Mainland China's theory about economic integration with Taiwan is that it will bind the two together politically. Taiwan will become ever more reliant on China for its prosperity, paving the way to eventual unification. Many in Taiwan fear this process is under way. But now the premise of the theory—that closer ties with China are essential for growth—is being tested by a sharp economic slowdown in Taiwan.
The benefits from Taiwan’s rapprochement with China appear to be topping out. Taiwan’s trade surplus with China was 18% smaller in the first nine months of this year than in the same period in 2014. Chinese investment is down by nearly two-thirds from a year earlier. Even Chinese tourists, still flocking to Europe and other parts of Asia, are showing less interest in Taiwan: visitor numbers are up by just 5% this year.
One interpretation is that Taiwan is simply a victim of China’s slowing growth. But there is widespread concern that something deeper is at work: that Taiwan is losing ground to China and ill-equipped to fight back. So prevalent is this view that Taiwanese routinely refer to the threat from Chinese firms as the “red supply chain”.
Taiwan’s greatest strength is in making parts for computers and mobile phones. But the global markets for both are increasingly saturated. Short of a new consumer craze—some firms pin their hopes on wearables or 3D printers—the hardware industry’s future looks bleak.
For an export-led economy like Taiwan to reinvent itself, it needs to stay immersed in global trade. Here, though, it faces the cold reality of its geopolitical ostracism. Absent China’s express approval, other countries are reluctant to engage in free-trade talks with Taiwan. Yet Japan, South Korea and China—Taiwan’s main competitors—are signing lots of their own deals.
The easiest answer would be for Taiwan to open itself yet wider to trade with China. Politically, though, this is a non-starter. Taiwanese students last year occupied the parliament to protest against a services trade deal with China.
Canada depends on USA for 20% of GDP
Some 75.7 per cent of Canada's 2014 merchandise exports went to the US, equivalent to about 20 per cent of Gross Domestic Product (GDP). Cross-border trade in services totalled another $119.3 billion.
Taiwan depends on the China for about 20% of its GDP.
Canada remains the largest export market for the US, accounting for about 19 per cent of US merchandise exports (about 67 per cent of Canadian imports) in 2014.