Loving Taiwan and the Asian-Pacific Division of Labor Chain
China Times editorial (Taipei, Taiwan, ROC)
November 24, 2014
Executive Summary: The main reason Taiwan has been an economic success for the past 50 years, is that our strategic partners became international brand names. They played a key role in the Asian-Pacific region division of labor. The PRC-ROK FTA will be a major blow to our role in the region. Voters motivated primarily by economic considerations must understand this. They must then walk the walk, and not just talk the talk.
Full Text Below:
The main reason Taiwan has been an economic success for the past 50 years, is that our strategic partners became international brand names. They played a key role in the Asian-Pacific region division of labor. The PRC-ROK FTA will be a major blow to our role in the region. Voters motivated primarily by economic considerations must understand this. They must then walk the walk, and not just talk the talk.
Cross-Strait economic and trade relations may seem like nothing more than bilateral relations between Taiwan and the Mainland. In fact, they are not. They are the result of the evolution in the East Asian region division of labor. They are the result of the production process for international brands. This process can be traced back to the US-Japan bilateral trade arrangement of the 1950s. Back then Japan directly exported textiles to the United States. It quickly dominated the US domestic market. Japan's exports led to a multitude of American textile import quotas. It also led to rising domestic wages.
From 1960 onwards, Japan began making foreign investments. For its major OEM base, it chose Taiwan and South Korea. Japan-US bilateral trade became trilateral trade. Japan exported raw materials and components to Taiwan and South Korea. Taiwan and South Korea processed them into consumer goods, then exported them to the United States and Europe. During that period, the United States was Taiwan and South Korea’s largest exporter. In other words, Japan's trade surplus to the US became Taiwan and South Korea's trade surplus to the US.
By the 1980s, Taiwan and South Korea were facing rising wages, exchange rate appreciation, US dissatisfaction with the trade surplus, and other factors. Those of us on Taiwan were forced to make outward investments. We continued to produce semi-finished products. But we transferred the final, labor-intensive stages to Mainland China and the ASEAN countries with cheaper wages. Triangular trade then became quadrilateral trade. Japan continued to export advanced core components and high-tech materials to Taiwan and South Korea. Taiwan and Korea turned them in semi-finished products, which were then exported to Mainland China. The Chinese mainland performed the final processing and assembly of these consumer goods, then exported them to Europe and other world markets.
When triangular trade became quadrilateral trade, the Chinese mainland naturally become Taiwan and South Korea's largest export market. The United States and Europe became Mainland China's largest export markets. Taiwan and South Korea's trade surplus with the United States was in large part turned into Mainland China's trade surplus with the United States. Japan’s trade surplus with the United States was turned into Taiwan and South Korea's trade surplus with the US, in the exact same way. This was how the East Asian division of labor evolved over the past half century.
Quadrilateral trade was not the result of political or partisan forces. It was the result of market mechanisms. Japanese scholars referred to it as the "East Asia Flying Geese Paradigm." Investments will always shift from exporting countries with high wages, to latecomers with low wages. Higher salary exporting countries must endlessly progress. They must upgrade their technical standards, and continue to move upstream in order to maintain their position on the division of labor chain. Taiwan and South Korea were able to maintain their position on the chain in East Asia purely by accident, by joint efforts on the part of owners and workers.
Is anyone to blame for this quadrilateral trade relationship? Who turned the Mainland into Taiwan and South Korea's largest export market? Who made the Taiwan and South Korean economies "over-reliant" on the Mainland? Of this there can be no doubt. Those who must be roundly condemned are the final decision-makers who placed the orders, the Western and Japanese manufacturers and brand owners, including Apple, HP, Dell, Levis, Uniqlo, Zara, Adidas, and Nike.
No one the least bit familiar with the dynamics of the global economy would issue such a condemnation. These international brands consider Taiwan an important strategic partner. They include Taiwan in the quadrilateral division of labor chain. If they didn’t, Taiwan would not receive any orders. Taiwan's investments would plummet. Taiwan employees would be unemployed or receive wage cuts.
We need do the exact opposite. We must cherish our relationship with these brands. We must retain them as Taiwan's strategic partners. Taiwan can develop its own brands, and its own services of course. But to be fair, doing so would take time. It would take considerable investments. It would involve a number of risks. Current orders from international brand manufacturers are the backbone of our employment. They provide us with our income. One can see them, touch them, earn them. In order to oppose Mainland China. some political parties and politicians may attempt to forsake these orders. They may attempt to prevent cross-Strait trade. The only word for this is “madness.” This is not “loving Taiwan.” This is harming Taiwan.
South Korea is about to sign an FTA. For Taiwan manufacturers who must pay duties on exports to the Mainland, this is a nightmare. This will jeopardize their position in the quadrilateral division of labor chain. If Taiwan and the Mainland cannot sign the MTA and complete FTA negotiations, these manufacturers could well perish. More importantly, while bosses can invest elsewhere. The poor employees cannot. According to current statistics, those most likely to be affected are hundreds of thousands of families, the vast majority of which live in southern and central Taiwan.
The quadrilateral division of labor chain is Taiwan's lifeline. Once again we urge voters motivated primarily by economic considerations to decide carefully. Consider the workers who fought so many years to secure Taiwan’s status in the division of labor chain. They are innocent. Unlike business owners, they cannot relocate. Their lives, their families, their children, are all on Taiwan. Please care for them. Give them a chance. Give Taiwan a chance.