COVID 19 Recovery: Notes on Taiwan and the New World Trading Order

Written by Ian Inkster.

Image credit: COVID-19 by Jon Taylor/Flickr, license CC BY-SA 2.0

The world is nowhere near getting over the COVID pandemic. Whether referring to the possibilities of mutations of the virus itself or to the transformations, reactions and perhaps resistances of the national populations who are being continuously coerced or persuaded into adherence to often dubious and motley official regulations, most commentators and analysts think we are either within or entering a strong second cycle of contagion and mortality.

For Taiwan and a few other nations, the small extent and seeming stability of their COVID experience to date means that there is a real sense that recovery policies should be not only planned but begun. Two related limitations are obvious at present.

First, all such nations live and trade and invest or borrow in the more deeply entrenched high-COVID world, with dependent or gainful relations with such of the highest viral hosts as the UK, USA, Germany, Brazil or France. Thus, Taiwan’s third major trading partner is the US. This requires planning and care over appropriate protective measures in a trading world. Second, the continued slow-down of activity in large high-COVID nations directly inhibits trade and economic recovery in low-COVID nations such as Taiwan. This is the underlying reality that at times pops up into media discourse –  thus, the absurdity of the Euro nations and the UK excluding visitors from Taiwan from their  ‘safe-list’ of nations whose citizens are safe to travel to-and-fro the nations of the Eurozone when their own nations had and retain much higher contagion and mortality.

So, we argue herein that this is the time for Taiwan to be proactive in a world that is forging (mostly for protective reasons) a new economic and trading regime. With the new Democrat government entering into power in the USA, it is difficult to forecast reactions to new international trading arrangements. However, it is reasonable to assume more considered and diplomatic approaches to relations with both Europe and China. With this in mind, it is unfortunate that the USA had dropped out of the earlier developments that might have linked together in more cooperative trading arrangements the USA, China and Japan amongst a large group of trading nations, the proposed  CPTPP. More of which later.

The more cohesive agreement, initiating the new RCEP was signed by video conference on November 15. The Regional Comprehensive Economic Partnership, initiated by the Association of Southeast Asian Nations (ASEAN) included the ten members of ASEAN—Brunei-Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.  It also included the six countries with which ASEAN has free-trade agreements—Australia, China, India, Japan, Korea, and New Zealand. India dropped out for technical trade reasons, leaving a total of 15 members.

It is also unfortunate that Taiwan is excluded from this group because of Chinese opposition and possibly because of its non-nation status. The latter fact makes it easier for otherwise quite disinterested nations to agree with Chinese opinion. The irony, of course, is found in the political economy rather than the political ideology. Table 1 shows the power of China as an engine of trade growth in the RCEP, as well as for the excluded regions of Hong Kong and Taiwan:

Table 1: China as Importer/Exporter within RCEP. (where 0 = China is below top 4), with Taiwan, Hong Kong and World comparisons, 2019-20

It is evident that in both exports and imports, China is, with only two partial exceptions, either the greatest or the second player for each of the RCEP nations. Exclusive of all the official and media rhetoric of ‘Belt and Road’ strategy, and of the growing influence of China in Africa, for some time China has been established at the centre of an eastern-moving trade dominance. In brief, this is the long-term outcome of a strategy of technological development that began in the 1980s with exports of labour-intensive consumer products to a wide range of nations, and the import of increasingly high-technologies from the USA, Japan and Europe. These latter, together with the purchase of Western and Japanese know-how and exploitation of the loopholes in the global system of intellectual property rights, became the inputs to the new range of Chinese higher-tech export products, components and services into both intermediate economies (of the RCEP type) and the major economies of the world, including, of course, the USA. In many ways, this was a Chinese application of the model used earlier by Japan and the Newly Industrialising Economies.

So, the greater strength of the RCEP grouping in a post-COVID world – even without India – should be its many existing trade complementarities. The trading leadership of China and Japan is itself complementary. China’s leading exports are telecoms equipment, electrical goods, office machinery, clothing and textiles, Japan’s are capital equipment, industrial supplies, consumer durables and others. Between them, they supply the range of high-and-mid-technology products and inputs to service the new complex world grouping as well as each other. Again, leading Chinese imports are electrical machinery, petroleum products, metal ores and scrap, Japanese imports are led by industrial supplies, capital equipment, as well as foodstuffs and a wide range of consumer products. The lower-income and less sophisticated members of RCEP – drawing upon such leadership for their imports – can exchange them for their exports of mining products, agricultural goods, mineral fuels, chemicals, transport equipment, and the host of assembled products based on the processing of Japanese and Chinese semi-manufactured exports, such as mobile phones, computers, and footwear. Adding India to the mix also adds potential supplies of engineering products, gems, and jewellery.

