While the world’s attention is focused on a rising China amid a seeming decline in the West, Taiwan seems all but forgotten. Yet, the West, and especially the US, ignores the so-called “Taiwan issue” at its peril.
This year could be a pivotal one for the direction Taiwan takes. One path is further integration into the People’s Republic of China (PRC), a process already rapidly advanced under the administration of President Ma Ying-jeou (馬英九) of the Chinese Nationalist Party (KMT). A second path is maintaining the “status quo” of a de facto independent nation, a policy favored by an overwhelming majority of Taiwanese in recent polls. A third path could see a gradual drift toward declaring political independence from either China (the PRC or the Republic of China), a decision that the PRC threatens to oppose with military action.
The choice Taiwan makes will depend on the outcome of today’s presidential election, between Ma, seeking a second term, and Democratic Progressive Party (DPP) Chairperson Tsai Ing-wen (蔡英文). What happens in the months following today’s election could have momentous implications for all. Although geographically small, Taiwan is anything but insignificant in the global economy.
Indeed, the nation’s economic importance is far out of proportion to both its geographic size (smaller than the Netherlands) and its population of about 23 million.
Much of Taiwan’s growth and prosperity in recent decades has come from the electronics industry. The nation is a global pivotal player in the design and production of much of the hardware and peripherals that come from that industry.
However, behind its economic achievements, Taiwan was facing severe challenges as early as the 1990s, with rising wages, costly environmental regulations, high land prices and growing international competition. Taiwanese companies had no choice but to seek cheaper production sites and chose to “offshore,” primarily in China. Critics saw the move as Taiwan getting caught in the spider’s web.
Therefore, during the next two decades, Taiwan’s foreign trade and foreign direct investment (FDI) gradually shifted away from its reliance on the US and Japan, which had largely fueled the nation’s early growth, to growing dependence on China, irony of ironies.
Today, China accounts for the largest share (85 percent) of Taiwan’s outward FDI and it is the nation’s major trading partner. About 2 million Taiwanese businesspeople and their dependents live in China. Taiwan and China now have direct transport and postal links.
Economic integration has gone far.
Another of Taiwan’s great ironies is that in the 2008 presidential election, Taiwanese voters brought back to power the very group (the KMT) that had so ruthlessly ruled the nation for about 40 years under martial law and fought to prevent real democratic reform.
Unfortunately, the DPP, which won the presidency in 2000, failed to live up to people’s expectations in its eight years in power. Since 2008, Ma and his government have tried to reinvigorate the economy by tying Taiwan even closer to China.
In June 2010, Taiwan and China signed the controversial Economic Cooperation Framework Agreement (ECFA), which had the objectives of reducing tariffs and trade barriers for both countries. Taiwan also supposedly would be able to negotiate free-trade agreements (FTA) with other major trading partners.
By the end of last year, it was obvious to critics that the ECFA was not living up to its promise. Taiwan’s exports to China were not accelerating, while Taiwan’s FDI to China increased at an alarming rate. Moreover, China made it clear that it actually opposed Taiwan signing FTAs with other countries. In short, China was already beginning to treat Taiwan as a province of the PRC.
The US, still mired in Afghanistan and the Middle East, and with a sick economy not responding to healing measures from a dysfunctional political system, is grateful to have seen improved relations between Taiwan and China, and a calming of tensions in East Asia.
The administration of US President Barack Obama has said publicly that it takes no sides in Taiwan’s elections and that it would work with whoever wins the race. Idealistically, the US is all for self-determination, but the hard reality facing the US is that it must maintain amicable relations with China.
Tsai has firmly said she would not push for any radical change in Taiwan’s status, but would opt for the “status quo” and maintaining friendly relations with China. Nonetheless, if the DPP does win today’s election, it is likely that relations between Taiwan and China will face a major adjustment and they might slip back into frosty hibernation, as happened between 2000 and 2008 under then-president Chen Shui-bian (陳水扁), because of China’s distrust of the DPP.
On the other hand, China’s perception of the DPP may be changing and its leadership is also changing this year. Therefore, it may prove to be an opportune time for China to adjust its hardline unification mindset.
As a result, Tsai and the DPP, especially if they manage to also gain control of the legislature, would face the double challenge of devising ways to stimulate the economy and reduce spiraling income inequality, while trying to maintain reasonably cordial relations with China. If it succeeds, this would be a win-win situation for all the parties involved, including the US. On the other hand, if Ma and the KMT manage to retain their hold on power, one can anticipate further steps forward in the integration of Taiwan into China and eventual unification. In the process, the US would lose a staunch ally in the region and face a further emboldened China.
Therefore, today’s elections are arguably the most critical in the nation’s history. It is also likely to have major geopolitical and strategic implications for the US. Washington had better pay attention.
Frank Hsiao is a professor emeritus at the University of Colorado, Boulder. Jack Williams is a professor emeritus at Michigan State University.
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