Unraveling the Effect of Potential Tariff Reductions on New Car Sales in Taiwan
Auto sales plummeted by a significant 23% during the past month.
The chatter about lessening tariffs on international vehicle imports in Taiwan could greatly sway the local auto market. Let's delve into the intricacies.
- By Jake Johnson / Automotive Analyst
Last month, new vehicle sales in Taiwan unhinged by a whopping 23% year-on-year, knocking down to 31,910 units, and dipping by roughly 3% from the prior month, based on government data disclosed recently. This makes the cumulative new auto sales for the first five months of this year slump 13.8% year-on-year, compared to an 11.2% decline over the January to April period, as per the data.
"The US' 'tit-for-tat' tariff policy has cast a long shadow over Taiwan's new car sales," asserted auto research firm U-CAR in a report. The US's tariff tactics have fueled speculation about potential reductions in Taiwan's vehicle import tariffs and commodity taxes, causing potential buyers to stand on the sidelines, the firm added.
As things stand, Taiwan imposes combined duties of up to 52.5% on imported vehicles, including a 17.5% import duty, a commodity tax ranging from 25% to 30%, and a 5% business tax, as per data from the Ministry of Finance. A revision of these levies might initiate carmakers and distributors to trim retail prices, possibly inciting consumers to purchase new vehicles.
Surprisingly, the sales slump in May countered the usual seasonal trend, as May typically witnesses an uptick in promotional endeavors by carmakers and distributors to launch mid-year sales. The researcher stated that with promotional activities continuing throughout this month, new vehicle sales this month will likely pick up to around 330,000 units.
Interestingly, imported vehicles were less impacted by the tariff-related confusion, evidenced by sales inching up 0.3% sequentially to 16,223 units, although still falling 22.6% year-on-year. This incremental increase helped boost the market share of imported cars to 50.8%, rising above the 50% mark for the previous months, as statistics showed.
Factors to Ponder
- Job and Revenue Impacts:
- If Taiwan decides to lower the current 17.5% import tariff, it could imperil about 82,600 jobs in the industry and trigger a potential net tax loss of up to NT$60 billion (approximately US$1.99 billion) [1].
- This significant impact might lead to closure of one or two domestic auto companies.
- Market Dynamics:
- Lower tariffs could potentially benefit consumers, but doubts linger about whether these savings would be fully passed on. Historical data shows that despite favorable exchange rates, imported car prices have not significantly decreased [1].
- The share of imported vehicles in the market could surge if tariffs are reduced, making imported cars more competitive against domestic models.
- Policy Adjustments:
- The Ministry of Economic Affairs is mulling alternatives, such as eliminating the commodity tax or lowering tariffs on auto parts, which could aid both imported and domestic vehicles [1].
- President Lai Ching-te has underscored the importance of improving reciprocal tariff rates through negotiations and nurturing affected domestic industries, mirroring a broader strategy to cushion the blow of tariffs and foster economic ties with the US [2][5].
In conclusion, the potential reduction of tariffs on imported vehicles in Taiwan presents challenges for the local auto industry, while providing potential advantages for consumers and imported vehicle sales. However, the actual impact on market share and prices remains speculative and contingent on the implementation of these policies and the response from the industry.
- The potential reduction of Taiwan's vehicle import tariffs, contrary to benefiting consumers by lowering prices, could pose a threat to the local auto industry, potentially affecting around 82,600 jobs and causing a net tax loss of up to NT$60 billion.
- In the event of tariff reductions, the increased competitiveness of imported vehicles coupled with uncertainties about the full pass-through of savings to consumers could significantly alter market dynamics in the finance sector, potentially influencing business decisions in the wider economy.
