Editor’s Note: On December 2, Richard Bush gave a presentation on “Taiwan in Asia” at “
Taiwan’s Elections, Cross-Strait Relations, and Taiwan’s Role in East Asia
,” a two-day event co-hosted by the Fairbank Center for Chinese Studies at Harvard University and Boston University’s Center for the Study of Asia.
My topic is Taiwan and Asia. The theme that I will try to develop is that Taiwan is on the margins of its geographic region. My main focus is on Taiwan’s regional economic integration but I will not ignore security issues. My conclusion is that Taiwan’s relative marginalization is due not to anything idiosyncratic about Taiwan but it stems from how China has pursued its long-standing political goal of unification.
Let me begin with a historical aside, and the observation that in certain ways Taiwan has always been marginal to its region. Before 1895, it was a backwater for both China and East Asia. For fifty years after 1895, it was a Japanese colony, relatively integrated with Japan but tied only loosely to the rest of the region. At the end of World War II, the expectation was that it would be returned to China as a province of the Republic of China and would contribute to the project of postwar national reconstruction. The civil war and the emergence of two regimes – the Republic of China on Taiwan and the People’s Republic of China on the Mainland – meant that the expected integration did not occur. Instead, Taiwan became linked economically to Japan and economically and militarily tied to the United States. It remained so until the 1970s when, with the normalization of U.S.-China relations, there was some expectation – or fear – that unification would happen, and this time on terms set by Beijing.
Formal unification didn’t happen, but something else did: out of mutual self-interest, the two sides of the Strait developed economic relations. With that development came, in the minds of some at least, the hope that economic relations to lead to political reconciliation. Taiwan’s ties with the Mainland would, it was thought, be stronger than its ties with the rest of the East Asia, with political implications. Economically, the last twenty-five years have been a time of growing business interdependence between the two sides, as some Taiwan firms became intermediate links in global supply chains, others marketed final products to the domestic Chinese economy, and some did both. In contrast, the policies of the Lee Teng-hui administration after 1993 and those of the Chen Shui-bian administration after 2002 may be regarded as political resistance to the centripetal force of the Chinese economy. The policies of the Ma Administration reflect an accommodation to economic forces but with no concessions to pressures from Beijing on political issues.
The rapid expansion of the Chinese economy over the last fifteen years has transformed Taiwan’s situation once again. It is not just Taiwan companies that have sought close economic ties with China. The same has been true of firms in Japan, Korea, and Hong Kong. Moreover, the resource-rich countries of Southeast Asia have supplied China with raw materials. As a result, China has become the center of a truly regional economy – the hub to the spokes of its neighbors. The United States is still important, particularly as the default, final market, but China has become the main regional game.
As business activities became more integrated, pressures intensified for trade facilitation on a regional basis. So there has emerged a noodle bowl of FTAs and other preferential arrangements.
But Taiwan was excluded from trade-facilitation integration in the region, even though it was becoming more integrated in terms of business. Hence, the creation of the ROK-PRC FTA fosters fears that Taiwan firms will not be able to compete with their Korean competitors in the Chinese market. The proposed Regional Economic Cooperation Partnership could reduce the competitiveness of Taiwan firms in markets throughout the region. The exception that proves this rule of marginalization is the cross-Strait Economic Cooperation Framework Agreement. It makes economic sense for Taiwan, since China is its primary export market. But the exclusion from regional economic arrangements continues. It is true that after the signing of ECFA in June 2010, Taiwan was able to conclude FTAs with Singapore and New Zealand. But these are relatively small economies and they did not move forward with Taipei until they had a political green light from Beijing. Regarding any other trade liberalization schemes like RCEP, Beijing has told Taipei that it needs to finish ECFA first.
These circumstances create another dilemma for Taiwan. That is, a fear is that growing economic interdependence with China and continuing economic marginalization of Taiwan from its own region will lead it to slip inexorably into China’s political control.
There have been two basic answers in Taiwan to this dilemma, one from the Ma administration and the other from the Democratic Progressive Party and activist groups like the Sunflower Movement. Each side agrees that part of the answer is trade liberalization, not just with China but also with Taiwan’s other major trading partners. Each side asserts that it wishes to improve the Taiwan economy and promote prosperity. But each offers different means, particularly with respect to economic interaction with the Mainland. On the one hand, the KMT has been forward-leaning by normalizing, liberalizing, and institutionalizing cross-Strait economic relations. On the other hand, the DPP has been reserved about increasing interdependence with China. It mounted procedural and substantive opposition to the Service Trade Agreement. For its part, the Sunflower Movement took over the Legislative Yuan in March, bringing consideration of the agreement to a halt.
