Taiwan Vice Premier Cheng Li-chiun on US Relations
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. On today's episode, we'll bring you part of an exclusive conversation with Taiwan's vice premier, plus a look at tech and tariffs as we wrap up the trading week in the Asia-Pacific. And a bit later, we'll catch up with Adam Koons for a look at markets. Adam is the chief investment officer at Winthrop Capital Management. But we begin in Taipei.

We heard earlier from Taiwan Vice Premier Cheng Lichun. She told Bloomberg her government is focused on building up its relationship with the U.S. Cheng also said she sees cooperation and investments on tech R&D as a critical area that will benefit both sides in securing a leading role in high-tech sectors. Cheng spoke exclusively with Bloomberg's Annabel Droolers in Taipei.

You mentioned the US and the importance that it plays in the democratic supply chain for drones. President Trump is still early days in the White House and the outlook for the US-Taiwan relationship is a little bit unclear, it could seem.

What's your perspective on the shape it's going to be taking over the next four years? The US has always been Taiwan's most important partner in terms of regional security and in trade. We are attentive to the policies of the new US administration and different local agencies have been studying new areas for cooperation between us.

The more important thing is identifying a strategic direction for the US and Taiwan and maintaining a mutually beneficial working relationship so we can build a democratic supply chain that strengthens the US's leadership in the global high-tech industry while also helping Taiwan maintain its competitiveness in making contributions to high-tech development.

What is your assessment of the way that President Trump has changed his position very radically from the Biden administration on Ukraine? Taiwan has been monitoring the development of the war in Ukraine and related updates from Europe.

We want to do our part for the Indo-Pacific region. Enhancing military capabilities is the basis for peace. We want the Taiwanese people to recognize this. Therefore, we are not only committed to building up our defense capabilities, we are also strengthening our economic resilience.

This way we can continue to take on important roles and increase our contributions to the world. President Lei had set the four pillars for peace. They represent objectives like enhancing Taiwan's defense capability, enhancing economic safety and resilience, continuing cooperation with like-minded countries, and lastly, supporting orderly exchanges between Taiwan and China. How does Taiwan prepare, though, for other eventualities? Because there's...

the tariff risk that is still very present not yet fully clarified but there's the chance that we see 25% tariffs on Taiwan semiconductors. How is the island preparing for that?

We are tracking new policies from the Trump administration closely. We want to show that the future of the Taiwan-US cooperation is focused on cutting-edge technology. This is mutually beneficial and it should be a shared goal. And we're willing to expand our investments in the US with the aim to amplify our innovations in technology, including AI, chips and drones, and even R&D in future technologies.

We want to stay leaders in the high-tech industry amongst democratic countries. This strategy is critical for both of us. We will also make efforts to balance trade and our increased investments in the U.S. Do you think that the U.S. is still a reliable security partner to Taiwan?

We are important partners on regional security, trade and economic collaboration. We hope to deepen ties with the U.S., and we believe it will be done on the basis of the Taiwan Relations Act and Six Assurances. Since Trump became president, he's emphasized the importance of keeping the cross-strait peaceful and doesn't want to see a unilateral change of status quo by force, and most democratic countries share this same view.

That was Taiwan Vice Premier Cheng Li-chun speaking exclusively with Bloomberg's Annabelle Droolers. And I am pleased to say that Annabelle is joining us now from Taipei. Always a pleasure. Thank you for making time to chat with us. I'm sure it's been a busy day for you. I want to begin with this area of defense because I know that Washington supplies Taiwan with billions of dollars in weaponry.

And I was curious to discover that Taiwan is now using drone technology as a big part of its defense strategy. Is this technology that is coming from the United States or is Taiwan in the process of developing its own drone technology? No, it's something that's being developed on the island. I mean, it's not to say that...

that more advanced drones where the US still maintains a competitive edge globally, that they wouldn't look to have those drones as part of their inventory. But generally what we've seen during the war in Ukraine is that it's these tactical drones, these low-end, low-cost drones that are needed if you're going to ever carry out asymmetric warfare. And asymmetric warfare is essentially what allows a smaller power like Taiwan, for instance, to have any hope of combating

is combating a much larger force, and that is China. So that is really the goal of the island now, is to be able to build up its drone infantry, and it's trying to do that within the island. And so it's putting a lot of focus, policy focus and resources into doing just that. And that's really been the purpose of our trip this week, is to meet with different policymakers, different government, even local government officials, and also some of the major players in the space to discuss this effort and the challenges that they're facing in doing that.

