The spokesperson for the Taiwan Affairs Office of China's State Council, Li Weiyi
First, he said that Taiwan enjoyed a trade surplus of US$58 billion with China last year and an accumulated trade surplus of US$330 billion. He went on to say that this amounts to more than the total of Taiwan's current foreign exchange reserves, and that if it had not been for this huge trade surplus with China, Taiwan would have experienced a trade deficit.
Second, he said that this huge trade surplus has directly stimulated the Taiwanese economy, eliminated a great deal of unemployment and led to increased incomes for many people.
At first glance, Li's comments seem to make sense, but they do not stand up to strict and logical economic analysis.
Simply put, as long as a trade deficit is maintained at a sustainable level it will not have an adverse effect on the economy of the country experiencing the deficit. And if the deficit is the result of active domestic investment activity, it will instead be beneficial to the country's economic growth in the long term.
In the same way, a trade surplus by itself will not necessarily be beneficial to the economy of a country. Furthermore, if the surplus is the result of slow domestic investment activity, leading to excessive savings rates and capital outflows, it will instead hurt the country's economic growth in the long term.
In the 1990s, for example, the Japanese economy stagnated even though Japan enjoyed a long period of healthy trade surpluses, while the overall production power of the US economy saw vigorous growth despite a long period of trade deficits. This shows that there is no absolute causal relationship between a trade surplus -- or deficit -- and overall economic performance.
Li is half right: deduct Taiwan's US$58 billion trade surplus with China -- according to official Chinese figures -- and Taiwan will have experienced a deficit in its trade with partners other than China. His logic is, however, flawed.
Li has fallen into a mercantilist trap, mistakenly believing that a trade surplus must be beneficial to the party experiencing the surplus. He is thus using biased figures to reach his conclusion when he says that Taiwan's enormous trade surplus with China has stimulated Taiwan's economy, eliminated much of its unemployment and led to increased incomes for many people.
The fact is that systematic attempts to achieve long term international trade surpluses in order to stimulate economic growth is an anachronistic mercantilist attempt at a "beggar-thy-neighbor" policy -- an international trade policy of competitive devaluations and increased protective barriers that one country institutes to gain at the expense of its trading partners.
Experience shows that this can easily lead to international trade disputes. Both surpluses and deficits must be kept within reasonable levels to prevent the overall economy from becoming seriously unbalanced, leading to structural economic problems.
The fact is that Taiwan's trade surplus with China is mainly a reflection of changes in the global industrial supply chain. There is no question that the Taiwan-China-US supply chain meets manufacturer demands for cost effectiveness, but if we consider the overall economic interests of the people of Taiwan, we must ask if Taiwan has already invested too much in China in order to develop this supply chain. This is a policy issue to which the Taiwanese government must give serious consideration.
Hwan C. Lin is a research fellow at the Taiwan Public Policy Council, a US think tank, and associate professor of economics at the University of North Carolina at Charlotte.
Translated by Perry Svensson
Concerns that the US might abandon Taiwan are often overstated. While US President Donald Trump’s handling of Ukraine raised unease in Taiwan, it is crucial to recognize that Taiwan is not Ukraine. Under Trump, the US views Ukraine largely as a European problem, whereas the Indo-Pacific region remains its primary geopolitical focus. Taipei holds immense strategic value for Washington and is unlikely to be treated as a bargaining chip in US-China relations. Trump’s vision of “making America great again” would be directly undermined by any move to abandon Taiwan. Despite the rhetoric of “America First,” the Trump administration understands the necessity of
US President Donald Trump’s challenge to domestic American economic-political priorities, and abroad to the global balance of power, are not a threat to the security of Taiwan. Trump’s success can go far to contain the real threat — the Chinese Communist Party’s (CCP) surge to hegemony — while offering expanded defensive opportunities for Taiwan. In a stunning affirmation of the CCP policy of “forceful reunification,” an obscene euphemism for the invasion of Taiwan and the destruction of its democracy, on March 13, 2024, the People’s Liberation Army’s (PLA) used Chinese social media platforms to show the first-time linkage of three new
If you had a vision of the future where China did not dominate the global car industry, you can kiss those dreams goodbye. That is because US President Donald Trump’s promised 25 percent tariff on auto imports takes an ax to the only bits of the emerging electric vehicle (EV) supply chain that are not already dominated by Beijing. The biggest losers when the levies take effect this week would be Japan and South Korea. They account for one-third of the cars imported into the US, and as much as two-thirds of those imported from outside North America. (Mexico and Canada, while
The military is conducting its annual Han Kuang exercises in phases. The minister of national defense recently said that this year’s scenarios would simulate defending the nation against possible actions the Chinese People’s Liberation Army (PLA) might take in an invasion of Taiwan, making the threat of a speculated Chinese invasion in 2027 a heated agenda item again. That year, also referred to as the “Davidson window,” is named after then-US Indo-Pacific Command Admiral Philip Davidson, who in 2021 warned that Chinese President Xi Jinping (習近平) had instructed the PLA to be ready to invade Taiwan by 2027. Xi in 2017