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Taiwan boosts economic diplomacy despite Chinese pressure

The numbers don't lie: Taipei’s trade in 2022 increased to $907 billion from $508 billion in 2016. But can it guarantee independence?

Analysis | Asia-Pacific

On June 21, Fijian authorities reverted the title of Taiwan’s representative office – a de facto embassy – to the “Taipei Trade Office” under pressure from China. The move came just three months after the Fijian government had reinstated the official name, which includes the word Taiwan, despite opposition from Beijing.

Like most nations, Fiji has only informal ties with Taiwan, which China considers a “rebel province” to be reunified by force if necessary. 

Honduras, for its part, cut formal ties with Taipei and switched recognition to Beijing in March. Since Taiwanese president Tsai Ing-wen of the pro-independenceDemocratic Progressive Party came to power in 2016, China has snatched seven other diplomatic partners from the island – Burkina Faso, Panama, São Tomé and Príncipe, Dominican Republic, El Salvador, Solomon Islands, Kiribati and Nicaragua.

These changes suggest that, as Beijing continues its global ascendance, Taipei is rapidly losing its diplomatic strength. But things aren’t always how they appear. While Taiwan is losing “diplomatic allies” to mainland China, it is actually boosting its economic diplomacy, in turn expanding and reinforcing its web of informal external relations.

In practice, China’s repeated diplomatic attacks on Taiwan have not resulted in substantial losses to the self-governed island, which has been able to turn economic vitality into geopolitical gains by banking on the tech needs of its informal partners. The numbers do not lie.

Taiwan’s total trade increased to $907 billion in 2022 from $508.4 billion in 2016. While 39 percent of Taiwanese exports went to China and Hong Kong last year, the value of Taipei’s exports to the United States jumped to $74.9 billion — $45 billion more than in 2016. And the island’s sales to the 10 countries of the Association of Southeast Asian Nations reached $80.8 billion, a notable jump from $51.3 billion in 2016.

During Tsai’s tenure, Taiwan has also significantly increased its external trade with the European Union and enhanced bilateral commerce with countries such as Japan, South Korea, Australia, India and Mexico.

While the majority of Taiwanese outbound foreign investments continue to go to China, the total stock located in the rest of the world has grown from 25 to 28 percent since 2016. More importantly, agreed inbound investment in Taiwan reached a 15-year high at $13.3 billion last year, with Denmark, the British Caribbean Territories, Japan, Australia and the Netherlands leading the pack. China’s investment amounted to only $38.7 million.

Taiwanese tech companies, the flagships of the island’s economy, have also had some success in balancing requests from foreign customers to relocate production overseas for geopolitical concerns with the necessity to keep the core of the business at home. And even though Taiwan’s economy is now underperforming, local companies are increasing their presence abroad while foreign businesses do the same on the island.

Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker, is a case in point. Warren Buffett's Berkshire Hathaway recently sold off its stake in TSMC due to fears that China may attack the island. TSMC is working on projects in the United States and Japan and is considering an investment in Germany, but its chair Mark Liu said on June 6 that 90 percent of the company’s production capacity would remain in Taiwan.

Taipei is scrambling to become an indispensable gear for the functioning of the world economy. It wants a possible Chinese invasion to prove too costly in economic terms for the international community, including for the Chinese mainland, so as to restrain the Communist leadership in Beijing.

Foreign tech giants appear to be buying the Taiwanese strategy. Nvidia Corporation — a U.S. company that is a key provider of computing systems for artificial intelligence — is ready to build two supercomputers in Taiwan. Dutch semiconductor machinery maker ASML Holding, the top maker of lithography machines for manufacturing semiconductors, will reportedly get $9.27 million in Taiwanese subsidies for its 2-nanometer project in New Taipei City.

For their part, Taiwanese tech businesses are expanding their operations globally. Aside from TSMC’s investments in the U.S. and Japan, Foxconn will start producing iPhones in the Indian state of Karnataka by April 2024, local authorities announced on June 1. Foxconn is also interested in building battery plants in the United States, India and Indonesia to support its electric vehicle plans.

Electric vehicle battery manufacturer ProLogium — another prominent Taiwanese tech company — is in final talks to secure subsidies from the French government for building a $5.7 billion battery factory in northern France. In another recent advancement, on May 30 Taiwan Association of Information and Communication Standards inked a deal with an EU-affiliated industrial group to accelerate the development of 6G technology.

Taiwan is trying to offset Beijing’s diplomatic blitzes with economic engagement abroad. By upgrading the level of bilateral business exchanges, Taipei is “internationalizing” its position. The island’s growing web of economic and tech connections with the rest of the world poses a dilemma to China, itself a key supply chain node for electronics.

One daunting diplomatic challenge for Taiwan is its participation in international organizations and commercial fora, which China has so far been able to block. The spotlight is now on the next summit of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the regional trade pact that has replaced the Trans-Pacific Partnership, promoted by former U.S. President Barack Obama and scrapped by his successor Donald Trump.

CPTPP leaders will meet in July and could reportedly discuss expansion to other actors. Japan, Canada, Australia, New Zealand and Singapore have all signaled support for Taipei's membership. According to the Japanese government, the island might join the trade grouping as a "separate customs territory,” a status that has allowed Taiwan to accede to the World Trade Organization.

All in all, the current trend suggests that, the more China tries to weaken Taiwan, the more the island appears able to improve its international standing by creating global dependence on its tech sector, especially on microchips. Though this is not the only strategy that Taipei is pursuing to guarantee its autonomy and prevent war with China, it is likely the smartest at the moment, as it allows the island to deal with Beijing in an “asymmetric” and less adversarial way.

(Shutterstock/ William Potter)
Analysis | Asia-Pacific
Chris Murphy Ben Cardin

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