After China placed new tariffs on some $75 billion worth of US goods last week, US President Donald Trump responded by announcing further tariff increases on Chinese exports while also ordering American companies to move their factories out of China.
If Trump sticks to his threats and the US Congress fails to retract the tariffs, some $250 billion worth of Chinese goods facing tariffs of 25% could see an additional 5% tariff imposed on October 1 – the 70th anniversary of the founding of the People’s Republic of China. A further $300 billion in Chinese goods could see tariffs raised from 10% to 15% starting on September 1.
Along with the tariff increase, Trump tweeted: “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.”
While Trump may favor a stick approach (of questionable legality) to compelling American companies operating in China to return home, Taiwanese President Tsai Ing-wen is using carrots to persuade Taiwanese companies in mainland China to avoid increased tariffs by returning home.
Taiwan started allowing companies to invest in China in 1991, and many relocated after struggles with Taiwan’s “five shortages” of land, electricity, water, labor, and talent. While Taipei has long sought the return of its companies from the mainland, Tsai approved a Ministry of Economic Affairs (MOEA) program in January to encourage Taiwanese companies operating overseas to invest at home. Given the ongoing concerns over a protracted trade war, along with China’s rising wages and stricter regulation, the program has since proved popular by offering easier access to bank loans and migrant worker hires for returning companies.
To date, the program has surpassed its original target of NT$500 billion (US$15.9 billion) and attracted more than 100 Taiwanese companies back home, representing some NT$540 billion. Beyond the companies already pledging to return, applications have been received from another 50 enterprises, potentially bringing total investment to some NT$700 billion to NT$800 billion by the end of the year. The return of high-end production lines contributed to a 3% rise in factory output for July, compared with estimates for a 0.6% contraction.
The retreat of Taiwanese companies to the island, coupled with promised investment in renewable energy and 5G (fifth-generation) telecom technology, led Taiwan’s Directorate General of Budget, Accounting and Statistics (DGBAS) to raise its forecast for GDP growth in 2019 to 2.46%, up 0.27 percentage point from its previous forecast in May. According to Tsai, only NT$110 billion of repatriated investment would contribute to growth this year, given the time-consuming logistics of moving machinery and equipment from China.
Should Taiwanese companies successfully repatriate back to Taiwan, however, the DGBAS forecasts growth of 2.58% for 2020, the highest growth projected among the other Asian Tigers (Hong Kong, Singapore and South Korea). The DGBAS also forecasts private investment growth, after inflationary adjustments, at 5.01% for 2019, the highest in six years, and expects Taiwan’s real exports of goods and services for 2019 to grow 3.47%, up 0.85 percentage point from an earlier estimate.
And should the economy grow along with job creation, and reverse the current economic pessimism among Taiwan’s citizenry, this could bolster President Tsai’s efforts at securing a second term in January. Beijing, of course, would not be content with that outcome, so the coming months could see increased efforts from China’s propaganda machine to refute, spin and minimize any of her success in the push to secure additional pledged investment before the end of this year, or any other successes while continuing to bolster her opponents. But China’s propaganda department and its wumao already have their hands full, attempting to convince their fellow citizens that China will win the trade war while trying to control the fallout from the unfolding failure of Beijing’s “one country, two systems” approach to Hong Kong.