I happen to believe that the Ma Administration has the better approach. It understands that trade liberalization is necessary not just to provide better and equal market access, but also to stimulate structural reform and change the status quo of Taiwan’s economy. The Ma Administration is correct to aim high by seeking membership in the TPP. (I have written on what needs to happen for Taiwan to join.) Finally, the Ma Administration has judged that Taiwan will have a chance to do liberalization with Taiwan’s other trading partners only if it does liberalization with China first, because Beijing will use its political clout to get those other trading partners to refuse to liberalize with Taiwan. The DPP asserts that such sequencing is unnecessary.
Make no mistake: economic liberalization is hard. It disrupts the status quo. Corporations, small and medium-sized enterprises, white and blue-collar workers, and farmers must make significant adjustments. The anxiety that people in Taiwan concerning the opening of the domestic market further and deeper integration with China is real. The Sunflower Movement is only a symptom of a larger phenomenon, one that any Taiwan administration will have to address. The Ma Administration has proposed internal reforms that are needed to improve Taiwan’s competitiveness, which is one way to address the economic side of the anxiety. There is also a need to address the concern that economic interdependence is a slippery slope to political subordination. There is a slope, but it doesn’t have to be slippery as long as Taiwan has a good sense of its interests regarding political and security matters. I happen to believe that President Ma has been very cautious in this area, but any successor will have to be so as well.
Those in Taiwan who wish to slow down economic interdependence with China face their own challenges. First, they must consider the possibility that economic interdependence with China will continue whatever the bias of government policy, because Taiwan businesses can be quite skillful in getting around Taipei’s restrictions to the China market (as happened in the Chen Shui-bian Administration). Second, because they want to pursue a better balance in Taiwan’s relations with China and other markets, they must contend with China’s diplomatic ability to impose obstacles to Taiwan’s liberalization with other countries. Finally, and most profoundly, they must recognize the consequences for Taiwan’s economy of not being able to liberalize with others: that is, the further marginalization and isolation of Taiwan from the regional and global economy. This is a slippery slope of another kind.
Let me touch briefly on Taiwan’s relationship with the East Asian region on security matters.
First of all, when it comes to deterring China’s military threats or defending Taiwan against PLA attacks if deterrence fails, the United States is the only game in town. No Asian power is interested in making a significant contribution to Taiwan’s security. Because the U.S. is so important, Taipei needs both a good political relationship with Washington and consensus with it on defense strategy.
On participation in regional security arrangements, Taiwan is very much on the margins, which is where the PRC wants it. That is unfortunate, because there are ways that Taiwan could contribute. In a few cases, Taipei has participated unilaterally. It voluntarily chose to adhere to certain regional and global security regimes. It has taken its own diplomatic overtures, particularly the East China Sea Peace Initiative and the follow-on fisheries agreement with Japan. The latter is particularly significant because it addresses a proximate danger to regional peace and stability.
In terms of the Washington’s rebalance-to-Asia policy, therefore, Taiwan both contributes in its own way and benefits from America’s active political, economic, and military presence in the region.
So why has China sought to exclude Taiwan from developments in the East Asian region?
I think I understand the historical reasons for doing so. Since 1949, the PRC and the ROC have engaged in a struggle over participation in the international arena. Beijing has always seen this as a zero-sum struggle, and has sought to block arrangements that it regarded as two Chinas, one China and one Taiwan, and Taiwan independence. As China achieved a dominant position, Taiwan has moved away from zero-sum struggle and instead has tried to facilitate the ROC’s participation in parallel with the PRC, but without much success.
To my mind, China’s approach to Taiwan’s participation in the life of the East Asian region has become short-sighted. Driving the ROC from the international system was always a means to a higher end: to induce unification. Since 1979, it has seen fit to convince Taiwan to agree voluntarily to end the fundamental dispute between the two sides. But for Beijing to secure Taiwan’s voluntary consent to unification, it needs the agreement not just of Taiwan’s leaders but of the public at large. Indeed, it needs a very broad consensus that unification is in the island’s long-term interests. But the Taiwan public has long sought dignity in the international community, so efforts by China to deny that dignity through a policy of marginalization only fosters anti-unification sentiment.
For China to exclude Taiwan from the East Asian and global economy is, in my mind, particularly short-sighted. If I am correct that the only way Taiwan can achieve long-term prosperity is to carry out, multi-directional economic liberalization, then China’s efforts to block that liberalization will leave Taiwan people worse off economically. That is an outcome that will undermine China’s unification goals much more than the denial of dignity. In that case, the policy of marginalization becomes self-defeating.
[As the Fed and other major central banks begin raising rates, some emerging market central banks would be forced to follow suit. Otherwise, capital would flee and their currencies would plunge in value, further aggravating inflation.] You could have a crisis if investors all decide to run for the exits at the same time.