U.S.-China Faceoff Means Taiwan Needs Closer Links with Neighbors

Taiwan’s long-standing economic model of seeking success through innovation and integration into global supply chains is becoming difficult to sustain as the U.S. and China increasingly work to decouple from each other.

With the U.S. trying to preserve its economic leadership by raising tariffs and imposing restrictions on technology exports, Taiwan’s innovation and resilience have suffered. Rather than focusing too much on China or the U.S., Taiwan should seek to collaborate more with its Asia-Pacific neighbors to share promising approaches to enhance sustainability.

Over the past four decades, Taiwan has helped lead the way in the global trend of economic integration with China.

Taiwanese companies cannot disengage from China completely at a time when few multinationals are leaving the country. Most Apple iPhones, for example, are still assembled in China by Taiwanese manufacturer Foxconn Technology Group.

Yet U.S.-China strategic competition is threatening the global semiconductor manufacturing ecosystem.
Built up over decades, it relies on the contract manufacturing model pioneered by Taiwan. In this globally interdependent value chain, technology companies entrust Taiwanese foundries with making chips for the electronic devices, vehicles and computing systems they sell to countries around the world, including China.

However, the U.S. and EU now view interdependence with Taiwan as a source of risk rather than resilience due to the strategic importance of advanced chips for defense systems and the possibility of armed conflict in the Taiwan Strait.

Consequently, the U.S. and its allies are engaged in reshoring supply chains and protecting their intellectual property to prevent strategic technologies from reaching China. Beijing, meanwhile, has been intensifying its efforts at enhancing self-reliance and luring Taiwanese talent to support its own development of high technology

As a result, the U.S.-China competition has implications for all Asia-Pacific technology players, especially in semiconductors.

In effect, the 2022 CHIPS and Science Act and tightened export controls are compelling companies like Taiwan Semiconductor Manufacturing Co. to transfer their know-how to American soil while blocking them from selling chips containing advanced American technologies to China.

The EU and Japan are making similar investment demands of Taiwan. Such policies will lead to duplicate supply chains, increased costs and reduced efficiency. While the U.S.-led effort to create a values-oriented global economy is aligned with the interests of East Asia’s liberal democracies, current American policies are hurting rather than benefiting them, especially Taiwan.

Washington did not fully consult Taipei when developing these policies. Moreover, they are unlikely to really strengthen the U.S. or its partners.

Taiwan’s talent pipeline, management style and business ecosystem developed over 40 years and cannot be duplicated elsewhere overnight. Instead of building a resilient global economy, U.S. policies are threatening Taiwan’s economic and democratic resilience.

This challenge has joined a host of other issues under debate in Taiwan ahead of the island’s presidential and legislative election on Jan. 13, including the rising cost of living, low salaries, fragile energy security and the need to reinforce defenses against the threat of China.

Read the full Article at Nikkei Asia

This article draws on CAPRI’s latest research “Taiwan: Walking the Tightrope between the United States and China.”