U.S.-Taiwan Tariff Negotiations Yet to Be Settled, NT Dollar Still Appreciated Significantly

China Times Commentary, May 27, 2025

Without surprise, the New Taiwan dollar broke into the NT$29 per U.S. dollar territory on May 26. Unlike the aggressive rally seen in early May that made currency markets a nationwide focus and even triggered a rush to exchange foreign currency, this time the appreciation felt like a "smooth entry"—with low trading volume, no desperate intervention by the central bank, and minimal public attention, as if everyone had long accepted this outcome. Behind it lies not only a weakening U.S. dollar globally, but also Taiwan's awkward position as it strives to engage in trade talks with the United States.

Rewinding to early May: just after President Donald Trump of the United States announced one-month reciprocal tariffs against various countries, tensions with China escalated, negotiations with Japan and South Korea stalled, and the United States had yet to release its currency manipulator list. During this time, Taiwan was actively seeking trade negotiations with the United States, and the NT dollar suddenly surged without warning. The public was stunned, prompting President Lai Ching-te and Governor Yang Chin-long of the Central Bank to step in and contain the situation.

Despite their repeated insistence that the U.S.-Taiwan trade talks had not touched on currency issues, the unusually strong NT dollar—paired with the central bank’s refusal to intervene and merely citing “market expectations”—left many unconvinced. As long as trade talks remained unresolved, the NT dollar continued to appreciate, with some even predicting a rise to NT$13 per U.S. dollar. Panic sentiment flooded the foreign exchange market.

Fast forward to yesterday, and the situation had shifted significantly. The United States and China shook hands in Switzerland, easing the tariff war. Japan and South Korea, once eager to negotiate with the United States, hardened their stances after seeing China's example. This meant currencies like the Chinese yuan, Korean won, and Japanese yen might still appreciate—but no longer out of control. The psychological pressure eased. In fact, the Korean won depreciated yesterday, decoupling from the NT dollar’s trend.

This has left the NT dollar in its most awkward position. While the Lai administration touts its efforts to negotiate U.S. tariffs as a political achievement, the central bank is like a hostage: the NT dollar may avoid sharp appreciation, but it clearly cannot be allowed to depreciate significantly either—lest the United States weaponize it and jeopardize the talks. It’s as if the NT dollar has stepped off the "High-Speed Appreciation Train," but remains stuck on the "Express Appreciation Line"—with no option to reverse direction.

For Taiwan's central bank, whether it can or should intervene is almost irrelevant now. Trump's erratic tariff policies have driven global investors to abandon U.S. dollar assets, setting the tone for foreign exchange markets. In this context, not defending specific exchange levels and reducing the public's expectation of central bank support allowed the NT dollar to “glide” into the 29 territory with an air of inevitability, as if the whole nation had silently agreed to it—without any further turbulence.

But the NT dollar’s appreciation surely has its limits. If it becomes excessive, Taiwan’s export industries could be hit hard. The Lai administration must seriously consider whether continuing to bow to the United States, giving in to all of Trump's demands, is wise. If Taiwan becomes the only one among the four major East Asian economies—mainland China, Japan, South Korea, and Taiwan—left kneeling alone, it will become a prime target for speculative hot money. At that point, the NT dollar could once again be forced onto a runaway train of appreciation, heading toward an uncertain destination.

From: https://www.chinatimes.com/newspapers/20250527000489-260110?chdtv
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