Sat, Apr 03, 2010 - Page 8 News List

No ‘Chimerica’ without Taiwan

By Lin Cho-shui 林濁水

The US has been strongly critical of China for refusing to float the yuan on the foreign exchange markets, accusing it of being protectionist. The US claims that over the past five years this has caused an annual trade deficit with China of in excess of US$200 billion, and that this will cost around 1.4 million jobs in the US over the next two years.

China has responded by saying that a revaluation of the yuan would have an impact on 25 million Chinese workers and that they have no intention of going down the same disastrous route that Japan took in the 1980s with the appreciation of the yen against the dollar.

The two sides have locked horns on this issue and tensions are rising. During the recent Copenhagen summit we saw newly emerging economies squared off against global environmental groups and poor small island nations fearing a future of flooding, while a war is heating up between the southern hemispheres and the EU and the US. At the same time, an angry China finds itself looking more isolated on the exchange rate issue, with most of the others hoping to cash in on a stronger, appreciated yuan, wanting China to back down.

Taiwan finds itself in perhaps the strangest position of all, and we shall explore this along a rather circuitous route by starting with the US, and why not all Americans side with US President Barack Obama or the US Congress on the exchange rate issue.

HP and Dell, who both outsource their computer production lines to China for import into the US and Europe, are definitely reluctant to see a stronger yuan, and would prefer their own country to lose in the exchange rate war currently being waged.

And so it is with Taiwanese businesses with plants in China, where they also receive the orders for their products. It is not the first time, either, that Taiwanese businesses have sided with China in US-Sino trade wars: They have remonstrated against the US government in the past when it tried to invoke Section 301 of the 1974 Trade Act, which empowers the US government to take measures against trade practices it deems to be unfair, against China.

The huge volumes of trade between the two countries has prompted economic historians to come up with the rather bizarre neologism “Chimerica,” an ungainly conjoined entity sharing a main artery, and this artery is, wait for it: Taiwan.

Taiwanese companies account for a surprisingly high percentage of Chinese exports destined for the US. We know this not only from WTO figures, but also from what has been called the “Suzhou miracle.”

Suzhou is China’s first major high-tech city. Last year its export trade was over US$2 trillion, accounting for 59.5 percent of the total for Jiangsu Province and 9.1 percent of the national figure. This is indeed a miracle, but perhaps even more amazing is that Taiwanese companies are among the top three exporters, and command seven of the top 10 spots.

As a comparison, only 6.8 percent of Taiwanese electronics were actually manufactured in Taiwan in 2005, and as much as 81 percent in China. In 2008, Taiwanese investment in China constituted 53.66 percent of Taiwanese investment abroad, contributing to over 1.8 trillion yuan (US$263.7 billion) in Chinese exports and employing over 15 million workers, a figure far exceeding the entire workforce in Taiwan itself.

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