With escalating US-China competition and mutual distrust, the trend of supply chain “friend shoring” in the wake of the COVID-19 pandemic and the fragmentation of the world into rival geopolitical blocs, many analysts and policymakers worry the world is retreating into a new cold war — a world of trade bifurcation, protectionism and deglobalization.
The world is in a new cold war, said Robin Niblett, former director of the London-based think tank Chatham House.
Niblett said he sees the US and China slowly reaching a modus vivendi, but it might take time.
The two great powers appear to be “reversing carefully ... trying not to sever all their connections ... and hoping that, once they have backed away from each other far enough, they can map a new route that will sustain the mutual benefits” that they have had over the past 25 years, he wrote in The New Cold War.
However, a bifurcated global trading system could negatively impact Taiwan’s economy. As a resource-poor and export-oriented economy, the nation relies on being integrated with global supply chains to grow and maintain its prosperity.
National Taipei University of Business professor Kuo Chun-chien (郭俊賢) looks at Taiwan’s place in the global economy in the context of a new cold war in “Economic Globalization Under a New Cold War: Taiwan’s Ambiguous and Critical Role” published in the Asian Economic Papers.
Increasing protectionism and US-China rivalry have posed challenges for Taiwan, particularly the 2018 US-China trade war and the US’ export controls on key technologies, Kuo said. However, Taiwan seems to have adapted well through these challenges, he said.
Taiwan’s trade with New Southbound Policy countries surged from US$96 billion in 2016 to US$180 billion in 2022, with total investments into these nations accounting for 35 percent of outward investment, exceeding investment in China, a shift resulting from the trade war and the policy’s promotion.
In addition, the Ministry of Economic Affairs launched an initiative to attract Taiwanese firms back from China, with a focus on high value-added investments. With returning firms experiencing an average production growth of 8.1 percent compared with overall manufacturing growth of 4.6, the promotion plan was extended for another three years due to its effectiveness.
With the US-Taiwan Initiative on 21st Century Trade agreement under negotiation, the possibility that other countries could sign similar agreements with Taiwan and the potential for the nation to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Taiwan’s trade with the US and other allies could increase, offsetting the reduction of trade with China.
Taiwan’s centrality to the global economy can also ensure that Chinese President Xi Jinping (習近平) thinks twice about invading, Kuo said.
Taiwan controls 40 percent of global chip production and manufactures 92 percent of advanced semiconductors. These chips — used in everything from smartphones and laptops to data centers and artificial intelligence servers — are crucial to the functioning of modern society. A conflict over Taiwan would cost the world US$10 trillion, causing a 10.2 percent drop in global GDP, far surpassing the 5.9 percent decline caused by the COVID-19 pandemic, Bloomberg Economics estimates showed.
Increasing protectionism is not ideal for trading nations such as Taiwan and it especially harms global growth and prosperity. However, in these circumstances, Taiwan so far has shown the flexibility and capability to adapt to a changing world system.
With its critical role in the global economy, leadership in advanced technologies, and if the US and China carefully manage their competition, Taiwan can continue to thrive in a shifting global trading system, while ensuring that cold war II stays cold.
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