With Taiwan’s two biggest export markets, China and the U.S., engaged in an all-out trade war, the island nation is caught between two choices — it can either choose to side with China and risk being integrated with it or stand with the U.S. and operate as a free nation.
Deepening trade with China
China accounts for about 40 percent of Taiwan’s exports. That is a pretty big dependence on a country that has time and again made it clear that it does not care about the independence of Taiwan and wishes to integrate it into the mainland. Such an export dependence has put Beijing in a position of power. The Chinese Communist Party is building deep relationships with Taiwanese businesses and influencing local politics to support China over the U.S.
This obviously puts Taiwan in a difficult position. An average Taiwanese is proud of living in a free country and not being under the control of the Chinese government. In fact, many people in Taiwan will take it as an insult if you were to call them Chinese. But despite such strong pride in their culture and society, Taiwanese are realizing that they are now too dependent on the Chinese economy for their own economic growth. And the ongoing trade war between China and the U.S. has only worsened the situation.
Impact of US-China trade war
According to estimates, 90 percent of Taiwan-branded electronics — like laptops, computers, and mobile phones — are manufactured outside the country. And a big chunk of such manufacturing takes place in China thanks to its cheap labor. With the U.S. slapping 25 percent tariffs on several Chinese products, Taiwanese firms suddenly find that their operations in China are becoming too cost prohibitive. As such, many production centers are moving back to Taiwan.
“We welcome mainland-based Taiwanese businesses to move their bases back… The government has already installed various mechanisms to assist the relocated businesses and will provide them with the most effective aid during their relocation,” Deng Chen-chung, a Taiwanese minister, said to South China Morning Post.
Several businesses are also relocating to Southeast Asian countries like Vietnam, Malaysia, and the Philippines. By moving out from China, Taiwanese businesses are able to avoid the 25 percent import tariffs the U.S. has slapped on Chinese goods. But this also presents a risk that Taiwan will lose out on the lucrative Chinese economy. After all, Beijing might one day decide to “punish” Taiwan for moving its manufacturing plants out from China by restricting trade with it.
This is why many Taiwanese believe that the future of their country is dependent on improving trade relationships with the U.S. and expanding into markets like Southeast Asia and India. About 40 Taiwanese businesses have reportedly made plans for relocating out from China, with many more set to join the exodus in the coming months.
Taiwanese investors have also upped their investments in Vietnam, pumping in US$622.2 million in the first seven months of the year. There is also a renewed interest in the Taiwanese tech industry to set up operations in India. For instance, Foxconn has started re-engaging with authorities in the state of Maharashtra on a MoU that the company had signed in 2015.
Make no mistake, China will continue to be a huge market for Taiwan. But by strengthening its trade with the U.S. and elsewhere, Taiwan can let Beijing know that it does not have a death grip over them.