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The Wolf Never Sleeps: Chinese Economic Coercion against Taiwan

Kaohsiung Port, photo by: Olimpia Kot-Gyleticz

What is going on?

 China continues to use economic tools for its political gain. Less than two weeks after the inauguration of President William Lai (Lai Ching-te; 賴清德) of the Democratic Progressive Party (DPP), Beijing announced it would reinstall tariffs for 134 Taiwanese items that were subject to concessions under the Economic Cooperation Framework Agreement (ECFA). The tariffs are scheduled to be reinstated on June 15. In turn, Taiwan’s  Ministry of Economic Affairs (MOEA) and the Office of Trade Negotiations (OTN) under the Executive Yuan announced the implementation of preventive measures to minimize the impact of new regulations on Taiwan’s local businesses.

 

What is the broader picture?

According to the Chinese government, Taiwan broke the Economic Cooperation Framework Agreement rules when banning the import of certain Chinese products (the Chinese side did not explicitly name the goods in question). In addition, Beijing claimed that Taipei did not take the initiative to reduce trade barriers for Chinese products. In fact, in December 2023, China suspended preferential tax rates for 12 key products of Taiwan’s petrochemical industry. In January 2024, preferential tariff provisions on 34 other products of Taiwan’s agricultural and fishery sectors, including betel nut, fruit, and seafood, were revoked. Lastly, in April 2024, polycarbonate imports from Taiwan faced anti-dumping punitive measures. This time, the new tariff regulation will mainly affect machine-based industries, including manufacturers of machine tools, lubricants, oils, and bikes.

Minister of the Mainland Affairs Council Chiu Chui-cheng (邱垂正)  pointed out that this is a typical form of economic coercion, which does not benefit cross-strait relations and will harm industries on both sides. He also added that Beijing’s move is “unilateral” and does not follow the World Trade Organization’s (WTO) regulations, underscoring that it is a political move aimed at  “exerting pressure” on Taiwan. In recent years, Taiwan has witnessed unilateral changes to the ECFA, which was signed in 2010 during Ma Ying-jeou’s (馬英九) administration. China’s Taiwan Affairs Office spokesperson Chen Binhua (陳斌華) stated that Beijing’s latest move is a response to Taipei’s refusal to adhere to the so-called 1992 Consensus, which is not accepted by Lai’s administration. The DPP has never acknowledged the concept (coined only in 2000 and understood differently on both sides of the Taiwan Strait), arguing that it would imply an acceptance of China’s claims over Taiwan.

Presidential Office Spokesperson Lii Wen (李問) called on China to engage in dialogue and negotiate responsibly regarding economic disputes. As Lii mentioned, the international community does not receive China’s actions well. He also suggested that Taiwan and China should settle their economic disputes under the framework of the WTO.

 

Why does it matter?

Taiwan has had long term experience in countering Beijing’s economic coercive measures. Yet, China has widened the scope of its economic coercion practices vis-à-vis Taiwan. China implements trade manipulation measurements not only towards the island nation but also other countries in the region, such as the Philippines and Vietnam as well as South Korea and Australia. European countries, including Lithuania and Norway, have also been victims of Chinese negative economic statecraft.

Consequently, Taiwanese stakeholders should undertake twofold action. Firstly, Taiwan should bolster economic security at home. To date, diversification has been at the core of Taiwan’s approach to economic security; in particular, the New Southbound Policy, the flagship foreign policy initiative of the Tsai administration, has provided positive incentives to bolster trade and investment relations between Taiwan and its partners in South and South-East Asia and Oceania. Secondly, the shared challenges resulting from dependencies on the Chinese market and the weaponization of trade by Beijing position Taiwan as a reliable and like-minded partner in the global economic regime, which can share positive and negative lessons from its own experience of responding to Chinese economic statecraft. Participation in multi-stakeholder, inter-sectoral coalitions aimed at bolstering the economic security of democratic countries could amplify Taiwan’s voice in the global arena and help broaden its international space.