So a lot of the conversation that you had with the vice premier focused on technology. We know the story on semiconductors. Is there real concern here that if the U.S. were to impose tariffs on chips coming from Taiwan into the U.S., that a company like TSMC could be adversely impacted? Is that a real risk? I think that the more likely scenario is that those tariffs would get passed on to companies

customers or companies back in the U.S. There has been a concerted effort and pressure on Taiwanese companies like TSMC to establish more advanced technology outside or off the island. And so the U.S. obviously wants to be a base for that. We've seen TSMC establishing a plant already in Germany, for instance, but that's for more of their lower end technologies, not their most advanced ones. Taiwan, for its part,

It sees the science park model. This is sort of the ecosystem where all of the players around semiconductors come into one key place. It sees that as really pivotal to the success of its industries like semiconductors. It's the same policy they're trying to replicate with drones now. And so that's one of the reasons they don't want to change.

to move it off Taiwan. And of course, at the same time, it becomes their so-called silicon shield, which we know about as well. And that also helps it to work with partners to help them also want to provide that level of assurance of military assistance if it's ever needed in the future. So we've talked about drone technology being developed on Taiwan. We've also talked about semiconductors. What other high-tech industries are being developed on the island?

They would be the main ones and obviously looking at how AI is integrated into both of those efforts. And so that's what, again, coming back to what we're seeing in drones now, that is sort of the future of where drones go from here as well because drones

We talk about the integration of AI so that these drones are able to fly in large numbers together, drone swarms, for instance. And that's when the units are able to communicate with each other without having any sort of human intervention. And so AI, I think, really cuts across both semiconductors. And obviously, you see that those chips that are needed to create things like servers, cloud servers, for instance, AI servers.

and honai for instance is another big name in that market but you see it really going across both sectors annabelle we'll leave it there always a pleasure thanks for taking time to catch up with us from taipei bloomberg's annabelle droolers joining us here on the daybreak asia podcast

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. So the angst over tariffs, along with some mixed economic news, seemed to hang over markets today. But I think more fundamentally, it was the weakness in chip stocks that led the equity market lower. Nvidia's good but not great numbers sank those shares 8.5%.

And at the end of the day, the S&P was down about 1.6%, with the benchmark breaking below that 100-day moving average. Joining us now for a closer look at the price action is Adam Koons. He is Chief Investment Officer at Winthrop Capital Management. Good of you to make time to visit. What did you make of today's trading activity?

Yeah. Well, first, thanks for having me. I think this is the setup for the year, which is high expectations. If those expectations aren't met, you're going to see pain. I think when you look at something like NVIDIA, where obviously you hit on it right at the beginning is a good quarter isn't good enough anymore. When you've got valuations that are somewhat stretched across a particular tech, any S&P 500,

That doesn't necessarily mean people are going to just sell because the P/E ratio is a little off tilt. What it does mean is that if you don't exceed expectations, if your outlook isn't stronger than expected, it's going to be difficult for your stock to perform in this environment. That's coupled with obviously the fact that we've got this overhang from, as you mentioned, the tariffs and just some of the things coming out of DC. Those are the real big moving

objects in the market right now. Yeah, no doubt about that. We'll talk more about tariffs in a moment. Let's talk about this mixed economic news. So we had a revision on fourth quarter GDP, unrevised though, at 2.3%. I think it's kind of interesting that consumer spending held up as well as it did, rising at a 4.2% pace.

And at the same time today, we got news that durable goods orders in January were able to rebound by about 3.1%. So that's the positive. Now the negative. Weekly jobless claims rising to a level of 242,000. Now that seems to coincide with a lot of the staff reductions that we have seen in Washington. But on top of that, sales of existing homes dropping to a record low in January. And yet we hear from the Fed that

that they're just going to hold rates firm right now? Is that the right policy approach, do you think, for this moment in time? Well, I mean, I would say no, but I understand the Fed's position here is that the data isn't really pointing to them needing to decrease rates, moving towards a—

a looser monetary policy because the first thing you said there was the consumer, that has been the story for the last two years, is that the consumer has remained so resilient, it has proven every economist wrong that's called for a recession.

