Steel prices have risen dramatically around the world since the OECD arranged to cut global steel production by 5.8 million tonnes. China Steel Corp (中鋼), Taiwan's biggest steel producer, has raised steel prices by 30 percent since the second half of last year, angering local businesses that use steel. Recently some legislators have demanded that the Executive Yuan pressure China Steel to stop exporting its steel products and to cut prices by 30 percent. Despite opposition from some of its officials, the Ministry of Economic Affairs agreed to the the legislators' requests. Apart from instructing China Steel and other suppliers to give priority to local demand, the ministry will also set up an export monitoring mechanism to stop the practice among some downstream firms of directly exporting the steel products they buy without processing them.
This example highlights a major blind spot in Taiwan's internationalization policy. Both the legislators' suggestions and the government's pledges are anathema to the principles of internationalization.
We can use game theory to further scrutinize the above-mentioned policy of discriminating against foreign buyers. When we are playing with strategies we need to be able to step into opponents' shoes and contemplate issues from their viewpoint, game theory tells us. Especially, we need to assume that our opponents are as smart as we are and that they have their own interests to take care of, just like we do. Therefore, when we do something that harms others and benefits us, we need to be psychologically prepared -- the opposition will not sit there waiting to get shot. They will adopt countermeasures. If we become worse off following their countermeasures, then we'd better not do anything that benefits ourselves at others' expense. In other words, game theory -- a study of power conspiracies -- tells us that the best conspiracy is to be upstanding and not to conspire at all.
In fact, the legislators' suggestions and the government's pledges amount to viewing foreign buyers as fools, believing that they will not take any countermeasures. Our newspapers write in screaming headlines: "Economic minister promises China Steel will prioritize local supply." This amounts to telling foreign buyers that, apart from normal business considerations, the Taiwanese also consider "nationalism" when they do business. In other words, Taiwanese view foreign buyers as adjusters -- to be wooed by all means when business is slow but to be kicked aside when business is good.
After facing such treatment once, foreign buyers will know that the Taiwanese are not good business partners. At a time when they need the Taiwanese most, the Taiwanese will ditch them and take care of their own people instead. In light of this, smart foreign buyers will ditch the Taiwanese the next time they have other alternatives. Therefore, if we assume that foreign buyers are as smart as we are, we will discover that discriminating against foreign buyers will eventually harm ourselves.
The government is a relatively small one in the first place. We can therefore reasonably expect that the economic ministry's avowal will eventually turn out to be all bark and no bite. In reality, the ministry cannot help the downstream firms very much by taking those measures.
It will only commit two sins: destroying Taiwan's business reputation internationally and sending out a wrong message that prompts local firms to simply try to influence government policy instead of trying to become stronger and more independent. A truly responsible government would honestly tell the legislators: Sorry, destroying Taiwan's business reputation is something the government cannot do.
Chang Ming-chung is a professor of economics at National Central University.
Translated by Francis Huang
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