Is the transition from the Year of the Tiger to the Year of the Rabbit to usher in a new climate? The biggest challenges of last year included inflation, interest rate hikes, the Russian invasion of Ukraine and worries about a recession, but these issues could see a turnaround this year.
US stock indices surged while Taiwan’s stock market was closed for the Lunar New Year break. Weak US economic data could inspire the US Federal Reserve to lower its high interest rates. This could signal a bottoming out of the global economy.
As for the war in Ukraine, the Ukrainians’ defiant unity has not only enabled resistance of the Russian army’s fierce attacks, but has also given them opportunities to counterattack, which could expunge the risk of spreading geopolitical conflict.
In terms of the economy, supply chain disruptions have eased, but falling consumer confidence and soaring prices have led to sluggish demand and swelling inventories, which have severely impacted corporate profits. More time is needed to sort out these problems, so the economy might have to crouch before it can leap.
This means tough challenges remain in the first half of the year, but the second half could see some gradual improvements.
Last year, the economy went from boom to bust, with year-end exports and economic growth declining from earlier highs. Exports fell sharply, while the government’s preliminary estimate of year-on-year GDP growth for the fourth quarter dropped to minus-0.86 percent, 2.38 percentage points lower than the earlier forecast of 1.52 percent, which kept GDP growth for the whole year below the desired 3 percent mark.
The share of exports going to China fell, while the proportions going to ASEAN, Europe, Japan and the US grew. This trend is in line with Taiwan’s development path of reducing its economic and trade dependence on China and diversifying its foreign trade.
However, the decrease in exports to China must be made up for by the growth in exports to other regions, so that total exports do not slow down and stall.
As for what kinds of exports are growing or shrinking, it is important to consider whether the goods involved are irreplaceable, to lessen the risk of China using trade to impose retaliatory sanctions.
US-China tensions are likely to rise this year, especially in the high-tech chip industry. Although China uses big financial funds to support its domestic industries, semiconductor technology, equipment and talent are firmly in the hands of the Western alliance.
Two of the world’s equipment and materials giants — the Netherlands and Japan — have recently joined the camp of resistance to China in the semiconductor industry, which puts China in an even more disadvantageous position, and makes its road to self-sufficiency in chips even more arduous.
This situation is making the domestic semiconductor industry more important.
Most of the world’s high-end chip production capacity is concentrated in Taiwan, and it could take decades to resolve this imbalance, Intel Corp chief executive officer Pat Gelsinger said last month at the Davos World Economic Forum.
This reality was reflected in the heavy fall of Intel — which is a strong competitor of Taiwan Semiconductor Manufacturing Co (TSMC) — on the US stock market on Friday last week after it posted poor quarterly and annual results.
In contrast, TSMC’s American Depositary Receipts rose during Taiwan’s stock market break. This differential reflects the difference in value and strength between the two companies. It also shows that, for the next few years at least, global competitors could still lag far behind Taiwan’s semiconductor industry, as represented by TSMC, and might struggle to catch up.
Although this gives Taiwan grounds for optimism, the economy needs more than one pillar to stand firm.
Another major challenge is the threat of what TSMC founder Morris Chang (張忠謀) calls the “death of globalization.”
For the past four decades, the engine of global economic growth has been the efficiency and price competitiveness brought about by division of labor in the global supply chain. China’s reform and opening up allowed global industries to take advantage of its billion-plus population to provide cheap labor, along with land and tax incentives, to produce cheap goods and hold down global inflation.
Has Taiwan been a beneficiary or a victim of this globalization? It has been both. In the early stage, the nation did benefit, but it won in the short term and lost in the long term, eventually becoming a major victim.
Taiwanese entrepreneurs initially thrived from subcontracting in China, but such benefits could not compensate for the hollowing out of Taiwan’s industries as companies moved offshore, nor from the illusory GDP growth that results when profits from triangular trade remain overseas.
China has grown from the primary industrial model of original equipment manufacturing subcontracting to rapid GDP growth, which has been achieved through government subsidies, theft of other countries’ intellectual property, copying, counterfeiting, talent poaching, and mergers and acquisitions, which have fostered the growth of Chinese industries.
As a result, Chinese companies have become strong competitors for Taiwanese investors in China. The huge growth of China’s overall national strength has boosted the Chinese Communist Party’s (CCP) ambition to vie for domination. The party shifted its strategy from former leader Deng Xiaoping’s (鄧小平) policy of “hide your strength and bide your time” to one of “actively accomplishing something” in the latter part of the tenure of former Chinese president Hu Jintao (胡錦濤).
Hu’s successor, Chinese President Xi Jinping (習近平), has taken it further by using the “great rejuvenation of the Chinese nation” to weave a “Chinese dream” of competing for regional and global hegemony.
The CCP has openly raised the banner of nationalism, and its plan to create of a powerful manufacturing nation through its “Made in China 2025” policy is where it gains its confidence. China’s development of high technology has become a political mission to build hegemony, rather than the product of a free economy, so the stronger China’s industries grow, the greater threat the country would pose to world peace.
It was in recognition of this threat that former US president Donald Trump launched a trade war, imposing sanctions on Chinese semiconductors while fostering US industries to lure manufacturing from abroad.
This policy is a legitimate defense of democracy and free markets in the US’ national interest, but it also leads to the “death of globalization,” and causes the global supply chain to take on an unprecedented new form.
Taiwanese industries have benefited from globalization and the establishment of integrated supply chains, but they face the trial of the so-called “death of globalization.”
Can domestic industries find ways to grow stronger, or are they to wither away?
TSMC’s plan to build factories in the US has become a target for cognitive warfare by skeptical politicians and media, who fear that TSMC could be “hollowed out” by the US.
However, TSMC has proven time and again that it is an indispensable pillar of the global semiconductor industry. Not only the US, but also Japan and Germany are trying to get TSMC on board, and some of TSMC’s competitors have even voiced approval.
TSMC’s establishment of factories overseas is an extension of its global deployment. The efforts made by major countries to attract TSMC prove that they need the company more than it needs them.
Globalization might be on its last legs, but as long as domestic industries create indispensable value, they can be resilient enough to cope with the changes arising from the erosion of globalization by localization.
Translated by Julian Clegg
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