An economic cooperation framework agreement (ECFA) may include cooperation in several areas, including industrial, agricultural and service industries, as well as capital and labor affairs. Regardless of how far reaching the aspects of an ECFA, the main goals will be to lower customs tariffs and deregulate markets. From this perspective, the direct consequences of such an agreement will be to increase the flow of products across the Taiwan Strait. This is also the perspective from which I want to discuss the impact of an ECFA on Taiwan’s trade status.
Taiwan’s economic development model is focused on exports. Without the export surplus, Taiwan’s economy would be in big trouble. Because the nation has maintained a trade surplus in recent years, it has also maintained a competitive edge.
In 2006, Taiwan’s trade surplus reached US$21.3 billion, in 2007 it was US$27.4 billion, in 2008, US$15.2 billion, and in January to August last year it reached US$19.5 billion. As a result of growing cross-strait trade exchanges, however, trade between Taiwan and China makes up an increasingly larger portion of the nation’s total foreign trade. In 2008, Taiwan’s China-bound exports reached US$99.57 billion, while imports stood at US$32.88 billion, giving Taiwan a trade surplus of US$66.69 billion. In the period from January to November last year, Taiwanese exports to China reached US$75.22 billion, while imports were US$22.87 billion, giving Taiwan a trade surplus of US$52.35 billion. Deducting this trade surplus with China from Taiwan’s total trade surplus converts the surplus into a deficit. In disregarding the principles of risk diversification, Taiwan is too dependent on its trade with China.
If Taiwan and China enter into an ECFA and lower customs tariffs to a certain level, cross-strait trade would be further intensified and this could bring large volumes of Chinese products into Taiwan. That in turn could gradually serve to eliminate the nation’s trade surplus. As Taiwan’s trade surplus with China decreases, the nation will experience a trade deficit. That would have dire consequences.
The East Asian financial crisis in 1997 erupted because Thailand and other Asian states were experiencing trade deficits that set off a chain reaction of financial collapse. These states were only able to save their economies thanks to capital infusions by the IMF and the World Bank. Taiwan is not a member of these financial institutions, so where could the nation turn if the same thing were to happen to the Taiwanese economy.
The current cross-strait trade relationship should really be in Taiwan’s favor, so it should be China that comes to Taiwan asking for an ECFA to balance cross-strait trade, while Taiwan should be procrastinating to maintain its advantage. This is not what is happening. Instead, it is Taiwan that is eager to implement an ECFA. This also carries many political implications that could cloud thinking on the issue.
There are those who say that the Taiwanese economy will suffer because ASEAN and China have already formed a free-trade area, and that if Taiwan and China sign an ECFA it would help bring Taiwan closer to being able to participate in ASEAN trade.
The situation is not as bad as that. The original six ASEAN states formed a free-trade area in 2006, lowering customs tariffs to below 5 percent. This did not have a great impact on Taiwan and the nation’s trade surplus with ASEAN is actually increasing. Trade with ASEAN nations has been growing since 2003, and Taiwan enjoys a trade surplus. When the global economic crisis hit in 2008, Taiwan’s foreign trade contracted — with the exception of its trade with ASEAN nations, where the nation still has a trade surplus of US$12.9 billion.
It is to be expected that the signing of an ECFA will see cheap Chinese goods flow into Taiwan. We must pay attention to whether that increase will lead to a trade deficit that would hurt even more small and medium-sized enterprises, setting off a wave of unemployment. We should also pay attention to whether the government is aware of the importance of diversifying risk and whether it has prepared a rescue plan.
Chen Hurng-yu is a professor at National Chengchi University’s department of history.
TRANSLATED BY PERRY SVENSSON
In the first year of his second term, US President Donald Trump continued to shake the foundations of the liberal international order to realize his “America first” policy. However, amid an atmosphere of uncertainty and unpredictability, the Trump administration brought some clarity to its policy toward Taiwan. As expected, bilateral trade emerged as a major priority for the new Trump administration. To secure a favorable trade deal with Taiwan, it adopted a two-pronged strategy: First, Trump accused Taiwan of “stealing” chip business from the US, indicating that if Taipei did not address Washington’s concerns in this strategic sector, it could revisit its Taiwan
The stocks of rare earth companies soared on Monday following news that the Trump administration had taken a 10 percent stake in Oklahoma mining and magnet company USA Rare Earth Inc. Such is the visible benefit enjoyed by the growing number of firms that count Uncle Sam as a shareholder. Yet recent events surrounding perhaps what is the most well-known state-picked champion, Intel Corp, exposed a major unseen cost of the federal government’s unprecedented intervention in private business: the distortion of capital markets that have underpinned US growth and innovation since its founding. Prior to Intel’s Jan. 22 call with analysts
The Chinese Communist Party (CCP) challenges and ignores the international rules-based order by violating Taiwanese airspace using a high-flying drone: This incident is a multi-layered challenge, including a lawfare challenge against the First Island Chain, the US, and the world. The People’s Liberation Army (PLA) defines lawfare as “controlling the enemy through the law or using the law to constrain the enemy.” Chen Yu-cheng (陳育正), an associate professor at the Graduate Institute of China Military Affairs Studies, at Taiwan’s Fu Hsing Kang College (National Defense University), argues the PLA uses lawfare to create a precedent and a new de facto legal
International debate on Taiwan is obsessed with “invasion countdowns,” framing the cross-strait crisis as a matter of military timetables and political opportunity. However, the seismic political tremors surrounding Central Military Commission (CMC) vice chairman Zhang Youxia (張又俠) suggested that Washington and Taipei are watching the wrong clock. Beijing is constrained not by a lack of capability, but by an acute fear of regime-threatening military failure. The reported sidelining of Zhang — a combat veteran in a largely unbloodied force and long-time loyalist of Chinese President Xi Jinping (習近平) — followed a year of purges within the Chinese People’s Liberation Army (PLA)
RSS