Fri, Oct 28, 2011 - Page 8 News List

The Liberty Times Editorial: Sino-US trade war will hurt Taiwan

For some time China has been intentionally suppressing its currency exchange rate, keeping the yuan undervalued in order to maintain the competitive advantage of its exports. This has caused problems for the US, including a burgeoning trade surplus with China, a besieged job market and a stubbornly high unemployment rate.

The US government is very unhappy with the situation as it stands and the US Senate has just passed the 2011 Currency Exchange Rate Oversight Reform Act, a piece of legislation that would allow the government to levy tariffs on Chinese products in retaliation for the exchange rate manipulation.

The legislation has yet to be passed in the US House of Representatives, but the ease with which it was passed in the Senate perhaps reflects the mood of the US public concerning Chinese imports. China’s reaction has been quite strong, too, and the indications are that a US-China trade war is now nigh on inevitable.

Taiwan’s reliance on China, with companies relocating there in droves, exposes us to serious risks. Many Taiwanese businesses believe they would be sacrificed should a trade war between the US and China actually flare up.

As one would have expected, China has retaliated with an attack on US companies, picking Apple and its supply chain as a target, ostensibly because of the environmental impact they are having. As a result, China-based Taiwanese companies involved with Apple have become the whipping boys for corporate America.

Should the US put a foot wrong, Taiwanese companies in the supply chains of certain US companies get roundly cuffed around the head. The Taiwanese press has referred to it as the “rotten Apple affair.”

So why does China not dare to take on the US directly, but instead pick on Apple’s supply chain? The main reason has to be that, despite its burgeoning economic clout, China still relies heavily on the US as its most important export market. It has no interest in starting a trade war with the US and wrecking overnight the economic advances it has made over the past three decades.

Beijing decided to levy nominal fines on China-based Taiwanese companies that had close ties with major US firms as a warning signal to the US.

The hope was that Beijing could use economics to force the hand of politics and obstruct the passage of the oversight reform act in the US House of Representatives.

Apple’s success with its iPod, iPhone and iPad means the company now has the highest market value in the US, and therefore it is a powerful symbol to go for.

That, together with the fact that Apple itself only deals with the research and development and innovation side of things and does not actually have any factories of its own — it relies on Taiwanese companies to supply the majority of its components and assembe its products — makes it an obvious target for China, for Beijing can also take the moral high ground on the environment. This, then, is the background to the rotten Apple affair.

Perhaps the most significant incident to date in the rotten Apple affair took place in Suzhou, where the city government forced the closure of a factory owned by a subsidiary of the Taiwanese company Catcher Technology because of a “strange odor” coming from the premises.

That factory happens to be the main supplier of the unibody aluminum cases for Apple laptops. The subsidiary has used the same paint and manufacturing process for many years and no health problems have been reported by its employees, who are numbered in the thousands. However, now it has been ordered to close production because of protests from local residents. Whether or not there is more to this than meets the eye is anybody’s guess, but Apple certainly has cause to harbor suspicions.

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