Thu, Apr 24, 2025 page8

• Tariff success lies in cooperation

  • By Wang Jiann-Chyuan 王健全
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  US President Donald Trump’s attempt to implement “reciprocal” tariffs to address the US trade deficit, alleviate fiscal burdens and promote reindustrialization is fundamentally sound and beneficial to the long-term development of the US economy. However, having the right direction without a clear execution strategy, and directly clashing with China in a head-on confrontation, would not effectively achieve the goal of curbing China’s economic rise.

  Taiwan, Japan and South Korea have played crucial roles in China’s rapid economic ascent. Through Taiwan’s contract manufacturing and cost-reduction models, Japan’s supply of raw materials, and the introduction of Japanese and South Korean technologies, combined with China’s cheap land, labor, government resources, and capabilities in imitation and intellectual property theft, China has leapfrogged into the ranks of industrialized nations. It has flooded global markets with low-cost exports, impacting global industries and economic growth.

  To solve the problem, one must address its root. If the US aims to curb China’s aggressive expansion in exports and industrial power, it needs the cooperation of Taiwan, Japan and South Korea. However, the relationships among these three are more competitive than cooperative, and opportunities for collaboration were originally slim. Yet, facing the shared crisis brought by Trump’s high tariffs, a new opportunity for cooperation arises.

  Especially during this fleeting 90-day grace period, high tariffs on China could create trade barriers that suppress its exports. However, without alternative sources, essential goods such as raw materials, components and daily necessities must still be sourced from China. These tariffs would only raise import costs, rekindle inflation, spark public dissatisfaction and undermine the momentum for reform.

  Trump’s tariff policies have become aggressive and indiscriminate, even toward allies, while overlooking the loyal partners nearby. A deeper analysis shows that the main alternatives to Chinese products, raw materials and components could be found in a strategic alliance between Taiwan, Japan and South Korea, which together form a robust industrial supply chain. Japan possesses raw materials and global sourcing capabilities through its major trading companies; South Korea excels in automobiles, semiconductors and consumer electronics; and Taiwan leads globally in textiles, automotive parts, machine tools, electronics and semiconductors, supported by highly clustered and cost-effective industries. These three, as a strategic alliance, could provide a viable substitute for Chinese manufacturing.

  Due to political realities and industrial competition, a Taiwan-Japan-South Korea alliance has historically been difficult to establish. However, Trump’s tariffs create a shared incentive. Taiwan’s and South Korea’s semiconductor and electronics sectors, as well as Japan’s and South Korea’s automotive, machine tool and steel industries, are significantly affected, creating motivation for negotiations. Taiwan and Japan, with deeper ties, could initiate cooperation, with Japan subsequently persuading South Korea to join. Facing immense competitive pressure from China, South Korea is likely to show a strong willingness to participate. This triangular alliance could dismantle China’s industrial dominance across various sectors.

  Given this context, Trump’s first strategic phase should focus on encouraging Taiwan, Japan and South Korea to invest in their specialized industries in the US. This should be accompanied by performance indicators, including specified investment amounts, job creation targets, skilled labor training quotas, and the establishment of technical schools. In exchange, the US could offer incentives such as special economic zones (with land price discounts, relaxed labor and union regulations), effectively advancing US reindustrialization. Meanwhile, levying high tariffs (50 to 60 percent) on China would reduce its export competitiveness and allow Taiwan-Japan-South Korea manufactured products in the US to replace cheap Chinese goods. This would lessen dependence on Chinese imports, bypass high tariffs and help the US avoid significant inflationary pressure.

  On the other hand, localized production by Taiwan, Japan and South Korea would reduce their trade surpluses with the US, helping Trump fulfill his promise of job creation. To support this, the US government should impose lower tariffs on exports from these three countries, rewarding their cooperation and boosting their industrial competitiveness. For Taiwan, lower tariffs in exchange for US investment would preserve exports from traditional industries, and positively impact employment and wages.

  A second strategic phase should involve imposing slightly higher tariffs on Southeast Asian countries to prevent China from evading US tariffs by relabeling its products as originating from ASEAN members. Simultaneously, moderate tariffs should be applied to allies such as the EU, Australia, New Zealand and India — enough to avoid trade retaliation while keeping them open as key US export markets.

  With clear direction and concrete, feasible strategies, the US could fundamentally weaken China’s competitiveness and export strength across sectors such as consumer goods, technology and services. Localizing production within the US would provide effective substitutes for Chinese imports, mitigating inflation and generating significant job growth. More importantly, a decline in China’s export capacity for daily necessities would severely diminish its economic clout, reducing its ability to threaten US interests. Consequently, tensions across the Taiwan Strait and threats from North Korea could also fade.

  To implement this grand strategy, the most urgent task is for Taiwan’s government to establish an interagency task force under the Executive Yuan. Within the 90-day buffer period, efforts should be made to coordinate with Japan and South Korea through all available channels, forming a consensus on a joint alliance. This alliance could engage in strategic dialogue with the Trump administration to resolve the challenges posed by reindustrialization and tariffs, and to collectively counter China’s economic threats.

  Only through such a grand structure and strategy could we establish a model for cooperation among “non-red” supply chains and democratic allies.

  Wang Jiann-chyuan is vice president of the Chung-Hua Institution for Economic Research.
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