Thu, Jan 16, 2014 - Page 8 News List

Redrawing the global trade map

By Eric Chiou 邱奕宏

If the global economy is a wide ocean full of opportunities and risks, Taiwan seems to be a small boat, pushed about by tumultuous waves and conflicting currents and sailing without a clear destination. Despite President Ma Ying-jeou’s (馬英九) vigorous New Year’s Day address that outlined a three-pronged strategy to stimulate economic growth, a survey issued last week by the American Chamber of Commerce unveiled that a growing number of foreign companies in Taiwan feel pessimistic about their business prospects this year and are anxious about the economic slowdown and political unrest. More importantly, they also cited government bureaucracy as the No. 1 factor that affects their operations.

Apparently, there seems to be a mismatch between government rhetoric and the expectations of foreign companies. While the nation was ranked 12th among 148 economies in terms of competitiveness in a survey by the World Economic Forum last year, it seems that this praiseworthy record does not automatically translate into economic momentum.

With all the cold fronts and temperature plunges lately, most people are feeling the chill of an economic winter and see no sign of spring.

Over the past decades, the economy has benefited tremendously from integrating itself into global supply chains. As a small economy with a heavy dependence on international trade, it is necessary to be vigilant, adaptive and flexible to global trends and to be prepared to find niche markets in the face of fierce competition.

During the Cold War period from the 1950s to the early 1990s, Taiwan aligned itself with Western countries and morphed into a laissez-faire capitalist market system. It became a labor-intensive production base early on and gradually transformed into a supplier of more advanced goods.

In the early 1990s, accompanying the end of the Cold War and China’s re-entry into the world economy with its enormous labor force, cross-strait trade and investment began to flourish. The advent of cross-strait links is best viewed as an extension of existing regional production networks. The fundamental logic of global production chains — which are dominated by Western transnational corporations — did not change. They still targeted Western countries as their primary consumer markets.

In other words, Taiwan’s role in the Western-defined global supply chains has been upgraded, but has remained unchanged — it still earns marginal profits by adopting and adapting mostly dated technologies and serving as a silent, nameless, but competent and diligent manufacturer that satisfies consumers in the US and western Europe.

Since most Taiwanese firms have been seamlessly integrated and inserted into the Western-led global supply chains as original equipment manufacturing or original design manufacturing suppliers and the distribution of profits has been predetermined by the brand-holders, it is not surprising that Taiwanese firms could only strive to keep costs down or expand production capacity to survive.

The downside of these approaches is that they either lead to cut-throat competition among local firms or run the risk of creating over-capacity as demand declines.

In the past decade, the most significant upheaval to the global economy was the rise of China.

After it surpassed Japan to become the second-largest economy in 2011, it became the country with the third-largest foreign direct investment outflow in 2012 — behind the US and Japan — and topped the world in terms of trade in goods last year. It seems indisputable that with China’s economic ascendance, the current operation of the world economy and the practices of global production networks, which have been defined and dominated by the West for more than a century, will be overhauled.

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