Beijing is launching a new wave of economic pressure on Taiwan, following its military exercises around the nation and coercion of Taiwanese entertainers to make pro-China statements after President William Lai (賴清德) took office on May 20. China’s May 31 announcement that it would suspend preferential tariff rates on 134 Taiwanese products, starting on Saturday, is sure to affect certain Taiwanese industries, but the impact on the economy would be minimal given declining Taiwanese exports to China in the past few years.
It is the second time that China has suspended preferential tariffs on Taiwanese goods under the Economic Cooperation Framework Agreement’s (ECFA) “early harvest” list after Beijing eliminated favorable import duties on 12 Taiwanese petrochemical products from Jan. 1. Among the products targeted in the latest changes are racing bicycles, textiles and base oils for lubricants.
With no sign that Beijing’s coercive actions would ease any time soon, speculation has risen that it would further suspend tax concessions for Taiwanese goods under the ECFA during Lai’s term in office, or even unilaterally terminate the bilateral agreement that was signed in 2010 under former president Ma Ying-jeou (馬英九), who had strived to promote Taiwan’s economic integration with China.
Nevertheless, the suspension of preferential tariff rates is expected to be manageable due to the nation’s declining trade dependence on China. Taiwan’s exports expanded 9.1 percent year-on-year during the first five months of this year, with outbound shipments to the US surging 58 percent and those to ASEAN members rising 21.1 percent, while exports to China (including Hong Kong) fell 4.1 percent, the latest foreign trade data released by the Ministry of Finance on Friday showed. From January to last month, the proportion of exports to China (including Hong Kong) fell to 31 percent of the total — the lowest in 22 years — while that of exports to the US rose to 23.3 percent, the highest in 24 years, and that for ASEAN members hit a record high 19.1 percent.
Meanwhile, the government last year approved a record US$23.58 billion in outbound investments, excluding China, representing growth of 136.67 percent from the previous year. Outbound investments to China plunged 39.83 percent to US$3.04 billion, the lowest since 2002 and lower than those to New Southbound Policy countries for two consecutive years, Department of Investment Review data showed.
In other words, Taiwan’s economic and trade dependence on China has fallen significantly in the past few years, with many manufacturers returning and investing in Taiwan. At the same time a growing number of Taiwanese firms are pursuing new markets and better margins outside of China. That trend is expected to persist, given China’s economic downturn and manufacturing overcapacity.
Taiwan has transformed its industrial and export structure in the past few years, during the COVID-19 pandemic and amid US-China rivalry. In the burgeoning artificial intelligence (AI) era, Taiwan has firmly established itself as a key player in the global supply chain, as evidenced by several major technology giants gathering at the Computex Taipei trade show last week, where they pledged new investments in Taiwan and vowed to bolster partnerships with local firms.
As long as Taiwan continues to go global rather than be locked into China, it would become increasingly difficult for the Chinese Communist Party to use economic coercion against it. Nonetheless, Beijing’s suspension of ECFA preferential tariff rates is certain to affect some industries. The government should assist those businesses and help them export products to other markets. It is also imperative for domestic industries to improve their competitiveness with the aid of innovation, digitization and AI technology.
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