‘New Southbound Policy’ Insulates Taiwan From US–China Trade War

July 15, 2018 Updated: July 15, 2018    

WASHINGTON–Fallout from the U.S.–China trade war will not seriously affect Taiwan, which has spent a few years diversifying its economy away from the politically hostile mainland and investing in Southeast Asia, according to a Taiwanese trade official. The comment comes amidst concern from many that President Donald Trump’s escalating trade confrontation with Beijing could be economically damaging to U.S. allies in East Asia.

On July 10, Washington announced it will impose new tariffs of 10 percent on $200 billion worth of Chinese exports in September, in addition to the 25 percent imposed on $34 billion announced earlier this month. The tariffs are part of the Trump administration’s broader pushback against what it sees as China’s unfair trade practices and decades of exploiting the global trade system.

The trade war has sparked fears that other Asian nations will also be hit hard by the economic fallout, and some observers have gone as far as warning that Taiwan “stands to lose the most.” Such observations are based on the common understanding that Taiwan’s economy relies heavily on trade with China and that U.S. tariffs will also hit hard Taiwanese businesses that export manufactured goods to other parts of the world.

Taiwan’s approach in dealing with any fallout from U.S.–China trade war is “don’t panic, but get ready,” according to Liu Shih-chung, vice chairman of the Taiwan External Trade Development Council (TAITRA), a trade promotion organization sponsored by the Taiwanese government.

Liu Shih-chung (center), vice chairman of the Taiwan External Trade Development Council (TAITRA), speaks at a Stimson Center forum in Washington on July 12, 2018. (Paul Huang/The Epoch Times)

Liu said at a Stimson Center forum on July 12 in Washington that well before the current trade war, Taiwan had already moved to diversify its economy away from relying on China, understanding that it would be unwise for the small island nation to put “all its eggs in one basket.”

According to Liu, Taiwanese businesses in China have already started shifting production to other countries in Southeast Asia, such as Vietnam and Indonesia, in recent years, and there is no immediate sense of panic among the ones that are still operating in the mainland.

“We send out surveys to more than 200 Taiwanese companies in all major cities in China, asking them if they sense the shock [from U.S.–China trade war]. The responses we got mostly indicate they don’t sense it,” Liu said.

Smartphone devices and mechanical equipment are the two major items that Taiwanese businesses manufacture in China, and both have not yet been placed among the 6,000 items that the Trump administration intends to impose additional tariffs on, Liu said.

Liu said the Taiwanese move to Southeast Asia also reflects a broader trend encouraged by the Tsai Ing-wen administration’s ambitious program called the “New Southbound Policy” (NSP), which it started to implement when it came into power in 2016 to promote Taiwan’s investment, trade, and other economic engagements with its southern neighbors.

The comment echoes prior analysis by many that Taiwan’s NSP was aimed at reducing the country’s reliance on China, although the Tsai administration did not explicitly state it as the program’s goal.

Liu’s statement is one of the first from a Taiwanese official affirming the program’s success. Earlier this year, a report by the Center for Strategic and International Studies (CSIS) said that it is “too early to determine” whether Taiwan’s NSP will be successful.

In addition, Liu said that India’s Modi government has been working very closely with Taiwan to develop trade and investment opportunities. TAITRA has matched two joint ventures between Taiwanese and Indian partners in the past six months, one of which involved electric vehicles, according to Liu.

In this file photo, Chinese workers are shown in a Foxconn factory in Shenzhen, in southern China’s Guangdong Province. U.S. tariffs on goods exported from China could potentially harm this Taiwanese company. (STR/AFP/GettyImages)

Taiwanese businesses overseas are only part of how NSP has helped the country reduce reliance on China.

Just as Beijing has used the numerous Taiwanese businesses operating in the mainland as potential political hostages, it has also attempted to coerce Taipei by reducing the number of Chinese tourists visiting Taiwan.

However, tourism from Thailand and the Philippines has seen massive growth in recent years, following the granting of visa-free entry, and Taiwan has also recently extended the visa-free program to other Southeast Asia countries in an effort to further attract more foreign tourists.

The growth in tourists from Southeast Asia and elsewhere in recent years has been more than enough to compensate for the decline in tourists from mainland China, according to recent statistics.

Liu cautioned that Beijing is still playing a “two hands approach” to pressure Taiwan economically, as exemplified by the Chinese regime’s announcement in February of a massive “gift package” designed to lure more Taiwanese businesses and individuals to come to the mainland.

Such attempts will not win over the hearts and minds of the Taiwanese people, as the younger generation of Taiwanese are used to seeing themselves as having a national identity separate from China, and many of them go to China for a few years “only to make money,” according to Liu.