On August 2, the US House of Representatives Speaker Nancy Pelosi’s visit to Taiwan caused a fierce reaction from the Chinese mainland. In addition to the “encirclement military exercise”, a series of economic sanctions against Taiwan were also implemented.
Specifically, it includes suspending the export of natural sand to Taiwan; suspending the import of grapefruit, lemons, oranges and other citrus fruits from Taiwan; suspending the import of chilled hairtail, frozen horse mackerel and other products; suspending the import of 2,066 products by more than 100 food companies , including health products, tea, biscuits, etc.
What impact will the above measures have on Taiwan’s economy? As the situation in the Taiwan Strait continues to be tense, will cross-strait economic and trade exchanges be implicated and evolve into an “asymmetric” trade war?
More importantly, since 2008, mainland China has integrated Taiwan into the supply chain of China’s economic development through free trade agreements, with a view to “promoting reunification through business“. Has this strategy changed completely after Pelosi’s visit to Taiwan?
How to View the Economic Sanctions of the Mainland
Experts interviewed all believe that the above-mentioned economic countermeasures will have a very limited impact on Taiwan’s economy.
Nick Marro, chief analyst of global trade at the Economist Intelligence Unit (EIU), told the BBC Chinese that these measures have minimal impact on overall trade. Existing measures will not alter the economic ties across the Taiwan Strait in any meaningful way.
Xu Zunci, director of the Taiwan-ASEAN Center of the Taiwanese think tank “China Economic Research Institute”, also believes that these countermeasures have little impact on Taiwan’s overall exports, because the trade volume restricted this time accounts for less than 0.5% of Taiwan’s annual exports to the mainland.
Tang Yonghong, deputy director of the Taiwan Research Center of Xiamen University, told the Chinese media that the mainland’s move is not “economic sanctions”. If sanctions are really imposed, it will significantly reduce imports from Taiwan and “pain” it, but these measures are not yet considered. Sanctions have limited impact on Taiwan’s economy and trade.
However, Xu Zunci also said that for individual companies and individual industries, because they are highly dependent on the mainland, they have a great impact on the individual level, especially the food industry, which is approaching the Mid-Autumn Festival and has stockpiles in the mainland market, which may suffer from this round of restrictions. loss.
In other words, the countermeasures will have less impact on Taiwan’s economy as a whole, and specific industries will feel more pain.
Based on this, Ma Zhiang believes that China’s trade restrictions do target food or agricultural products exported from DPP-controlled constituencies that may rely on China as an important market. This may be an attempt to put pressure on Tsai ahead of upcoming local elections in November.
Xu Zunci disagrees with this statement. She believes that many people feel that “government is forced by business“, but in fact people’s ideas are not so easy to change, and voters will not easily change from green to blue, or from blue to green.
Is Taiwan capable of counteracting?
However, in addition to agricultural products, Taiwan’s high-tech industry has a strong say.
“Like the rest of the world, China is still very dependent on imports from Taiwan, especially chips.” Ma Zhi-ang said that in the past decade, China has made limited achievements in reducing its dependence on imports of key components. Take the chip industry, where recent scandals and fraud cases, as well as U.S. control of core chip technology, could hamper China’s progress in the field.
Xu Zunci also said that these measures implemented by the mainland are more targeted, and Taiwan has selected industries that are highly dependent on the mainland market.
“I don’t think the sanctions will be extended to mainland China, which is more dependent on Taiwan’s technology products, machinery products, etc., because the impact on the mainland’s economy will be far greater than the impact on Taiwan’s economy. These intermediate products and components are imported into the mainland, Taiwanese businessmen or mainlanders in the mainland. Manufacturers make finished products and sell them all over the world, and if this part is sanctioned, the entire supply chain will be affected.”
Ma Zhi-ang said that China’s restrictions on imports of Taiwan’s technology products may ultimately lead to a “miserable victory.” China is Taiwan’s largest chip export market. Therefore, China’s suspension of cross-strait trade will definitely cause great damage to Taiwan’s economy, but the cost is that many of China’s own industries will also be seriously injured. At this time, the Chinese economy is already in a very fragile state.
So can Taiwan take advantage of its advantages in chips and other fields to counteract China?
Xu Zunci said that Taiwan still hopes to maintain rational restraint, and the Ministry of Economic Affairs is also handling it carefully, and does not want to expand the situation and escalate economic sanctions.
The attitude of the Taiwanese government seems to be considering whether there will be more sanctions from the mainland, rather than countermeasures. For example, Cai Meina, director of the Statistics Division of Taiwan’s Ministry of Finance, recently told reporters that the largest source of IC imports in mainland China is Taiwan, so the two sides are “highly interdependent”, and it is expected that the possibility of China’s imposition of stricter economic sanctions on Taiwanese companies is very low.
