This paper explores the effect of currency war on Taiwan’s trade balance. Taiwan faces a hot money attack on the Taiwan dollar which was caused by the currency war. In the bilateral trade between Taiwan and the U.S., the sum of Taiwan’s exports and imports price elasticities is greater than one. The Marshall-Lerner condition seems to be satisfied. This implies that the bilateral trade between Taiwan and the U.S. is sensitive to exchange rates changes. However, the price elasticities of Taiwan’s bilateral trade with mainland China and Japan seem to be smaller than the income elasticities. This implies that Taiwan’s bilateral trade with China and Japan are insensitive to exchange rates changes. Taiwan’s bilateral trade with China and Japan are sensitive to income changes. |