Taiwan’s Economic Decoupling From China Gains Traction

Taiwan’s policy of economic decoupling from China has resulted in the weakening of Taiwan’s economic ties to China, even though China remains Taiwan’s largest export destination and source of imports. The recent determination by China’s Ministry of Commerce (MOFCOM) that Taipei has erected a “trade barrier” against Chinese products has added to tensions across the Taiwan Strait. 

Although China remains Taiwan’s largest trade partner, Taipei’s policy of moving Taiwan economically away from China has significantly weakened cross-Strait economic ties in 2023. 

• According to data published on 9 January by Taiwan’s Ministry of Finance (MOF), Taiwan’s exports to China in 2023 were valued at $152.25 billion, reflecting a decline of 18.1% year-on-year. As a result, China accounted for 35.2% of Taiwan’s total exports in 2023, the lowest representation in 21 years.
• MOF data also revealed that Taiwan’s imports from China in 2023 were valued at $71.699 billion, a 16.1% decline; China accounted for 20.4% of Taiwan’s total imports.
• According to data published on 15 January by Taiwan’s Ministry of Economic Affairs (MOEA), approved Taiwan investments in China were valued at $3.036 billion in 2023, the lowest since 2002. The value of Taiwan’s 2023 investments in China represented a decline of 39.83% year-on-year and China accounted for 11% of Taiwan’s total overseas investments, which is a significant drop from 2022, when China accounted for 34% of Taiwan’s total overseas investments.

Taiwan’s weakening economic ties to China is occurring at a time of growing cross-Strait tensions, which has been intensified by MOFCOM’s 12 December 2023 announcement that its eight-month investigation determined that Taiwan’s import ban on 2,509 Chinese products constituted a “trade barrier.” MOFCOM cited the example of Taiwan’s ban on China’s apple imports, which MOFCOM has claimed will result in a potential loss of $60 million a year for China. 

• In response, on 17 December MOEA said that since 2001, after both Taiwan and China joined the World Trade Organization, Taiwan had opened its market to more than 3,000 Chinese products and Taiwan’s imports from the mainland had increased 7.7 times. Taipei has offered to settle the dispute with Beijing through the WTO mechanism, but it has also criticized MOFCOM, saying that the latter’s investigation violated WTO rules and was an attempt to influence Taiwan’s elections on 13 January. 

MOFCOM’s announcement did not indicate possible steps that Beijing would take to address the dispute, but experts in China and Taiwan speculate that Beijing may adopt the following measures:

• Terminate the Economic Cooperation Framework Agreement (ECFA). ECFA was signed in 2010 by China and Taiwan to facilitate future economic negotiations between the two sides of the Taiwan Strait. ECFA grants preferential tariffs for 539 Taiwan products. On 1 January, China terminated ECFA preferential tariffs for 12 Taiwan chemical products. On 9 January, MOFCOM said it was studying the possibility of removing preferential tariffs for Taiwan’s agricultural, fishery, mechanical, auto, and textile products. On 11 January China’s Taiwan Affairs Office said that any future ECFA negotiations will be based on the “One China”
• Expand import bans on Taiwan products. China had already imposed import restrictions on hundreds of Taiwan agricultural and fishery products after then US House Speaker Nancy Pelosi’s visit to Taiwan in August 2022.

With the election of the pro-independence candidate to the Taiwan presidency, Pamir anticipates that China will not resume ECFA negotiations and may even adopt economic measures against Taiwan. Pamir advises American companies, including those with production capacity in China that utilizes electronic components and information technology products imported from Taiwan, to adopt measures to protect supply chains in anticipation of further deterioration in cross-Strait economic relations.