Hong Kong
CNN
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When Taiwan heads to the polls on Saturday to elect a new president and legislature, their votes will be watched with keen interest at home and abroad. This is because the self-governing island with a population of 23 million has a huge influence on global business and trade, mainly due to its world-beating chip industry.
But China has recently intensified its military aggression against Taiwan, which has raised a state of tension worldwide.
Chinese leader Xi Jinping has repeatedly said that Beijing plans to “reunify” Taiwan with China. The Communist Party claimed the island as its own territory, although it never controlled it.
Lai Ching-ti, of the Democratic Progressive Party, the island’s vice president and front-runner for the position, has been publicly loathed by Chinese officials for his past statements in support of Taiwan independence. He has softened his position in favor of the status quo of de facto sovereignty for Taiwan, but Beijing has continued to denounce him as a dangerous separatist and rejected his calls for talks.
China intensified its pressure on Taiwan in the period leading up to the elections, considering it a choice between “war and peace” or “prosperity and stagnation.”
Although Beijing is not expected to launch a war in the near term, an increase in military or economic pressure would likely follow if Lai is elected.
“If Lai and the DPP win, we could see a range of coercive measures by Beijing,” said Charlie Feast, associate director of the Rhodium Group, who studies China.
He said that could include large military maneuvers that could disrupt commercial traffic in the Taiwan Strait, the 110-mile-wide waterway that separates China from Taiwan, or imposing economic sanctions on the trade-dependent island that is home to some of the largest technology companies in the world. the world. .
Such exercises have been seen in the past US House Speaker Nancy Pelosi’s visit to the island in August 2022 and when Taiwan President Tsai Ing-wen met with then US House Speaker Kevin McCarthy in California in April 2023.
Every year, about half of the world’s container ships pass through the strait.
Key competitors and partners
There is a complex political competition between Taiwan and China, but they are also economically intertwined. China has long been Taiwan’s largest trading partner and a major investment destination.
Last year, 35% of Taiwan’s exports went to China, most of which were integrated circuits, solar cells and electronic components, according to Taiwan’s Ministry of Economic Affairs. Imports from China represented 20% of total imports in the same year.
This has pushed Taiwan’s trade surplus with China to a whopping $80.5 billion in 2023.
According to Chinese customs data, the country’s trade surpluses mainly come from the United States and Europe. But it often has a large trade deficit with Taiwan, along with Japan and South Korea.
For Taiwan, China has been its preferred investment destination for decades. Between 1991 and 2022, Taiwanese companies invested a total of $203 billion in China, according to Taiwan government statistics. They have created millions of jobs in China.
“Taiwan and China are very important to each other,” Feist said. “China relies heavily on Taiwanese inputs and companies in the global electronics supply chain.”
As for China, semiconductors produced by Taiwanese companies such as (TSM) are indispensable to its economy. The island is also a major link in China’s trade with the world.
Mike Kai Chen/Bloomberg/Getty Images
TSMC is located in Hsinchu Science Park in Taiwan.
The island manufactures more than 60% of the world’s chips and about 90% of the world’s most advanced chips, according to estimates from the Rhodium Group.
China imports electronic components or precision machine tools from Taiwan, assembles them and exports the finished products to global markets.
Feist said China may respond to the Democratic Progressive Party’s victory by exerting military and economic pressure on the island.
However, he said: “Unless there is a major escalation such as a full blockade, which is unlikely given the costs to the Chinese economy, these measures will not fundamentally jeopardize Taiwan’s autonomy or economic growth.”
Feist estimated that if Taiwan was blocked, it could cost the global economy more than $2 trillion in annual losses, without taking into account the costs of a potential military confrontation between China and the United States or economic sanctions.
China has never imposed sanctions on Taiwan’s semiconductor industry, a vital resource for its manufacturing sector.
“[That’s] “Perhaps because doing so would cause significant pain to the Chinese economy,” Capital Economics analysts wrote in a research note on Wednesday.
Several Taiwanese companies, including chip manufacturing giant Taiwan Corporation (TSM) and Apple supplier Foxconn, both operate in China and are closely integrated into their supply chains. However, the island’s government closely monitors what its companies do and does not allow the latest technology to be produced there.
On January 1, China suspended tariff reductions on 12 chemical compounds imported from Taiwan. China said on Tuesday it was looking to suspend further tariff exemptions on other Taiwanese imports, including agricultural and fishery products, machinery, auto parts and textiles. Analysts said the move would likely backfire.
“The high-level economic sanctions maneuvers that came just weeks before the election are more about theatrics for Beijing’s internal consumption than an actual attempt to change the electoral results in Taiwan,” said Wen Tee Song, a Taiwan-based fellow at the Atlantic Council’s Global Division. China Center. “This shows that there is likely to be a lot of internal pressure within Beijing to be seen to be doing something about Taiwan.”
Trade restrictions imposed by Beijing since 2021, including on pineapples and fish, have not posed any serious threat to Taiwan’s economy.
Analysts from Capital Economics expect that any further economic sanctions imposed on Taiwan in response to the DPP’s victory will remain “narrowly focused and small in scale.”
This has been the pattern in recent years. In 2022, China responded after Pelosi’s visit by banning imports of a range of food products from Taiwan. But the effect was limited because the total food in Taiwan Exports to China before the ban were less than 0.2% of its GDP.
Even if China suspends the Economic Cooperation Framework Agreement, a free trade agreement signed in 2010, it may not work as expected, analysts said.
They added that the agreement did not boost cross-strait trade as much as its supporters had hoped.
“Regardless of the outcome, the election result by itself will not upend Taiwan’s success,” Feist said.