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Chinese Economic Coercion and Taiwan’s Counter Measures

On January 20th of this year, following the outcome of Taiwan's presidential elections, Beijing signaled its intentions to further extend the suspension of the Economic Cooperation Framework Agreement (ECFA). Taiwan has long been subjected to these strategies, enduring the most intense and comprehensive forms of coercion from the People's Republic of China (PRC).[1]

Chinese Economic Coercion and Taiwan’s Counter Measures

Starting in 2021, China initiated a ban on imports of pineapples, wax apples, and sugar apples from Taiwan. This ban was later expanded in August 2022 to include grouper fish and citrus fruits, adding them to Beijing's growing list of restricted Taiwanese agricultural products. In December 2023, just a month before Taiwan's presidential election, China's Customs Tariff Commission imposed sanctions on 12 petrochemical products, including propylene and paraxylene. These products had previously enjoyed reduced tariffs under the Economic Cooperation Framework Agreement (ECFA) signed by both parties in 2010.

China has broadened its coercive tactics, manipulating trade flows and using financial strategies to affect cultural exchanges across the Taiwan Strait. It has also attempted to lure Taiwan’s diplomatic partners and influence the cross-Strait movement of private sector capital. As China's economic pressure tactics become more diverse, Taiwan has been compelled to adapt its strategies accordingly. To counter China's economic coercion, the Taiwanese government has taken two major steps:

Firstly, Taiwan is working to decrease its trade dependency on the PRC by assisting Taiwanese businesses in diversifying their markets. The government is closely examining the vulnerabilities arising from Taiwan's export and import dependencies on China. Large corporations are adopting the "China Plus One" strategy, which encourages investment in countries other than China to ensure their supply chains do not overly depend on a single market. Additionally, Taiwanese farmers are becoming increasingly aware of the dangers of relying too heavily on China. For example, in June 2020, approximately 25 percent of Taiwan's total mango exports were to mainland China. By the same month in 2022, just two months prior to China's economic coercion, this figure had dropped to only 5 percent. This significant decrease is attributed to mango farmers learning from the adverse effects of China's recent trade restrictions on Taiwanese fruit.

Secondly, Taiwan is bolstering its economy and supply chains by engaging in bilateral and regional trade agreements, thereby strengthening relationships with other nations that have also faced Chinese economic pressure. Notably, Taiwan has entered into significant agreements such as the TW-US 21st Trade Initiative with the United States, a Foreign Investment Promotion and Protection Agreement (FIPA) with Canada, and negotiations for an Enhanced Trade Partnership (ETP) with the United Kingdom. Moreover, Taiwan is actively pursuing membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

De-risking Trend

On the other hand, in response to China's economic coercion, leading global economies, including the G7 nations, have committed to "de-risking" their economic dependencies on China. They are crafting policies such as anti-coercion instruments to deter nations like China from engaging in coercive practices. However, Taiwan's challenges extend beyond economic coercion to include geopolitical risks, especially those stemming from the escalating rivalry between the U.S. and China over the Taiwan Strait. The potential for these risks to materialize, particularly a severe supply chain disruption in the semiconductor industry, could significantly impact the global economy.

In light of these risks, major economies including the U.S., EU, Japan, Korea, and Taiwan have proposed "chip acts" to safeguard and promote the semiconductor industry. These policies generally encompass four key areas:

First, strengthening the supply chain. One approach involves establishing a platform to monitor global semiconductor production. For instance, in May 2023, the U.S. and EU finalized a joint early warning system for semiconductor supply chain disruptions, along with a transparency mechanism for the reciprocal sharing of information on public support for the semiconductor sector. The EU Chips Act also introduces mechanisms for monitoring and crisis reporting by EU member states and the European Commission.

Second, enhancing productivity. Major countries are striving to establish comprehensive semiconductor supply chains within their borders. The TSMC fab in Kumamoto, Japan, was completed in February 2024, while construction of fabs in Arizona is ongoing, and TSMC has announced plans for a facility in Germany.

Another strategy involves allocating funding to boost semiconductor manufacturing, with the U.S. Chips and Science Act serving as a prime example. This act designates $52.7 billion for the support of American semiconductor research, development, manufacturing, and workforce training, with $39 billion earmarked specifically for domestic chip manufacturing. This includes a $2 billion provision aimed at fostering the production of chips used in automotive and defense applications. Similarly, in South Korea, the Ministry of Economy and Finance introduced the "Special Tax Treatment Control Law" to promote semiconductor investments, which was passed by the National Assembly on April 11, 2023.[2]

The third approach focuses on encouraging research and workforce development. The Chips and Science Act of 2022 in the United States dedicates $13.2 billion to domestic semiconductor R&D and training subsidies to enhance workforce productivity. The European Chips Act plans to invest €11 billion in subsidies for advanced semiconductor research, aiding in the sector's industrialization. South Korea’s “Special Law for Strengthening and Protecting National High-tech Strategic Industries Competitiveness” emphasizes the importance of training skilled professionals.

Finally, enhancing international coordination is crucial. The Chip 4 alliance, spearheaded by Washington and including Taiwan, Japan, and South Korea, aims to establish an early warning system. This system is designed to prevent disruptions in the supply of technological hardware components. By facilitating coordination among the "Chip 4" dialogue partners, the system will help ensure the continuous supply of semiconductor chips for automobiles and may also address issues related to the availability of raw materials and manufacturing equipment used in chip production.


As countries increasingly seek to reduce their dependence on China, concerns arise in Taiwan about being perceived as a high-risk investment destination. Beyond bolstering defenses and fostering international collaboration with like-minded nations, Taiwan can undertake two strategic self-help measures:

First, the Taiwanese government should strive to diversify its role within the global supply chain, especially concerning the semiconductor industry. Taiwan's heavy reliance on its semiconductor sector poses significant risks to its economic health and political standing internationally. The country's lack of diversification in exports creates a vulnerable environment susceptible to both internal and external shocks. The overemphasis on manufacturing not only endangers Taiwan's natural resources and capacity to withstand economic fluctuations but also limits the diversity of the job market. Policymakers must carefully weigh the trade-offs involved in leveraging Taiwan's semiconductor industry for global recognition, considering the potential long-term implications for the nation's economy and workforce.

Additionally, it's imperative for Taipei to generate momentum towards re-establishing cross-strait dialogue. The recent tensions in the Kinmen Islands could have escalated into a full-blown conflict between Taiwan and China. Despite the complexities, establishing a direct line of communication between Taipei and Beijing is crucial. While it's essential to safeguard Taiwan's national interests, President-elect Lai Ching-te must explore avenues for dialogue with China. Initiating talks does not signify capitulation to Beijing's pressures but serves as a strategic measure to reduce misunderstandings and lower the risk of conflict amidst the ongoing tensions across the strait. Engaging in re-dialogue is a proactive approach to diminish potential miscalculations and foster a more stable and peaceful cross-strait relationship.

[1] Combating Beijing’s Multifaceted Economic Coercion Strategy against Taiwan February 8, 2023 https://globaltaiwan.org/2023/02/combatting-beijings-multifaceted-economic-coercion-strategy-against-taiwan/
[2] The European Commission also introduced the European Chips Act on February 8, 2022, committing €43 billion to public and private investment purposes.