives, China’s trade picture looks increasingly strained—especially with its largest export market. U.S.-bound Chinese exports fell 35% in May, the steepest drop since the COVID-era lows of early 2020. This follows a 21% decline in April, underscoring how U.S. firms continue to shift supply chains away from China amid political pressure and risk management concerns.

Overall Chinese exports did rise 4.8% in May, but this missed expectations and was a marked slowdown from April’s 8.1% increase. Gains in exports to Southeast Asia and the EU helped cushion the blow, suggesting that China is trying to diversify its trade exposure.

Underlying factors

• Trump-era tariffs still bite: U.S. tariffs imposed during the original trade war remain largely intact, and fears of escalation under a Trump comeback are weighing on long-term trade confidence. American corporates have accelerated efforts to "de-risk" by shifting sourcing to Vietnam, India, Mexico—and increasingly, Taiwan.
• Domestic demand slump: China is also facing a broader macroeconomic challenge. Imports fell 3.4% in May, a sign of weak consumer and industrial demand. The country’s trade surplus ballooned to $103.2 billion, not due to export strength—but because imports are collapsing.
• Deflation across the board: Consumer prices dropped for a fourth straight month in May (CPI -0.1% y/y), while producer prices (PPI) slumped 3.3%—the worst reading since July 2023. 
• Chinese automakers enter a price war: A brutal price war in the EV sector, with some models slashed by up to 34%, is worsening the deflation cycle and weighing on profit margins. More than 40 EV models in China underwent substantial price cuts or incentive programs in April 2024, representing some of the most aggressive reductions seen in the country’s automotive history. China’s stimulus measures, so far, have failed to reignite demand.

London talks: Trade truce under pressure

Amid these sharply diverging trade dynamics, U.S. and Chinese officials are locked in high-stakes negotiations in London, aimed at preserving and fine-tuning the fragile truce announced last month. The temporary agreement called for a significant scaling back of tariffs: the U.S. pledged to lower most duties on Chinese goods to 30% from a steep 145%, while China reduced its tariffs on American imports to 10% from 125%. Both sides agreed to a 90-day review period to assess progress.

However, tensions have escalated in recent days, casting doubt on the deal’s durability. U.S. officials have accused Beijing of stalling rare earth mineral exports—critical for the American tech and defense industries—while China has criticized Washington for tightening restrictions on student visas and imposing new limits on advanced semiconductor exports. Export controls have reportedly emerged as a key flashpoint in the talks, underscoring the deeply strategic nature of this evolving economic rivalry.

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