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Published Date: 2018-12-27
In December each
year, Taiwanese vote for a Chinese character that best reflects the past year.
The 2018 Word of the Year is fan, which has multiple meanings depending on the
context. Its direct translation is ‘reversal’. This is precisely how many Taiwanese
felt in 2018.
On the surface,
Taiwan’s economy is doing reasonably well. Taiwan’s GDP growth rate stood at
2.6 per cent in November — not far behind many of its East Asian peers. The
unemployment rate was 3.75 per cent in September, which was the lowest rate in
18 years, month-to-month. The export growth rate has also remained positive for
25 consecutive months. Yet many are concerned that this trend will soon be
reversed.
For most of the
past two years, the United States’ sabre-rattling over the possibility of trade
sanctions were widely considered to be empty threats or bargaining chips that
US President Donald Trump might use as a means to achieve foreign policy goals.
Those threats were
made real when the United States implemented 10–25 per cent tariffs on over
6000 ‘made in China’ products worth US$250 billion over the past six months.
The US–China trade war only applies to products that originate from China. But
Taiwan’s high dependence on offshore manufacturing in China and the depth of
the supply chain networks across the Taiwan Strait with the United States do
not bode well for Taiwan’s economy.
Over 90 per cent
of Taiwan’s information and communication technology products are now
manufactured in China. For machinery and electronics — which are the main
targets of the United States — the shares are 50 per cent and 60 per cent
respectively. And over 40 per cent of China’s computer and office equipment is
made by Taiwanese businesses in China. These Taiwanese investments will likely
be the first group of industries to bear the cost of the trade war.
The impact of the
trade war will come not only from the United States’ additional tariffs but
also from the uncertainties in the global economic outlook and the possibility
of new battlefields emerging beyond trade.
In several recent
high-profile and high-tech disputes — such as the alleged Supermicro implant
case — Taiwanese high-tech firms are accused of partnering with Chinese firms
to steal trade secrets or threaten US national security. As high-tech products
are becoming the next flashpoint for the US–Chinese rivalry, Taiwan is on high
alert for any possible damage that could ‘overturn’ its trust with the United
States in this sector. Many institutions, including Taiwan’s central bank, have
already lowered their forecasts for 2019. This is the first fan for Taiwan in
2018, reflecting anxiety for Taiwan’s economy.
The second fan is
regarding the domestic reform agenda. Taiwanese President Tsai Ing-wen pushed
for an extended list of reforms when she took office in May 2016. These issues
included establishing a non-nuclear homeland policy by 2025, marriage equality,
pension and labour market reforms, and transitional justice. Each of these
reforms have been contentious and controversial.
The non-nuclear
homeland policy intends to phase out Taiwan’s three existing nuclear power
plants by 2025 and substitute these with renewable energy. Many industry
officials questioned this policy, fearing that the cost of energy will go up
with no guarantee of sufficient supply. Tsai Ing-wen’s pension reform proposed
lowering the income substitution rate for retired public servants and military
veterans, which would require cuts to pension payments.
Same-sex marriage
is also socially controversial. The government’s decision to move forward with
the legislation drove many Christian church leaders who traditionally supported
Tsai Ing-wen’s party to stand on the other side of the aisle.
The non-nuclear
homeland policy and same-sex marriage amendment were both overturned in the
mid-November referendum that was held in tandem with the local government
election. The mid-term election proved to be another setback for Tsai, as her
party lost more than half of the mayorship it previously held. This result is
unquestionably another major fan for Taiwan in 2018.
Looking ahead,
2019 is likely to be a relatively calm year for Taiwan. This is not because the
economy will necessarily perform better or that the US–Chinese trade war will
subside. Rather, uncertainties within Taiwan have gradually vanished as
political leaders, the economy and society in general have adjusted and adapted
to the current political environment. The word ‘wen’ — meaning stable and
predictable — may well be the Word of the Year for 2019.
Roy C Lee is the
Deputy Executive Director, Taiwan WTO & RTA Center, Chung-Hua Institution
for Economic Research (CIER).
This article is
part of an EAF special feature series on 2018 in review and the year ahead.