China’s Options for Punishing Taiwan Economically are Limited

In retaliation for House Speaker Nancy Pelosi’s visit to Taiwan last week, China conducted large-scale military exercises around the autonomous island democracy and suspended some trade between the two countries.

Analysts said the exercise caused some vessel disruption, but did not affect traffic in ports in Taiwan or China. And trade bans are notable primarily for what they are not intended for. It is Taiwan’s increasingly strong semiconductor industry and an important supplier to Chinese manufacturers.

The Beijing-imposed ban on the export of natural sand to Taiwan and on the import of all citrus fruits and two types of fish produced in Taiwan is largely restricted to islands off the south coast that it claims are Chinese territory. It was not an existential threat.

“China’s citrus ban hasn’t had a big impact on us,” said Syu Man, manager of a fruit exporter in southern Taiwan. “We are not dependent on the Chinese market.”

China is Taiwan’s largest trading partner, but Beijing’s options for punishing the island’s economy are somewhat limited. Because even the most extreme measures possible, such as a semiconductor ban or a complete blockade of Taiwan’s ports, will surely backfire on the Chinese economy.

Despite Beijing’s “divergence” over Pelosi’s visit, China-Taiwan relations are likely to return to normal within two to three months, said a political scientist at the ISEAS-Yusof Ishak Institute in Singapore. says William Tune.

“China’s implementation of punitive economic measures and sanctions against Taiwan is like cutting off its nose to frown,” he said.

send a message

The trade ban, announced last week, was a reminder to Taiwanese exporters that doing business with China at a time of heightened geopolitical tensions carries risks. Recent bans target products such as Taiwanese pineapple, wax his apple and grouper.

Still, the latest measures are unlikely to be particularly painful for an economy roughly the size of Switzerland and featuring a sophisticated manufacturing base.

“The political message outweighs the economic blow,” said Zhao Chun, a former trade negotiator for the Taiwanese government.

About 90% of the gravel and sand that Taiwan imports comes from China, most of which is manufactured. China accounted for only about 11% of Taiwan’s natural sand imports in the first half of this year, according to the Mines Bureau.

Two Taiwanese fish exports that China restricted last week — chilled hairtail and frozen horse mackerel — are worth about $22 million in total, less than half the value of Taiwan’s grouper trade, which was banned earlier this year. , will also be less dependent on the Chinese market.

For Taiwan’s $500 million citrus industry, shipments to China account for only 1.1% of the island’s total agricultural exports, according to Taiwan’s Agriculture Commission. A leading theory is that Beijing singled out citrus farmers because most orchards are located in southern Taiwan, a stronghold of the ruling Democratic Progressive Party and a longtime target of Beijing’s ire.

Thomas J. Shattuck, a Taiwan expert at the University of Pennsylvania’s Perry World House, said future bans could be aimed at punishing industries in the DPP’s stronghold counties. I’m here. There could also be less retaliation against Kuomintang opposition-run counties “to gauge the scale of Taiwan’s local and even national elections,” he added.

broader crackdown

The citrus and fish bans are part of China’s crackdown on Taiwanese food that has accelerated this year. As of last week, Chinese authorities had suspended the export licenses of nearly two-thirds of the more than 3,000 Taiwanese food producers that had been licensed to export to China, an investigation into official customs data showed. became. Several exporters said in interviews that many of the outages took place in late June.

But not all of these companies are terribly concerned.

One company affected by China’s export restrictions, Taipei-based ChiaTe Pastry, said it had never shipped products to that market in the first place. Another company, New Taipei City’s Huang Yuanxing Confectionery, said among the recent suspensions was a license to export products, including the company’s signature five-nut cake. But according to employees, China accounts for only a tiny fraction of the profits anyway, and that share has dwindled during the pandemic.

In the seafood sector, half of the Taiwan Frozen Seafood Industry Association’s 84 companies’ export licenses have also been suspended since July, said Tzu-zung Wu, general secretary of the group. But many of them registered on the mainland simply because they wanted the option of expanding their business there at some point in the future, she added.

“That doesn’t mean they are dependent on the Chinese market,” Wu said.

calibrated pressure

China’s decision not to ban Taiwan’s manufacturing exports, particularly semiconductors, is consistent with a “very selective” strategy of economic retaliation, said Christina Lai, a researcher at the Academia Sinica, Taiwan’s top research institution. said.

“For now, China’s coercive measures seem symbolic in nature,” Lai said.

The island’s semiconductor industry has become an increasingly essential node in the global supply chain of smartphones, automobiles and other keystones of modern life. His one of the manufacturers, Taiwan Semiconductor Manufacturing Company, makes about 90% of the world’s most advanced semiconductors and sells them to both China and the West.

Shattuck, an analyst at the University of Pennsylvania, said the Chinese government would view the industry as “off-limits” in a future crisis or economic retaliation. The reason is simple. China needs Taiwanese semiconductors just like any other country.

“If Beijing truly believes that it can force Taiwan to reunify through military pressure and avoid invasion, then Taiwan’s strong and healthy semiconductor industry will eventually become a ‘unified’ People’s Republic of China.” will boost China’s economy in China’s.

maritime options

Last week, the limits of China’s economic pressure campaign became apparent as the Chinese military conducted a four-day drill simulating a blockade of Taiwan.

Part of the exercise took place in the Taiwan Strait, an important artery for international shipping, but did not block access to ports in Taiwan and southern China, said analysts at Linerlytica, a Singapore-based company that tracks data. said Tan Hua Joo, About the containership industry. He added that port congestion would only occur if the strait was completely blocked, if access to the port was restricted, or if port operations were hampered by a shortage of labor or equipment.

“None of these have occurred at this time,” he said.

Vessels choosing to circumvent the Taiwan Strait last week due to Chinese military “heartbeat” activity would have faced delays of 12 to 18 hours, according to Bimco, the International Shipping Association.

Rasmussen said Beijing showed a willingness to jeopardize not only China’s own economy, but trade and relations with Japan, South Korea, Europe and the United States if tensions escalated in the future. rice field. His office near Copenhagen.

“It’s hard to accept them making that decision,” he added. “But I never thought Russia would invade Ukraine.”