Taiwan-US Trade Deal Seen Boosting Growth, Weighing on Currency

Barclays Plc raised its forecast for Taiwan’s growth after the Asian tech powerhouse reached a trade deal with the US, though the bank joined other forecasters in seeing some downward pressure on the currency over the medium-term.

Barclays raised its estimate for Taiwan’s 2026 economic to 3.9% from 1.9%, the UK-based bank said in a report Monday. That’s more optimistic than the 3.67% forecast from Taiwan’s central bank in December. Barclays also no longer expects any monetary easing this year.

“We believe near-term export momentum is likely to hold up amid reduced uncertainties,” economists from Barclays said in the report, adding that the deal would also strengthen the strategic partnership between the two sides, with the AI cycle remaining the key growth driver.

The Barclays report is the latest to show Taiwan’s outlook in a rosier light. Before last week’s trade deal announcement, Standard Chartered Plc on Thursday upgraded its estimate for Taiwan’s 2026 growth from 2.5% to 3.8%, citing strong global demand for AI-related products, front-loaded shipments, and a continued recovery in consumption.

A day later, Taiwan’s trade negotiators a deal with the US that would lower tariffs on goods from the self-governed island to 15% from 20%. Under the agreement, Taiwan’s tech firms would commit to $250 billion of direct investment in the US, with the government providing credit guarantees for an additional $250 billion of investment.

The most important outcome in the trade deal is the reduced uncertainties around semiconductor tariffs, according to Barclays. “We believe the waivers on Section 232 tariffs for 2.5 times the planned plant capacity in the US for Taiwan is likely to mean that semiconductor tariffs are effectively zero,” the report said.

The island’s export orders rose 44% in December from a year earlier, the fastest growth since February 2021, the Ministry of Economic Affairs said Tuesday.

The UK bank said there could be some near-term relief for the Taiwan dollar following the deal, but changes in hedging rules for life insurers will weigh on the currency over time. Geopolitical risks for Taiwan also remain a factor.

Other analysts agree, with several noting that the potential $250 billion of direct investment from Taiwan companies will be of funds that would otherwise have been converted back into the Taiwan dollar, which will be weaker going forward.

“Closer US–Taiwan investment ties mean a significant portion of export proceeds earned by Taiwanese companies is being reinvested overseas, rather than converted back into the local currency,” HSBC Holdings Plc analyst Joey Chew said in a briefing Monday. And while overseas investment by Taiwanese slowed last year, it’s likely to increase this year.

Taiwan’s corporates continue to accumulate foreign exchange, BNP Paribas said in a report on the Jan. 19-25 market outlook, noting that Taiwan clients see the US dollar as worth buying on the dip.

The Taiwan dollar has depreciated around 0.6% this year in the face of a stronger USD and headwinds from local life insurers unwinding their currency-hedging positions.