The US has been strongly critical of China for refusing to float the yuan on the foreign exchange markets, accusing it of being protectionist. The US claims that over the past five years this has caused an annual trade deficit with China of in excess of US$200 billion, and that this will cost around 1.4 million jobs in the US over the next two years.
China has responded by saying that a revaluation of the yuan would have an impact on 25 million Chinese workers and that they have no intention of going down the same disastrous route that Japan took in the 1980s with the appreciation of the yen against the dollar.
The two sides have locked horns on this issue and tensions are rising. During the recent Copenhagen summit we saw newly emerging economies squared off against global environmental groups and poor small island nations fearing a future of flooding, while a war is heating up between the southern hemispheres and the EU and the US. At the same time, an angry China finds itself looking more isolated on the exchange rate issue, with most of the others hoping to cash in on a stronger, appreciated yuan, wanting China to back down.
Taiwan finds itself in perhaps the strangest position of all, and we shall explore this along a rather circuitous route by starting with the US, and why not all Americans side with US President Barack Obama or the US Congress on the exchange rate issue.
HP and Dell, who both outsource their computer production lines to China for import into the US and Europe, are definitely reluctant to see a stronger yuan, and would prefer their own country to lose in the exchange rate war currently being waged.
And so it is with Taiwanese businesses with plants in China, where they also receive the orders for their products. It is not the first time, either, that Taiwanese businesses have sided with China in US-Sino trade wars: They have remonstrated against the US government in the past when it tried to invoke Section 301 of the 1974 Trade Act, which empowers the US government to take measures against trade practices it deems to be unfair, against China.
The huge volumes of trade between the two countries has prompted economic historians to come up with the rather bizarre neologism “Chimerica,” an ungainly conjoined entity sharing a main artery, and this artery is, wait for it: Taiwan.
Taiwanese companies account for a surprisingly high percentage of Chinese exports destined for the US. We know this not only from WTO figures, but also from what has been called the “Suzhou miracle.”
Suzhou is China’s first major high-tech city. Last year its export trade was over US$2 trillion, accounting for 59.5 percent of the total for Jiangsu Province and 9.1 percent of the national figure. This is indeed a miracle, but perhaps even more amazing is that Taiwanese companies are among the top three exporters, and command seven of the top 10 spots.
As a comparison, only 6.8 percent of Taiwanese electronics were actually manufactured in Taiwan in 2005, and as much as 81 percent in China. In 2008, Taiwanese investment in China constituted 53.66 percent of Taiwanese investment abroad, contributing to over 1.8 trillion yuan (US$263.7 billion) in Chinese exports and employing over 15 million workers, a figure far exceeding the entire workforce in Taiwan itself.
From all this it is clear that there would be no “Chimerica” without Taiwan and, this being the case, “Chiwanrica” might be a more appropriate label. “Chiwanrica” is an apt neologism for the symbiotic entity and extremely complex set of relations that the three parties constitute.
Let’s say that Taiwanese businesses in China benefit Taiwan, contributing, as they do, a large amount to the Taiwanese economy. We can analyze the way China, the US and Taiwan actually relate to each other, with regard to specific issues.
For example, when it comes to the US invoking Section 301 over the exchange rate, it’s Taiwan and China pitted against the US. For intellectual property rights, military sales and Taiwan’s entry into the WTO and functioning bodies of the UN, it’s Taiwan and the US against China. The third scenario would be the issues of Taiwan holding referendums, writing a new constitution and entering the UN, where Taiwan would be on its own against the US and China.
This is already complicated enough, but it doesn’t yet truly reflect the complexity of the overall situation.
The interests of Taiwanese businesses in China are not necessarily the same as those of Taiwan. The Chinese Nationalist Party (KMT) seem to be happy to throw in their lot with China, in the hope that Taiwanese companies will be in the same position as the Taiwanese companies based in Suzhou who export their goods. This does not take into account the interests of Taiwanese businesses in China looking to get a piece of the domestic market there and hoping for a stronger yuan.
Then there are the Taiwanese companies that want to take their investments out of China and invest instead in Vietnam or even Taiwan, and canny business people who feel that it’s too risky for Taiwan to put all its eggs in one basket and invest exclusively in China, who will certainly hope for a stronger yuan.
These webs woven of political, military and economic factors are continuously unraveled, only to be woven again to express new relationships. This has been the case since the end of the Cold War.
Way back in the past, wars were fought between the powerful, between kings and competing elites. After the French Revolution, wars took on a more national aspect, and in World War I, the reach of wars was extended much further still.
With Hitler, whole nations were mobilized, with all of the resources of a country, both material and otherwise, including ideological, being brought to bear. This principle applied through the early period of the Cold War, but in the later years the US and China joined forces against the USSR, leaving their respective ideologies by the wayside in a more pragmatic approach to winning the war as a whole, sacrificing Taiwan as collateral damage.
Following the end of the Cold War, and with the advent of globalization, we have started to see the emergence of matrices of relationships of unimaginable complexity, like “Chiwanrica,” around the world.
Taiwan doesn’t have an awful lot of influence in how the exchange rate war plays out, but it is sure to be heavily affected by the result. It seems that the leaders vying for control of Taiwan have yet to come up with any sensible answers for how we are to deal with this ever more complex situation.
Lin Cho-shui is a former Democratic Progressive Party legislator.
TRANSLATED BY PAUL COOPER
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