That's been the ongoing theme, right? Oh, there are recessions coming. There's an inverted curve. There has to be a recession coming. But the thing that's held that up, that's disproven that this go around, at least up into this point, is that the consumer's been able to kind of –

extend this cycle much further than what was expected. Now, I think what you're going to see, the next point is that we are starting to see the employment market give way a little bit. And I think some of the things coming from Doge to make some cuts,

you know, from the public sector that will have an effect at least in the near term to increase unemployment, which obviously leads to some sort of contraction. Now, I understand it's, you know, marginal from what the amount of cuts so far and how that will bleed through the economy, but it will still have a negative effect on the economy. I'm wondering whether we can change gears and talk a little bit about U.S. trade, because

The question right now for markets is whether we're on the verge of a trade war in North America. We've got these tariffs that are being threatened for next Tuesday from the Trump administration, 25 percent on Canada and Mexico. And the leaders of those countries are basically saying that they are ready to retaliate. Where are you in all of this in understanding how it will ultimately impact markets?

Well, this is somewhat more unpredictable than the stock market. But right now, I think what we've seen is that there's this narrative push around tariffs and kind of the strongest guy in the prison yard mentality.

And I think what we're going to continue to see is that. Now, we may see tariffs enacted, but it'll probably be this negotiation tool and that you're hearing people talk more and more about that. That seems to be Trump's primary tool in negotiations is to come with that heavy hand right up front that gives him leeway to negotiate down the road.

Right now, I'm going to continue to believe that that is what we're going to see happening through this kind of talk of tariffs and trade. But you never know with these things. Someone can just kind of take a hard stance, and that can unravel the whole thing, and that would lead to a trade war. So I hope that doesn't happen because that's not –

positive, in my opinion, for any of these economies that we're talking about. So right now, I still believe that this is rhetoric until proven otherwise. I remember in the days leading up to January 20th, when President Trump was sworn in for a second time, the markets had really been anticipating a lot more in the way of deregulation and merger and acquisition activity. We really haven't seen that yet. Do you think that will ultimately happen?

I do. I think, you know, look, we're still in the first hundred days. But but you're right that we haven't really heard anything about that. So I think the focus really is on kind of this the two the two dynamics and stoves, the cutting of goods.

in the public sector. And then on the other side of that are the tariffs. I think once that starts to cool it off a little bit, then we'll see the push towards deregulation. And in some ways, deregulation comes hand in hand with the cuts in the public sector, right? So if they're going to be cutting jobs,

large amount of staff from the SEC, the IRS and the like, then that probably leads to a natural deregulation simply because you're just not the staff to regulate the way they were before. So given everything that we're talking about in the big picture, I'm wondering how you're translating that into an investment strategy. What are you doing these days?

I still think you've got these polar opposites pulling and pushing the market. I still think you want to be fully invested. I don't think you want to be moving to cash or anything like that. I do think if you're in your equity allocation, do you want to take

two years in a row of plus 20% and maybe pull back the risk profile a little bit, that probably makes some sense right now. By no means are we completely in a bubble or stretched in equity markets, but there is a growing number of events that create uncertainty, and there's nothing that equity markets like less than uncertainty.

leads us to moving more defensively. And when I'm speaking about defensive names in the equity market, I'm looking at lower beta, the higher quality factor type stocks, those that maybe pay a higher dividend or have a higher free cash flow.

and giving up a little bit of the growth factor. And then the other side of that coin is we are overweight fixed income. In particular, we are extending our duration within the fixed income allocation. I think we have most likely seen the peak in interest rates through the cycle. And even if the Fed does not cut rates,

We're OK with just sitting here and collecting the income and the safety that we get out of fixed income right now. And if rates do come down for any particular reason, then obviously, we get some appreciation there. And that's another way to play defense is by being a little overweight fixed income. If we did see an economic slowdown, if we did see some of these initiatives out of DC

create some contraction that would lead to a flight to quality. And I think a trade war would be another scenario where you would see a flight to quality that would decrease interest rates on the long end of the curve. Adam, we'll leave it there. Always a pleasure. Thank you so much for joining us. Adam Koons is Chief Investment Officer at Winthrop Capital Management, joining us here on the Daybreak Asia podcast.

Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the story shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Krisner, and this is Bloomberg.

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