Ever since US President Donald Trump announced that the US would levy tariffs on about US$60 billion worth of Chinese products, politicians, businesspeople, academics and the media in Taiwan have fretted that Taiwanese businesses would also be hit. This is not necessarily the case.
The concept informing Trump’s policy is simple: reciprocity. It is an idea that runs counter to the WTO’s concept of free trade.
The WTO’s ideal is that, after every country has abolished tariffs, each could make the product it can produce most efficiently for others on the global market. This rather naive ideal overlooks the fact that the natural and human resources that each country has are not mutually exclusive. That is, other nations also have the ability to produce the kind of products that another nation makes.
The market deregulation that the WTO demands has also put some nations at a disadvantage. Since they cannot make their own products as efficiently as other nations can, their industry is decimated by imports.
Meanwhile, relatively late developers are not given the opportunity to upgrade their production through technology transfers from more advanced nations by deregulating certain sectors within their domestic markets.
It is no surprise that the WTO is entangled in multilateral talks among nations over political and economic conflicts, as this underlying principle was flawed from the outset.
In the post-war period, Taiwanese trade relied on the labor market, such as with original equipment manufacturing, and the domestic market in exchange for foreign capital and technological transfers. This kind of exchange was true reciprocity. Taiwan’s manufacturing sector now enjoys many business opportunities in global markets, and it no longer has to rely on lower prices, as it can offer international customers added value.
Taiwan has not benefited much from the WTO over the past two decades and the majority of Taiwanese businesses still have to deal with high tariffs in other nations.
Meanwhile, nations and alliances like Japan, South Korea, China and the EU benefit from the WTO framework, as they are able to enter bilateral or multilateral talks with other nations and expand their international markets.
For the Trump administration, given what it sees as the considerable harm the WTO has done to US manufacturing and jobs, the introduction of tariffs to protect domestic industry and jobs is a reasonable response.
Trump has encouraged foreign companies, such as Hon Hai Precision Industry Co, and reduced taxes to bring US companies back home. These policies share an internal logic.
Over the past 20 years, under the influence of the WTO framework, Taiwan has forged a niche manufacturing model, giving the nation a unique competitiveness in the international market. Taiwanese companies are able to accept relatively small orders for precision manufacturing from different nations. In this, the nation is unrivaled. Is this new model not the best response to the Trump administration’s call for reciprocity in international trade?
In anticipation of what Taiwan’s involvement in the US’ Section 301 investigation of China’s unfair trade practices would mean for the nation’s industry over the next 15 years or so, this can be seen as a great opportunity for Taiwan to work toward a more reciprocal model of engagement with other nations.
Given the already good relations between Taiwan and the US, the government should capitalize on this opportunity to be the “most-favored political and economic partner” of other nations.
Huang Chin-yin is chairman of Tunghai University’s Department of Industrial Engineering and Enterprise Information.
Translated by Paul Cooper
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