Can Taiwan Maintain Its Economic Resilience Amidst the Ongoing Restructuring of the Global Supply Chain? Interview with Dr. Chien-Yi Chang, President of the Taiwan Institute of Economic Research

Interventions économiques : Thank you, President Chang, for taking the time out of your busy schedule to speak with us for Interventions Économiques . Could you please begin by providing an overview of the restructuring of the global supply chain in Asia following the US-China trade war, as well as the situation regarding Taiwanese firms’ investment returning home? Chien-Yi Chang: Certainly. The global supply chain has always been changing, shifting from the Four Asian Tigers to Southeast Asia, then to China, and now moving out of China. This is primarily based on the economic principle of comparative advantage. China’s comparative advantage has largely been due to government subsidies. The US-China trade war initiated by President Trump in 2018 had significant implications, particularly for Taiwan. Let’s take the Information and Communication Technology (ICT) industry as an example to illustrate the impact of global supply chain changes on Taiwan. Prior to 2018, major international brands like Dell and HP outsourced hardware production to Taiwanese manufacturers. These Taiwanese enterprises initially produced in Taiwan but later shifted operations to China due to cost considerations. Taiwan was among the earliest countries to establish a presence in China, driven by factors such as proximity, shared language, and preferential policies offered by the Chinese government to Taiwanese businesses. However, with the onset of the trade war, these international brands began demanding that Taiwanese manufacturers relocate their production lines out of China due to US tariffs on Chinese goods. Initially, Taiwanese businesses adopted a wait-and-see approach, hoping for a swift resolution to the trade dispute. However, with President Biden’s administration indicating that tariffs wouldn’t be lifted immediately, Taiwanese businesses had to move their production lines back to Taiwan or to Southeast Asia. Taiwan benefited economically from this shift, with Thailand experiencing the most significant gains among Southeast Asian countries. While China remains Taiwan’s largest export market, Taiwan’s exports to China and Hong Kong as a proportion of total exports have steadily decreased, dropping from 39.5% in 2015 to 35.4% in 2023 (January to November), while exports to the US increased from 12.1% in 2016 to 17.3% in 2023 (January to November). This restructuring isn’t merely about adapting to changes in the supply chain; there are deeper transformations at play. During the eight years of President Ma Ying-jeou’s administration, Taiwan’s overreliance on China led to a continuous decline in domestic investment. By comparing the share of fixed capital formation to GDP among the Four Asian Tigers (Taiwan, South Korea, Singapore, and Hong Kong), Taiwan had the lowest proportion. By 2017, it had even fallen below 20.5%, lower than during the nadir of the 2009 financial crisis. The return of Taiwanese businesses following the US-China trade war has led to a resurgence in domestic investment, a significant change for Taiwan’s economic growth. President Tsai Ing-wen’s administration aimed to reshape Taiwan’s economic growth model upon taking office, leading to the launch of the “5+2 Industrial Transformation Plan” in 2016. This plan encompasses seven major projects: “Asia/Silicon Valley,” “Smart Machinery,” “Green Energy,” “Biomedical,” “National Defense,” “High-Value Agriculture,” and “Circular Economy.” Taiwan’s historically high reliance on exports has made it particularly vulnerable to global economic fluctuations. During the bursting of the dot-com bubble in 2001 and the financial crisis in 2008, Taiwan’s economy was very poor. Therefore, the government strategically selected industries and promoted domestic and foreign investment to foster a new economic growth model, emphasizing the creation of domestic demand, which includes domestic investment. Subsequent initiatives, such as the “Forward-looking Infrastructure Development Program,” also prioritize creating domestic demand. Take “Green Energy Technology,” commonly referred to as “Green Power,” for instance. Given the …