As the legislature held a second extraordinary session to review the cross-strait service trade agreement, the cross-strait goods trade agreement and the proposed free economic pilot zones, the government cited a Wall Street Journal editorial titled “Taiwan leaves itself behind: ratifying a pact with China is the first step to diversified trade,” published this month.
Then, former minister of economic affairs Chang Chia-juch (張家祝) tendered his resignation, and the government accused the opposition of engaging in a vicious attack while pronouncing their apparent righteousness. It seems completely unaware that a trade war is developing between China and the US, and that this battle will hurt Taiwan badly.
Take, for example, the US announcement last month that it will levy high taxes on manufacturers in Taiwan’s solar power industry, treating Taiwanese companies as accomplices of China’s, inciting a crisis for the nation’s solar power industry. This tells us that Taiwan must now negotiate free trade agreements with other countries.
The question is: Who should it sign agreements with, and how? In other words, the heart of the problem is deciding which side Taiwan should choose as it comes under pressure from global economic forces.
When discussing the cause of the Sino-US trade war, people must look into Chinese economic development as well as changes in the division of labor between Taiwan, China and the US within the international economic system to understand the possible repercussions and how to best position Taiwan.
People must first understand the particularities of China’s economic rise, namely, the use of cheap labor, government subsidies, preferential taxes and the capital and technology of foreign companies, especially Taiwanese companies, to build its position as a “world factory” over the past three decades.
However, Beijing is obviously no longer satisfied with being simply a pure manufacturer, and it intends to transform its contract manufacturing industry working for others into an autonomous industry with its own brands and technology, slowly moving toward global markets.
Indeed, a population of 1.3 billion people is an innate advantage for China’s brand development, but its national income per capita has not reached the level of developed countries. Although it is able to develop imitation products and generic brands, also known as “white brands,” it is unable to develop world-class brands and compete with top international companies.
Finally, Chinese companies have been forced to once again rely on low-cost strategies in an unfair trade war based on low wages and government subsidies. Foreign companies cannot compete and may have to close down or lay off employees. This will not only trigger unemployment problems, but also lower wages in other countries, thus causing global trade disputes.
These potential clashes would be particularly intense between the US and China. Since taking office, US President Barack Obama’s solution for reviving the US economy has been to create a renaissance for US manufacturing by attracting the industry back to the nation.
If Washington was sitting idly by and watching cheap Chinese products spread across the US, not only would there be no hope of reviving the manufacturing industry, Chinese products would also replace US products globally. If that happened, there would be no way to reduce US unemployment, and manufacturing would not be able to drive economic growth, with the result being that Washington would have to continue to rely on Wall Street and its financial alchemy to maintain the pretense of prosperity.
This is not the development that Obama would want to see, and as the economic conflict between the US and China gathers pace, Washington has been adopting dumping and anti-piracy policies against China. Beijing, on the other hand, is taking anti-monopolization measures against US high-tech companies such as Apple Inc, Qualcomm Inc and Microsoft Corp. It is clear that the trade conflict between the two countries is heating up.
This trade war will have a major impact on Taiwan’s interests. In the past, the US produced brands and consumers and China was the producer, while the function of Taiwanese businesses was to mediate between the two, receiving orders from US brands and producing in China. This long-standing relationship has seen changes in recent years. China does not only want to develop its own brands, it is also making a great effort to build a domestic supply chain for components. At the same time, although US businesses see Chinese brands as a threat, they are also increasingly placing orders with Chinese suppliers.
In other words, Taiwanese businesses are being rapidly marginalized in this changing structure. Also, the US is levying import taxes on Taiwanese solar power products that are as high as the taxes levied on Chinese manufacturers. This means that not only will there be few advantages for Taiwanese businesses, they are also treated as scapegoats.
In short, Taiwan is caught between a rock and a hard place. This development is making it clear that the same qualitative changes, which focus on competition rather than cooperation and complementary relationships, have occurred both in the trade relationships between the US and China and between Taiwan and China.
The result is that Taiwan is no longer able to profit from its relationships with both the US and China, and that it now must make a choice to avoid being placed in the same situation as in the solar power industry scenario, being squeezed from both sides.
Looking at the current international economic situation, siding with the US is in Taiwan’s best interests. Therefore, it is worrying that the administration of President Ma Ying-jeou (馬英九) has made the choice to side closely with China, pushing for service and goods trade agreements and free economic pilot zones in an attempt to marry Taiwan’s economy to China’s.
William Wilson, a senior researcher at the Washington-based Heritage Foundation, said recently that 40 percent of all Taiwanese exports go to China and added that no other Asian country is so reliant on China. He also said that Taiwan must look to sign free-trade agreements with other countries and adjust its domestic economic structures in order to expand domestic demand.
In light of the changes in the trade relations between Taiwan and China, Wilson’s statement becomes even more significant.
In addition to choosing sides and breaking away from China’s influence over Taiwan, the most important factor in reviving the economy is to bring back the manufacturing industry to Taiwan.
Translated by Eddy Chang and Perry Svensson
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