Taiwan’s economy is export-oriented.
Exports account for around 70 percent of Taiwan’s Gross Domestic Product (GDP). Taiwan’s stagnant economy over the past few years is correlated with a global slowdown as well as the structural problems with Taiwan’s industries in transition. Additionally, a few international factors have affected Taiwan’s economic growth.
First, China, Taiwan’s biggest export partner (39 percent including Hong Kong), has been undergoing a major economic transition, and slower growth has become the new norm. Second, the slowdown in global trade and investment is also a contributing factor. Further, uncertainty after the US presidential election, the murky outlook for the Trans-Pacific Partnership (TPP), growing protectionism and anti-globalization have all added to economic uncertainty. Despite the aforementioned issues, Taiwan is proactively adjusting its economic and industrial structure to prepare for liberalization.
Recent economic indicators published by Taiwan’s National Development Council reveal an upward trend in the past eight months, which shows that Taiwan’s economy is gradually improving. However, the global economy’s slow recovery as well as the new US government’s trade policy and Brexit are all factors injecting uncertainty into Taiwan’s export sector. Since taking office in May, Taiwan’s President Tsai Ing-wen has been actively trying to improve Taiwan’s investment environment, which will help increase domestic investment. Such policy initiatives would also allow the unemployment rate to decrease, increasing domestic consumption and gradually stimulating future economic growth. President Tsai believes this is a good beginning for Taiwan’s economic growth.
Nonetheless, one should be cautious about the local economic outlook, as wage growth is still weak, consumer confidence is relatively conservative and investment appears to be tepid. That said, one does not have to be overly pessimistic, given that the global economic outlook for 2017 is more positive than 2016, since the global economy continues to recover and exports are expected to improve. For an export-oriented economy such as Taiwan, a global economic recovery will bring about a rebound in exports and thus help to reinvigorate Taiwan’s economy.
With the new model for economic development, Taiwan’s government has formulated specific policies to boost innovation in key sectors and promote industrial transformation. President Tsai Ing-wen has launched innovative development projects across five industrial sectors, which consist of flagship programs to upgrade and transform different industries. Such flagship programs include the “smart machinery industry project” and the “Asian Silicon Valley initiative,” both of which were recently approved by Taiwan’s Executive Yuan. The key will be how to implement this innovation-driven model to boost transformation and find a driver for Taiwan’s sustainable growth.
The Tsai administration is also promoting the “New Southbound” policy, to engage South Asian and ASEAN countries in economic, cultural, and social exchanges and establish cooperative and reciprocal relations. The Executive Yuan has created an economic and trade negotiation office (行政院經貿談判辦公室), with the aim to integrate resources from the public and private sectors to enhance Taiwan’s links with the global market. In addition to moving forward with negotiations for the Trade in Services Agreement and Environmental Goods Agreement under the WTO framework, the Tsai administration is prepared to participate in negotiations related to the TPP, the Regional Comprehensive Economic Partnership (RCEP) and free trade agreements (FTA) with other countries.
In particular, FTAs, TPP and other regional economic integration frameworks are not only crucial to Taiwan’s economic and trade footprint, but will also be the catalyst for Taiwan’s economic transformation. After years of adopting a more pro-China stance, joining TPP was the core of a “rebalancing” policy for Taiwan’s trade strategy. Taiwan still seeks to participate in the second round of TPP negotiations, which will help to strengthen ties with developed countries such as Japan, Australia, Canada, and possibly the United States, and to open up markets to attract foreign investment, and further create job opportunities domestically. Encouraging competition and enticing foreign investment to Taiwan will help to modernize all sectors, especially if advanced technology firms come to Taiwan, in which case Taiwan’s local sectors will likely benefit from the spillover effect. A focus on innovation will drive the new formula for economic development.
Donald Trump’s victory in the 2016 US presidential election is viewed largely outside the United States as a harbinger of trade protectionism. Rules governing international trade and investment frameworks will need to be adjusted and updated, especially given President-elect Trump’s announcement that he will withdraw from the TPP. In order to keep his campaign promise, President-elect Trump will likely focus on bilateral free trade agreements. How would other signatories to the TPP, including Japan, Australia, New Zealand, Singapore, redefine a TPP without US participation? Does Trump’s intended withdrawal from the TPP also signify the rejection of the US “pivot to Asia” geopolitical policy, which ostensibly hoped to utilize regional free trade agreements to strengthen regional cooperation? This deserves attention as it may increase China’s influence in the Asia-Pacific region.
As Taiwan seeks to join regional economic integration frameworks, including the TPP, aside from urging the United States to take more substantive actions to support Taiwan’s bid, the Taiwanese government should step up its preparations and put forward a concrete solution for trade liberalization, industry adjustment and transformation.
Although trade protectionism is on the rise, this may be a golden opportunity for Taiwan, whose economy is dependent on foreign trade, and the United States to work more closely together bilaterally. Moreover, Taiwan may utilize this uncertain period to reevaluate its economic structure, adjust its industrial makeup, and reevaluate its competitive strengths and weaknesses internationally.
The main point: Although trade protectionism is on the rise, Taiwan still seeks to participate in the second round of TPP negotiations. Despite the United States’ possible withdrawal from TPP, this may be a golden opportunity for Taiwan, whose economy is dependent on foreign trade, and the United States to work closer together bilaterally.