Taiwan to lose big if Asian trade bloc leaves it behind

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[maui_hawaii]

Taiwan's economy would suffer a severe blow if the country is excluded from the free trade bloc consisting of the ASEAN nations and China, Japan and South Korea, according to an assessment made by the Chung Hua Institution for Economic Research.

China and the member states of the Association of Southeast Asian Nations signed an accord at the end of last November aimed at creating the world's largest free trade area by 2010.

Formal talks to bring South Korea and Japan into the economic bloc are scheduled to begin this April, with officials hoping the negotiations can be completed within two years.

Countries participating in the plan hope such a free trade area can raise the level of prosperity and economic activity throughout the region. But with Taiwan not part of the deal, officials and analysts here are concerned that the local economy will become marginalized, causing growth to stagnate.

Worst case scenario

In its assessment made for the Ministry of Economic Affairs, the institution predicted that the Asian trade bloc will cause a 0.98 percent drop in Taiwan's gross domestic product and will cut down the volume of Taiwan's international trade by 1.14 percent. It could also result in a reduction of US$4.33 billion on social welfare spending and lower local industrial output by US$6.97 billion.

The textile industry will bear the brunt of the impact, the report said, suffering losses of US$1.95 billion, followed by the plastics and chemical industries, which will lose US$940 million and the electronics industry, which will lose US$710 million.

Taiwan's foreign trade would also suffer heavy losses. According to the report, exports will fall by US$2.36 billion, including US$1.46 billion in the textile industry and US$630 million in the electronics industry.

Noting that the assessment was made according to 1997 data - the latest figures available - the institution said it had allowed for some margin of error but indicated its estimates would not be far off from the actual figures.

China bloc less imposing

The impact would be much less if the ASEAN-centered trade bloc were to include only ASEAN states and China, according to the assessment.

The institution predicts that in this scenario, Taiwan's GDP will be cut by 0.2 percent, international trade by 0.19 percent and social welfare spending by US$790 million.

Taiwan's combined industrial output will plunge by US$1.4 billion, with the textile industry suffering the most, losing US$325 million. Exports will shrink by US$446 million, with the electronics industry suffering the most, losing US$259 million. Employment will also suffer, with 14,154 jobs lost, mainly in the semiconductor industry, textiles and wholesale.

If the ASEAN trade bloc includes no countries other than its member states, the impact on Taiwan would be insignificant, according to the assessment.

It predicts that in such a case, the GDP would decrease by 0.1 percent, international trade by 0.08 percent, social welfare spending by US$360 million and industrial output by US$720 million, with the electronics industry bearing the brunt, giving up US$243 million, and a decrease of US$234 million in exports.

[maui_hawaii]

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[Fee]

I always argue with some of my friends from mainland China about Taiwan. I point out that in the modern world, it is economics and not military that is the basis of power in the 21st Century. China has so much to lose in a war over Taiwan because the US will get involve, and China will lose the battle and suffer economic damage. This article illustrates why Taiwan cannot run too far from the mainland after independence. The PRC can use their economical power to hemm Taiwan in. As time goes on, the PRC growing economy will mak the grip on Taiwan even tighter to the point they will indirectly "control" Taiwan without the need for military force.

[maui_hawaii]

Good post.

Only thing I would say is this:

Although it appears that China is hemming Taiwan in, this can only last for so long...and on top of that Taiwan is running much of China's economy.

Taiwanese companies own approximately 70+% of all the electronics manufacturing in China. Other sectors I don't know stats, but it would be comparable.

If other countries don't let Taiwan participate then they will be shooting themselves in the foot.

About all that would happen is all those Taiwanese corporations would go and register in Singapore...