Taiwan's trade surplus narrowed from $11.1 billion in December to $2.49 billion in January, the smallest surplus since February 2023. Exports strengthened with an increase of 18.1 percent on the year after advancing 11.8 percent previously, while imports rebounded sharply, up 19.0 percent after a previous decline of 6.5 percent. PMI survey data published last week showed Taiwan's manufacturing sector again contracted in January, as it has for more than a year.

Exports of information, communication and audio-video products again increased very strongly in January, up 100.6 percent on the year after previously increasing 94.7 percent. Exports of electronic components rose 7.5 percent on the year in January, rebounding from December's 1.2 percent decline.

Exports to mainland China and Hong Kong also rebounded, up 17.2 percent on the year after a previous fall of 6.4 percent, while year-over-year growth in exports to the United States accelerated further from 49.7 percent to 56.6 percent. Petroleum imports rose on the year after two months of declines while imports from mainland China and Hong Kong recorded strong growth.

Taiwan's trade balance is seen shrinking to $8.7 billion in January from $11.1 billion the previous month.

The international trade balance measures the difference between imports and exports of both tangible goods and services. Imports may act as a drag on domestic growth and they may also increase competitive pressures on domestic producers. Exports boost domestic production. Trade balance values are calculated by deducting imports (cif) from exports (fob). The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade and can offer a guide to an economy's competitiveness.

Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect currency values in foreign exchange markets.

Imports indicate demand for foreign goods and services in the local economy. Exports show the demand for local goods in countries overseas. Movements in the trade balance directly affect GDP growth because of Taiwan’s high reliance on trade. Stronger exports are bullish for corporate earnings and the stock market. The bond market is also sensitive to the risk of importing inflation.

This report also gives a breakdown of trade with major countries as well, so it can be instructive for investors who are interested in diversifying globally. For example, a trend of accelerating exports to a particular country might signal economic strength and investment opportunities in that country.