A rather peculiar atmosphere is looming over the political landscape. On one hand, there is Yuanta-Polaris Research Institute chairman Liang Kuo-yuan (梁國源), who said that Taiwan has fallen into a state of “suspended growth,” as he compared the nation’s economy to a house built on liquefied soil, with a high risk of collapsing. On the other, president-elect Tsai Ing-wen (蔡英文), when interviewed by a pro-China media outlet, said she hoped China would express more goodwill before May 20, the date of her inauguration. Some media outlets have reported that the cross-strait service trade agreement might be sent directly to legislative review. Although these reports were immediately refuted, there is no shortage of similarly confusing news, stirring doubts in the public’s mind about the direction of the incoming government.
After Tsai was elected, she named five major targets for innovation and development — green energy, biotechnology, national defense, smart machinery and the Internet of Things — and visited several representative companies to demonstrate her intention to revive the nation’s economic momentum, reduce unemployment and boost salaries. The five industries are clearly centered around the nation’s manufacturing sector, which can consolidate the strengths of different regions to enhance connections between industries and make full use of this synergy to boost the nation’s flagging economy. Although promoting the five industries is extremely challenging, it is the solution to reviving the economy.
However, the key to industrial independence lies in the nation’s ability to overcome its addiction to China. For example, 40 percent of Taiwanese exports go to China, more than 50 percent of Taiwan’s overseas manufacturing bases are in China and tourism policies mainly cater to Chinese visitors. It is only by overcoming this addiction that Taiwan’s full productive potential can be realized.
Politically, Tsai has opted to maintain the cross-strait “status quo.” However, while Tsai recognizes the fact that the 1992 meeting did take place, she did not in any way or form acknowledged the so-called “1992 consensus.” Although maintaining the “status quo” might not contribute to the consolidation of Taiwan’s sovereignty, some members of the public can live with it in the face of the military threat across the Strait.
However, the question is whether the Tsai administration would be able to resist the mistaken notion that the cross-strait trade in services and goods agreements are good for the economy and thus walk straight into the trap set by China. It is understandable that given the depth of cross-strait economic and trade links, they must be regulated and guaranteed by laws and agreements. However, Taiwan’s economy already leans too much on China and the government must adopt diversification to reduce this economic dependence. Furthermore, China’s economy is showing signs of a decline, and the deeper Taiwan depends on China, the greater the damage it would incur.
Free trade is considered to be an irresistible trend by many, who think it is the only way for a country to make the best use of its comparative advantages and the only way to make each participating economy a winner. However, free trade is not a panacea; with the easing of regulations and tariff barriers, stronger countries are in a better position to capitalize on their competitiveness, as they have more advantages.
Moreover, China is not a market economy; its economic development and industrial policies are there to serve its political purposes, not to mention that these policies usually run counter to a free-market system. On top of that, China uses national resources, such as subsidies, taxes and administrative measures, to support to its own industries, enabling it to monopolize the market and use dumping to drive out competition. Signing trade agreements with China does not mean that Taiwan will be engaged in an authentic free-trade relationship with China.Instead, what Taiwan will get is a competitor, whose scale and modus operandi are that of a nation, and this competitor can bury Taiwanese industries.
Trade usually involves the distribution of benefits among insiders, which can easily lead to conflict. Taiwan’s GDP growth mostly comes from its trade with Hong Kong and China. On one hand, this creates superficial economic growth, while on the other, the resultant surpluses only line the pockets of China-based Taiwanese businesspeople, while the profits that accrue to Taiwan’s domestic employees decrease year by year. In short, Taiwan’s GDP is growing, but job opportunities and salaries are not. Once the trade in services and goods agreements are signed, the peculiarity of Taiwan’s economic situation will inevitably be exacerbated. Free trade can bring about prosperity, but it can also result in economic declines; the direction it takes depends on who your primary trading partners are. In Taiwan’s case, it is China.
The result of Taiwan’s trading with China is twofold. First, all the so-called “cross-strait peace dividends” might be monopolized by Chinese enterprises. Second, when it comes to industrial competitiveness, although Taiwanese and Chinese industries share similarities, China uses policy tools to bolster its industries, and mergers and acquisitions to gain control of Taiwan’s top businesses, especially in the semiconductor industry, to establish its mighty “red supply chain.” If the cross-strait trade agreements are signed, the strength of Chinese enterprises would significantly increase. Few, if any, Taiwanese businesses would be able to rival them.
If Taiwan intends to boost its economy, it has to gain full understanding of the root cause of its economic decline, which is its overreliance on China. If Taiwan wants economic independence, it must overcome its addiction to China, and the cross-strait trade agreements are clearly a part of this addiction. Should the incoming government want a taste of this forbidden fruit, then there is nothing much to expect for the nation’s economic future.
Translated by Ethan Zhan
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