The report of the investment bank Goldman Sachs also supports the “high degree of interdependence” between the two sides of the Taiwan Strait. According to a report released by the bank on August 10, about 70% of Taiwan’s exports to mainland China came from technology products with a commodity number of 85, which is twice the share of Taiwan’s exports to other destinations. At the same time, considering Taiwan’s dominant position in the global foundry business and its extensive participation in the mainland’s technology product processing trade, any widespread disruption to cross-strait trade would be highly disruptive to the global technology supply chain, including mainland China.
A new stage of cross-strait economic and trade?
Although the possibility of a trade war between the two sides is unlikely, respondents believe that the economic and trade exchanges between the two sides have undoubtedly entered a new stage.
Xu Zunci divided cross-strait economic and trade exchanges into three stages:
- The first stage was in the 1990s. The two sides experienced the Taiwan Strait crisis in 1995 and 1996, and economic and trade exchanges began to recover. Taiwanese businessmen invested in the mainland, accounting for 70 to 80 percent of Taiwan’s foreign investment.
- The second stage began in 2001 and 2002, when mainland China and Taiwan joined the World Trade Organization (WTO) successively, and normal trade exchanges between the two sides of the strait began through the WTO platform. In 2008, Ma Ying-jeou came to power and promoted the cross-strait economic cooperation framework agreement. (ECFA) negotiation, both sides of the strait have further trade preferences on the basis of the WTO framework. Hundreds of products in Taiwan can enjoy zero tariffs. For Taiwan, mainland China has become the largest market. , hoping to “promote unification through business”. In addition, in 2009, the mainland began to come to Taiwan for investment and tourists. Cross-strait economic and trade has developed rapidly.
- In the third stage, the relationship between the two sides of the Taiwan Strait has fluctuated in recent years. Last year, the mainland stopped the import of pineapples and lotus mists from Taiwan, which raised the awareness of the crisis among practitioners and began to expand diversified markets. Coupled with the current changes in the mainland’s internal economic structure, rising labor costs, and the combination of multiple factors such as the US-China trade war and the epidemic, Taiwan’s investment in the mainland has dropped sharply, and its share of Taiwan’s foreign investment has dropped from a peak of 85% to insufficient. 40%. In the next 5-10 years, the chances of resuming close cross-strait cooperation are very low.
“But it still needs to be seen clearly, whether it is the Sino-US trade war or the turbulent cross-strait relations, mainland China is still Taiwan’s largest market, especially for the businesses that benefit from the ECFA (Cross-Strait Economic Cooperation Framework Agreement), it is still very important, even if you want to expand diversification. It will not happen overnight. Moreover, South Korea and mainland China have a free trade agreement. Because of the RCEP (“Regional Comprehensive Economic Partnership Agreement”, it is the ten ASEAN countries and China, Japan, South Korea, Australia, New Zealand and other countries that have free trade agreements with ASEAN. The advanced free trade agreement formed by the five countries), Japan will also enjoy zero tariffs into the Chinese mainland market this year, they are all Taiwan’s competitors, so cross-strait trade is very important to Taiwan.” Xu Zunci said.
At this new stage, Xu Zunci is even more worried that the actual blockade of Taiwan during the military exercise will have an impact on sea, land and air transportation. For example, Taiwan imports natural gas, and there are several ships per week, and the military exercise will affect this week. Energy import, if military exercises are normalized, will it affect Taiwan’s imports and exports, which in turn will affect foreign investors’ concerns about Taiwan’s supply chain and weaken investment confidence.
From the perspective of mainland China, the new stage of cross-strait economic and trade relations is also quite tricky. Ma Zhi-ang said that the integration of Taiwan’s economy through ECFA has done little to prevent the rapid deterioration of cross-strait relations, nor has it improved the perception of China by most Taiwanese people, especially the younger generation. For many Taiwanese, the political and economic factors that underpin cross-strait relations cannot be separated — China has long sought to use economic sweetness to soothe political or diplomatic grievances.
This doesn’t seem to be working anymore, what’s happening in Hong Kong and Xinjiang is affecting Taiwanese perceptions of China, in addition, the Taiwanese government now sees an opportunity to deepen ties with neighbouring countries like Australia and Japan as these countries reassess their relationship to China China relationship.
“This will be very worrying for Beijing, and it will cause cross-strait relations to become more tense in the next decade,” Ma Zhiang said.
Tang Yonghong told Chinese media that the ECFA was signed on the basis of the “1992 Consensus”. If the DPP authorities deny the “1992 Consensus”, engage in “Taiwan independence” separatist activities, and collude with external anti-China forces to hinder the development of the mainland, Reflecting the ECFA “early harvest list” that benefits Taiwan, it also loses the positive meaning of continuing to operate. The cross-strait economic and trade exchanges that were originally beneficial to Taiwan’s people’s livelihood and economic development are objectively not conducive to opposing “independence” and promoting reunification.