US-China trade war a threat to Taiwan economy

The clash with Beijing has been US President Donald Trump’s biggest trade conflict and the one that has spooked economists and investors the most. Trump’s latest move rocked business leaders who were already scrambling to reshape supply chains to avoid fallout from the US confrontation with China. The added uncertainty may paralyze Taiwan tech executives who can’t be sure their next supply-chain location will be any safer than their last.

The trade war has entered a dangerous new phase as Trump has launched a new round in the tech war against China, attempting to suffocate the development of the Chinese economy. However, Wall Street and foreign-exchange markets have already suffered, which also hurts Taiwan’s leading industries in the island’s stock market, and Taiwan’s supply chain probably will not be spared.

The United States has increased pressure on China by placing one of its top technology companies on a list that some equate to receiving the “death penalty.” The Trump administration put the telecommunications giant Huawei and 70 affiliates on its “Entity List.” That prohibits Huawei from buying parts from US companies without federal government approval. The administration has accused Huawei of spying on behalf of Beijing, mainly for its own national security and to steal American intellectual property – charges Huawei denies.

Huawei is not only a bargaining chip in US-China trade talks; in the progression of strategic competition, it is the main battlefield for technological competition, as well as the wrestling over national-security and diplomatic interests. As one of the key suppliers to Huawei, Taiwan is bracing for the ripple effect from the US ban on the Chinese firm. And as the ban kicks in, it is estimated that dozens of Taiwanese technology companies will be affected.

As the trade war drags on, economists are sharpening their pencils. Bloomberg’s analysis shows that the worst blows from a drop in China’s exports to the US would fall on Taiwan, South Korea and Malaysia – all embedded in Asia’s export supply chain. The intensifying trade war is causing Asian currencies to fall as concern about the effect on the Chinese economy drives risk-averse investors out of the region. The New Taiwan dollar has reached 28-month lows, touching 31.4 to the greenback.

The effects could be huge if the trade war lingers or intensifies. Taiwanese companies count on both the US and China for a significant share of their profits. Taiwan needs China to keep its economy going and wants advanced technology like computer chips and software from the United States to foster its economic development. With regard to the great trend of global technological development, how Taiwan, which is situated in the long-term competition of trade and technology between the US and China, should face it is a vital and serious question.

With respect to important new technologies, such as fifth-generation telecom (5G), artificial intelligence, big data, electric vehicles, robots, biotechnology, etc, inasmuch as both the East and West have their respective accomplishments and respective strengths, Taiwan does not plan to lag behind in this competition.

The industry circle has reported that Huawei has deployed the “de-Americanization” of its supply chain, increasing its procurement from Taiwan. If the United States determines that Taiwan is a loophole for the ban, then Taiwanese tech-industry operators will probably be monitored; if that happens, has the government the capacity to deal with the situation?

At this time, the most serious trial for Taiwan is not only that the industrial chain does not know what to depend on, it will find difficulties in continuing the growth mode generated in technological innovation relying on free trade and globalization over the past 30 years. Translated into the vernacular, with the decline in momentum by the main dynamo for economic growth, on what will the momentum depend for Taiwan in sailing against the winds?

Sandwiched in the chinks of the US-China trade war, Taiwan is situated at the frontline. The best strategy for Taiwan is not to take sides, not place bets, do business where opportunities exist, and maintain good relations with both China and the United States. For instance, Taiwan Semiconductor Manufacturing Company (TSMC) has decided to continue shipments to Huawei after the US announced its blacklisting.

Trump’s stunning decision to escalate trade wars with China signals a turning point for US policy. For now, it has no end in sight. Tariffs are up and there’s the threat of more to come, and at this point, it looks more likely that the trade war will be long, messy, and expensive. As far as Taiwan is concerned, it should maintain neutrality in the trade war, observing international law and contracts, and never place its bets on one side.