By Telis Demos and Aaron Back

The Taiwanese dollar is on the move against the U.S. dollar, appreciating nearly 10% in recent trading sessions.

Why is that relevant to U.S. investors, few of whom have probably ever even considered trading the island republic's currency?

Because it is potentially a preview of a world in which there is a long-term weakening of the U.S. dollar due to the Trump administration's global trade war. And because of how individuals and companies might directly feel the consequence of less foreign investment in U.S. markets.

Thanks to its exports of semiconductors and other technology goods, and its relatively cheap currency, Taiwan has a large trade surplus with the U.S. That in turn has meant it holds a lot of U.S. dollars, invested in U.S. assets.

In practical terms, this has often taken the form of Taiwanese life-insurance companies effectively lending money to U.S. companies. Brad Setser of the Council on Foreign Relations, who has been tracking this trade for years, estimates that Taiwanese life insurers own more than $700 billion of foreign bonds, mainly U.S. debt. When the U.S. dollar suddenly falls against Taiwan's currency, that makes these investments worth less to Taiwanese holders.

Though the move in the Taiwanese dollar looks dramatic coming over just a few days, it merely takes it back to 2022 levels. Nonetheless, if investors like Taiwanese life insurance companies expect the dollar to keep weakening, or if they lose faith in the U.S. as an investment destination, the upshot is that they may begin to diversify their holdings-at a cost to U.S. borrowers.

Apple and Pfizer are just two examples of companies that have issued dollar debt to Taiwanese investors. The risks go well beyond Taiwan: European banks are major funders in American downtown property markets. Japanese banks fund riskier U.S. loans.

This influx of foreign money makes borrowing cheaper for U.S. companies and individuals. If it were to slow or dry up, it would mean higher funding costs. Setser for instance, along with Columbia Law School Lecturer Joshua Younger, has also written that trades in volatility markets, related to Taiwan's foreign-debt holdings, even may have arguably had a measurable impact on U.S. mortgage rates.

In a press conference on Monday, the governor of Taiwan's central bank said the U.S. hadn't asked Taiwan to lift the value of its currency.

Regardless of whether the currency's move is directly related to trade talks, it is a timely reminder of some of the unintended consequences of U.S. trade policy. Whether the Trump administration actively pursues a weakening of the dollar as a way to boost exports, or if investors simply sell dollars after losing confidence in the U.S., much of the cost will be borne by U.S. borrowers.

This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).

(END) Dow Jones Newswires

May 05, 2025 15:28 ET (19:28 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.