Publication：2019.12

Principal Investigator：江文基Jiang, Wun-Ji

Researchers：許裕佳Hsu, Yu-Chia、李宜靜Li, Yi-Ching、蘇怡文Su, Yi-Wen、廖倍妤

Foreign trade and economic activities serve as vital drivers of economic growth for most Asian countries. Taiwan, Japan, and South Korea have faced deteriorating trade conditions with their major trading partners, China and the United States, finding themselves in a similar situation caught between the two giants. This study aims to analyze the strategies on supply chain adjustment of Japan and South Korea over the past decade and thus draw insights from their experiences in adapting to changes in the global trade environment.

Firstly, Japanese firms prioritize economic factors in their overseas deployment. The production and sales of Japanese overseas subsidiaries primarily serve local and neighboring markets. Despite territorial sovereignty disputes between China and Japan, incidents like the Senkaku Islands dispute have not significantly affected Japanese-owned enterprises' operations in China. However, there is a deterrent effect on potential investments, prompting Japanese companies to consider shifting towards Southeast Asian countries. The US-China trade dispute has a relatively limited negative impact on Japanese businesses operating in China, mainly affecting export-oriented enterprises shipping to the United States. Over the next three years, India and ASEAN countries are the most attractive destinations for Japanese manufacturing business development.

Additionally, South Korea has adjusted its trade policies in response to several significant international developments over the past decade, with the most eye-catching trade adjustment policy during the 2008 financial crisis. This adjustment policy has become the basic direction of South Korea's foreign trade policy over the past decade, mainly focusing on enhancing the export capability of the service industry, adjusting the structure of the manufacturing industry, increasing the proportion of consumer goods exports, and strengthening international cooperation in industries. The main idea of the South Korean government's policy for expanding exports is to "increase the proportion of consumer goods exports while still focusing on intermediate goods exports, without relying solely on a single export item or sector." South Korean companies exhibit relatively high compliance with government policies. Therefore, with the adjustment of South Korean government policies and the implementation of government support measures, changes in the production supply chain of enterprises are gradually occurring. In light of recent US-China trade tensions and Japan-South Korea trade disputes, the impact on South Korea has been relatively minor.

Similar to Taiwan, both Japan and South Korea have close trade ties with China. However, facing changes in the international economic situation, Japan and South Korea have gradually adjusted their layouts and government policies to cope with the global trade landscap. While Japanese exports are increasingly concentrated in mainland China, the United States, and ASEAN countries, the growth in exports to the United States is particularly significant. South Korea's exports rely on markets in China, ASEAN, and the United States, with ASEAN's importance increasing significantly over the past decade. In contrast, Taiwan's exports showed a trend of shifting reliance from China to ASEAN from 2009 to 2015, but the proportion of exports to China rapidly increased from 2015 to 2018. In 2018, China accounted for 28.81%, 19.51%, and 26.8% of exports from Taiwan, Japan, and South Korea, respectively. If Hong Kong is included, the proportion further increases to 41.19%, 24.24%, and 34.4%, respectively, highlighting Taiwan's high dependence on. In terms of outward foreign direct investment (FDI), over the past decade, Japan's foreign investment has mainly targeted the European Union (28.22%) and the United States (25.99%), while South Korea's top three destinations are the United States (22.38%), ASEAN (13.07%), and the European Union (12.36%). In contrast, Taiwan's investment is heavily concentrated in mainland China, accounting for 57.51%.

From various perspectives, Taiwan's dependence on China is higher than that of Japan and South Korea. Due to China's long-term unfriendly political stance towards Taiwan and the short-term difficulty in easing tensions between the United States and China, Taiwanese businesses should diversify their investment and trade markets. Both Japanese and South Korean businesses have a relatively high proportion of outward FDI in advanced countries in Europe and the United States. In contrast, Taiwan's FDI in the United States and the European Union over the past decade only accounted for 3.63% and 3.1%, respectively, with the main investment targets being mainland China and ASEAN countries, indicating a “defensive FDI approach”. Looking ahead, with rapid technological advancements enabling automation in many manufacturing industries and minimal cost differences in production across various regions, Taiwanese businesses should adopt an “expansionary FDI approach” to invest in advanced economies and then obtain emerging teconologies from those economies.

Based on the above analysis, this study proposes the following recommendations for Taiwanese government:

1.      The government should continue to promote the signing of bilateral investment agreement (BIA) with important trading partners to safeguard the interests of bilateral businesses.

2.      Keep up with market demand changes and adjust the proportion of consumer goods production and exports while still focusing on intermediate goods exports, without relying solely on a single export item or sector.

3.      Respond to changes in the international situation by encouraging Taiwanese businesses to diversify trade and investment markets and adjust supply chain layouts.

4.      Taiwan should strengthen measures to attract foreign investment. In addition to existing domestic policies, we suggest: (1) encourage foreign companies to participate in government-led research and development projects and provide relevant information actively to those companies; (2) establish channels for complaints from foreign companies; (3) establish a platform for policy suggestions and regulatory relaxation for foreign companies.

Chinese：https://web.wtocenter.org.tw/Page/91/401738