In the 1990s, the US had a trade deficit with Taiwan of more than US$20 billion. In response, the US used Section 301 of the US Trade Act to impose trade sanctions on Taiwan.
Last year, the US had a trade deficit of more than US$256 billion with China. US President George W. Bush’s administration has vowed to reduce this deficit and Congress has been applying constant pressure on Beijing while also trying to punish China economically.
The US is a market-based capitalist economy and its huge trade deficit with China is potentially dangerous for Taiwan. The government should take early action to minimize risk, otherwise Taiwan could very well lose the increasingly large trade surplus it has with China.
Last year, Taiwan had a 60 percent investment ratio in China, China’s export dependence on Taiwan was more than 40 percent and Taiwan’s trade surplus with China was US$77 billion. In order to stop constant appreciation of the Chinese yuan because of an over-dependence on exports and foreign investment, China will have to increase internal demand.
The slow growth of the US and Japanese economies will make China’s import market shrink and its export dependence on Taiwan will increase, which means that Taiwan’s trade surplus will also increase. As a result, the Taiwanese economy will come to rely more on China.
We should think about a future when China might be able to copy the expertise of Taiwanese companies. This would make China less reliant on Taiwanese technical skills and funds and it might boycott Taiwanese products. The government should pay attention now before this happens and take pre-emptive action.
Chinese economists and government officials have been talking constantly about the importance of China to Taiwan’s economic growth, saying that without its trade surplus with China, Taiwan would not be able to handle its deficit with Japan. Some have even said that Taiwan would be in deficit with all its trading partners without China.
These comments must be cleared up, as they are erroneous and are aimed at diminishing Taiwan’s importance in cross-strait economic talks.
More than 97 percent of Taiwan’s exports to China are raw materials, intermediate goods and machinery, while consumer products account for only 3 percent. This shows that Taiwan’s trade surplus with China is a result of the money invested by Taiwanese businesspeople in China. While Taiwan was accumulating this trade surplus, China enjoyed benefits such as increased employment, technological upgrades, the accumulation of foreign currency and increases in income. Therefore, cross-strait trade is not just about China bringing opportunities to Taiwan as Beijing keeps saying.
In addition, if the Chinese market did not exist, things would be the same as they were before links between Taiwan and China were stepped up. Taiwanese businesspeople would invest their money in the US, Japan, Europe and Southeast Asia and just export the same amount of raw materials, intermediate goods and machinery to these countries. Taiwan might even have had a trade surplus with every nation in the world.
Taiwan must try hard to maintain its technological edge and guard against letting all of its technology fall into the hands of Chinese companies.This would ensure that China continues to rely on imports of Taiwanese high-end components and semi-finished products, making it impossible for Beijing to impose trade sanctions on Taiwan. It would also help Taiwan avoid the threats to business that would be caused by an upgrading of industries in China.
Kuo Kuo-hsing is an associate professor of international trade at Chinese Culture University.
TRANSLATED BY DREW CAMERON
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