Mon, Sep 03, 2018 - Page 6 News List

Walter Lohman on Taiwan: Taiwan caught in the crossfire on trade

Taiwan is not always top of mind for American policymakers. As a result, despite the best intentions of Taiwan’s friends in government, Washington can inflict damage on it without knowing it. This is only to be expected given the disparity in the two countries’ size and roles in the world. There are discrete issues, however, where the US should be much more mindful of the effects its policies have on a country so central to its strategic commitments in the Pacific — and take action to mitigate them.

Take American trade policy.

Free traders, the American business community and not a few foreign policy experts have been very critical of the Trump administration’s approach to trade. Every development from the imposition of steel and aluminum tariffs to the incipient trade war with China and pending auto tariffs have fed serious concerns about the costs to the American economy and its international leadership.

Even so, critics, rarely comment on the impact of these developments on Taiwan. One could therefore get the impression in Washington that all is well with Taiwan when it comes to US trade policy. Such an impression would be wrong.

First, the indirect effects. Before ringing alarms about the effects of US trade policy on the global economy, it is important to put things in perspective. In total, from all sources, the US has imposed new tariffs on about US$100 billion in goods entering the US. This is out of a total of about US$2.4 trillion in annual US imports, or about 4 percent. Not too big a deal. Even when one brings in the cost of retaliation, it is a drop in the bucket relative to global trade flows and economy.

The more significant concern is about what remains pending. Add tariffs on US$200 billion more in Chinese goods, a threat to impose tariffs on all US$500 billion Chinese imports, the new tariffs on US$360 billion on auto imports currently under consideration, and related retaliation. Now, we’re starting to talk about real money. This doesn’t take into account other measures that may be on the horizon — action on aircraft, shipbuilding and semiconductors, for instance, that the Administration formally singled out for possible tariffs last spring — and what Don Rumsfeld once called the “unknown unknowns,” areas of protection that could emerge from Washington’s new philosophy on trade.

There are so many variables that the precise impact of this worst-case scenario is extremely difficult to predict. The upper limit in damage is probably represented by a June 2018 World Bank report which states, “A worldwide escalation of tariffs up to the limits permitted under existing international trade rules could lead to cumulative trade losses equivalent to those experienced during the global financial crisis in 2008-09.” Whatever the actual numbers, however, it is clear that an American trade policy with the prospect of going from new tariffs on 4 percent of its imports to imposing them on 30-35 percent catalyzes a huge amount of uncertainty for businesses around the world — including Taiwan.

Second, the direct impact of the incipient US-China trade war. Most analysis points to minimum immediate effect on Taiwan. The US$50 billion in China-assembled products so far targeted by the US do not have enough Taiwanese content to raise much concern. Depending on how things develop, though, trade tensions between the US and China could ultimately have a significant effect. At the very least, tariffs on items like Chinese-assembled smartphones and laptops that require Taiwan-made inputs will require companies to restructure their commercial relationships. This will take time while the associated liabilities will develop more quickly.

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