IMF deputy managing director Tao Zhang (張濤) on Monday warned governments about the US-China trade war’s possible effects on the global economy, saying that it could cost the world “close to 1 percent of GDP” by next year if global supply chains were forced to adjust.
According to the IMF’s World Economic Outlook report released this month, GDP growth in the US and China next year are to slow by 0.4 percentage points to 2.5 percent and 6.2 percent respectively.
Zhang called on the two nations, as well as their trading partners, to de-escalate the conflict, which he said does not benefit any party.
That might be true for some countries in the short term, but not necessarily for others in the long run.
The IMF revised its forecast for Taiwan’s GDP growth this year to 2.7 percent, up 0.8 percentage points from its previous estimate in April.
As Premier William Lai (賴清德) has said on a few occasions this month, the trade war “is a danger for Taiwan, but it could also bring about positive changes.”
First, Taiwanese businesses might finally realize that they should not put all their eggs in one basket, and seriously consider relocating their businesses as the trade war weighs on Chinese exports and production.
The premier has encouraged Taiwanese businesses to move back home or to countries targeted by the government’s New Southbound Policy, and has promised to help those that do so to mitigate the losses they might suffer from the trade war.
China might be hit even harder if the 10 percent tariffs the US placed on more than 5,000 categories of Chinese products last month is increased to 25 percent on Jan. 1 next year as US President Donald Trump has promised.
Academics and government officials have long urged companies to decouple from China by establishing production lines and business headquarters elsewhere to reduce Taiwan’s economic reliance on China and stop Beijing from using its economic influence to push its unification agenda.
Taiwan has for nearly three decades injected massive amounts of capital into Chinese industries and introduced technological know-how and talent, which has made China the economic powerhouse it is today.
This in turn poses a threat to Taiwan and would threaten its sovereignty if Beijing steps up its efforts to lure Taiwanese talent and businesses, or does the exact opposite: imposes sanctions on the operations of Taiwanese firms to bring Taipei, which refuses to toe Beijing’s “one China” line, to its knees.
The trade war would have some detrimental effects on local businesses, but that does not mean the firms must passively stay on the receiving end of these undesirable effects.
International companies’ hesitation to invest and open production lines in China gives Taiwanese businesses all the more reason to start somewhere new.
This would lead to much healthier business and manufacturing sectors both in Taiwan and other nations, which could reshape the global supply chain and help them avoid the perils of overreliance on the “red supply chain.”
The trade war is not just a conflict of business interests, but also one of ideologies.
While it is true that businesses need time and money to adapt to new circumstances, they should ask themselves whether they want to continue staying in their comfort zone and keep feeding off a global supply chain dominated by China at the risk of nurturing a dangerous hegemony.
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