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
In their recent op-ed “Trump Should Rein In Taiwan” in Foreign Policy magazine, Christopher Chivvis and Stephen Wertheim argued that the US should pressure President William Lai (賴清德) to “tone it down” to de-escalate tensions in the Taiwan Strait — as if Taiwan’s words are more of a threat to peace than Beijing’s actions. It is an old argument dressed up in new concern: that Washington must rein in Taipei to avoid war. However, this narrative gets it backward. Taiwan is not the problem; China is. Calls for a so-called “grand bargain” with Beijing — where the US pressures Taiwan into concessions
The term “assassin’s mace” originates from Chinese folklore, describing a concealed weapon used by a weaker hero to defeat a stronger adversary with an unexpected strike. In more general military parlance, the concept refers to an asymmetric capability that targets a critical vulnerability of an adversary. China has found its modern equivalent of the assassin’s mace with its high-altitude electromagnetic pulse (HEMP) weapons, which are nuclear warheads detonated at a high altitude, emitting intense electromagnetic radiation capable of disabling and destroying electronics. An assassin’s mace weapon possesses two essential characteristics: strategic surprise and the ability to neutralize a core dependency.
Chinese President and Chinese Communist Party (CCP) Chairman Xi Jinping (習近平) said in a politburo speech late last month that his party must protect the “bottom line” to prevent systemic threats. The tone of his address was grave, revealing deep anxieties about China’s current state of affairs. Essentially, what he worries most about is systemic threats to China’s normal development as a country. The US-China trade war has turned white hot: China’s export orders have plummeted, Chinese firms and enterprises are shutting up shop, and local debt risks are mounting daily, causing China’s economy to flag externally and hemorrhage internally. China’s
During the “426 rally” organized by the Chinese Nationalist Party (KMT) and the Taiwan People’s Party under the slogan “fight green communism, resist dictatorship,” leaders from the two opposition parties framed it as a battle against an allegedly authoritarian administration led by President William Lai (賴清德). While criticism of the government can be a healthy expression of a vibrant, pluralistic society, and protests are quite common in Taiwan, the discourse of the 426 rally nonetheless betrayed troubling signs of collective amnesia. Specifically, the KMT, which imposed 38 years of martial law in Taiwan from 1949 to 1987, has never fully faced its
RSS