Trade
Supply chains critical to Taiwan’s security
Author: James Lee, UC San Diego
Tensions are rising in the Taiwan Strait. Chinese warplanes have been entering Taiwan’s air defence identification zone on an almost daily basis. Drawing on responses from foreign policy experts, the Council on Foreign Relations’ Preventive Priorities Survey has raised Taiwan to the level of a ‘Tier 1’ (high priority) contingency, with a recent report stating ‘Taiwan is the issue with the greatest potential to turn [US–China] competition into direct confrontation’.
The United States needs a viable long-term strategy for keeping the peace in the Taiwan Strait. US dependence on Taiwan and its microelectronics supply chain enhances deterrence without introducing the risks associated with strategic clarity.
China’s power is rising, but so is Taiwan’s. One company, the Taiwan Semiconductor Manufacturing Company (TSMC), holds 50 per cent of the world market share in contract chip-making. The technologies that will usher in the so-called Fourth Industrial Revolution, from 5G smartphones to autonomous vehicles and high-performance computers, will need the chips that TSMC manufactures.
That has made the United States worried about what would happen if Taiwan were to fall under Chinese control. TSMC has responded to US concerns by agreeing to build a fabrication plant in Arizona for its cutting-edge five-nanometre process. But by the time the it starts production in 2024, five nanometres won’t be cutting-edge anymore. TSMC has already developed a three-nanometre process that is expected to start production this year. Apple is the first customer in line and many others are waiting.
Given how US companies and the US military depend on TSMC, it is natural for the United States to worry about the security of its microelectronics supply chains. What if the chips that go into 5G phones, cloud computing servers and autonomous vehicles and weapons are manufactured by a Taiwan that has been forcefully integrated into China?
While this scenario is alarming, it also holds the key to long-term US strategy in the Taiwan Strait. US dependence on Taiwan is not a strategic liability — it is a strategic asset.
Geoeconomic trends will enhance deterrence in the Taiwan Strait. As is well known, the United States has a long-standing policy of maintaining ‘strategic ambiguity’, declining to clearly state whether it would intervene in Taiwan’s defence in the event of a Chinese attack. Criticism of this policy has grown, but strategic clarity has its own risks: an unambiguous commitment to Taiwan’s defence would be interpreted by Beijing as a sign of eventual US support for Taiwan’s independence while also encouraging future Taiwanese governments to adopt provocative policies.
Beijing may not be eager for a war, but Beijing is not bluffing. Geoeconomic trends will enhance deterrence by raising the likelihood of US intervention in Taiwan’s defence without introducing the risks associated with strategic clarity. They will send a clear signal to Beijing without changing the status quo.
Critics may claim that any factor raising the likelihood of US intervention would introduce the same risks that a policy of strategic clarity would. But would China look at US dependence on TSMC and interpret it as a sign that the United States would eventually support Taiwan’s independence? Would a future Taiwanese government look at US dependence on TSMC and infer that the United States would give it cover for pushing the envelope on independence? The United States is already dependent on TSMC, and neither of those scenarios has unfolded.
Geoeconomic trends do not require the United States to adopt a new Taiwan policy. There is no need for the United States to announce a new strategic posture or a new position on Taiwan’s political status. The United States can simply maintain the one-China policy that it has maintained for decades and allow markets to do the work that political statements cannot.
There is evidence that US policy is already moving in this direction. Taiwanese Minister without Portfolio John Deng recently expressed optimism about the prospects for an eventual US–Taiwan free trade agreement. Earlier in February, the United States and Taiwan held their first bilateral economic dialogue under the Biden administration, during which the two sides discussed Taiwan’s role in global supply chains amid a dire shortage in high-end chips for the auto industry. These developments are consistent with the one-China policy, because it is flexible enough to allow the United States to…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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