The Ifo Institute for Economic Research last week said that Taiwan’s economy might show a modest improvement over the next six months, bucking the overall downward trend in the global economy. The Munich, Germany-based institute’s remarks were the latest in a stream of observations from local think tanks and foreign institutes on Taiwan’s export-reliant economy — which has shown resilience despite US-China trade tensions as Taiwanese businesses benefit from order transfers and supply chain realignment.
So far, there is no doubt that Taiwan enjoys certain benefits in the trade dispute, such as diverted orders, as well as increased private investment, industrial production and domestic consumption.
However, the Chinese government and companies would undoubtedly lean toward more research and development (R&D), and self-developed technology in the long run, as China moves to localize and build a new supply chain to decrease its reliance on the US, while enhancing the autonomy of its economy. How should Taiwan respond?
Some might think it is obvious. Taiwanese firms benefiting from order transfers will take the opportunity to increase R&D spending and advance their technology to maintain competitiveness in the market.
It is exactly this wishful thinking that leads some to think that Taiwan would be fine, but this is not so. Take the nation’s semiconductor industry for example — its R&D is mostly developed in cooperation with the US, while China is its largest export market.
The New York Times last month reported that the US Department of Defense had communicated with chipmakers to encourage them to build new semiconductor production lines in the US, while naming Taiwan Semiconductor Manufacturing Co (TSMC) as one of the chipmakers targeted by the department.
The Financial Times also reported earlier this month that in the past year, Washington has tried to persuade Taipei to restrict TSMC from selling chips to China’s Huawei Technologies Co and tighten controls on other technology exports to China.
Overall, the semiconductor industry plays a crucial role in geopolitical and economic matters for Taiwan. That means the nation would not see its economy buck the downward trend and grow steadily without the outstanding performance of the industry this year amid the trade dispute. However, as tensions between the US and China remain and the trade dispute looks to set to evolve into a long-term competition over global tech supremacy, as well as a political-ideological rivalry, how can Taiwan’s semiconductor industry pursue its best interests in global supply chains while mitigating geopolitical risks?
This situation puts Taiwan in a dilemma of facing an important source of technological know-how in the US and an important market in China, which deserves comprehensive government assessment and full support to Taiwanese manufacturers.
Moreover, in China’s pursuit of greater technological autonomy, demand for a large scientific and technological talent pool could mean a brain drain for Taiwan that should not be underestimated.
Therefore, how to effectively retain and compete for global talent would be a daunting task for the government. As with any political and economic development in history, the US-China trade row offers benefits and drawbacks for Taiwan, and so it is both an opportunity and a challenge for the nation.
While Taiwan feels cheerful about order transfers and companies relocating production from China, there is also mounting pressure from the overall geopolitical and economic situation, even if Washington and Beijing were to reach a trade deal. This would depend on the wisdom of the government and manufacturers to ensure Taiwan’s economic development and national security.
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