Even a cursory contextual treatment shows how Taiwan fits very well into the overall RCEP grouping – as table 1 above shows Taiwan has China as its major commodity trader. Table 2 below shows Taiwan in the context of its present 5 leading trading partners. Notably, China, Japan and Korea are all leading RCEP economies and traders.

Table 2: A Group of Complementarities: Taiwan in Trading Context 2019-20

Apart from the US which has the world’s largest COVID infection level and very high mortality as well as a large negative current account, this grouping should be seen in optimistic terms generally and as an argument for Taiwan’s membership of RCEP on non-ideological grounds. In the perspective of recovery through trade, the US characteristics could well be drawbacks. At a time when the global Cm is 7,057, the Dm is 1.703, and the C/D is at 2.4%, the high US covidity combines with lower trading, and more focus on neighbourhood relations (Canada and Mexico, both high-COVID nations). Otherwise, it is clear that Taiwan’s existing trade pattern is highly appropriate to the RCEP profile, and its membership would add trading increments of high-quality machinery and electrical equipment, basic metals and metal products, plastic and rubber, and chemicals.

We must conclude that the RCEP is a most appropriate and complementary option for Taiwan in terms of both products traded and existing trading partners. The low-covidity suggests relatively rapid recovery, whilst high past growth and external trading should mean even better long-term prospects in a world that might well become more protection oriented or mote regionally focused. However, suppose such a best-option choice is to become a reality. In that case, it should be through the diplomacy of political economy in the context of a reduction of the rhetoric of political ideologies. A pragmatic approach may well fit the post-Covid and post-Trump world better than ever before in the whole post-1945 period. First, as with the rest of the group, Taiwan is an exceedingly low-COVID nation. For that reason alone, closer trading relations would bring rapid growth as recovery will be slower (at least in the short-run) for high-COVID nations. Secondly, Taiwan would be joining a group of high-growth economies with, in general, high proportions of current trade income to GDP. If we compare these elements with the group of very high-COVID nations, the advantages in terms of post-COVID recovery and innovative growth become quite clear. Selecting the top 11 high-COVID nations for November 16 2020, none reach the world annual average for real GDP growth (3.5%) during 2012-17; seven have minus income from their current accounts. Only Germany (with the lowest Dm level of that group) has had a reasonable rate of economic growth associated with a high level of foreign trading. There is unlikely to be any smooth recovery for the present high-COVID nations.

Rather than continue to pursue the CPTPP (Comprehensive and Progressive Trans-Pacific Partnership), which could well fade away or fail to have the recovery-generating potential of RCEP now that the US has withdrawn, the better Taiwan strategy may be to whittle away at altering the perspective of RCEP more generally. Given the natural economic advantage that Taiwan could argue as being the fundamental reason for joining, then the Ministry of Foreign Affairs’ position that RCEP membership involves too much ‘practical difficulty’ might at least be questioned and returned to. If the RCEP is to follow its own opening statements about ‘commitment to economic recovery, inclusive development, job creation, strengthening of regional supply chains, and an open, inclusive, rules-based set of trade and investment agreements,’ it might be the time to come back to this, especially as the much bigger case of India shall surely be under debate in the next months. Rather than seek full membership of what might be a moribund CPTPP, or place trust in a US alliance that has wavered dangerously in recent years, or rely on repetitions of anti-China rhetoric, it might be better to seek a form of associate membership of RCEP in a complex post-COVID world where group pragmatism might win over brute ideology.  This might be the best long-term usage that the DPP can make of the brilliant low-COVID record that has been accrued to Taiwan. There might yet be a window of opportunity.

Professor Ian Inkster is a global historian and political economist at SOAS, University of London, and a Senior Fellow in the Taiwan Studies Programme and China Policy Institute at the University of Nottingham, UK, who has taught and researched at universities in Britain, Australia, Taiwan and Japan. Author of 13 books on global dynamics and history, with particular focus on industrial and technological development, and the editor of History of Technology since 2000. Forthcoming books are Distraction Capitalism: The World Since 1971, and Invasive Technology and Indigenous Frontiers. Case Studies of Accelerated Change in History with David Pretel. Contact: @inksterian