How Taiwan can help prevent a full blown US-China tech war

May 22, 2019 10:14
Taiwan's Foxconn is among top ten tech firms from China in terms of exports to the US. Photo: Reuters

In a previous article, I wrote that Taiwan has the potential to replace Hong Kong as a unique bridge between China and the United States. Now, the worsening US-China tech war might create just the kind of opportunity wherein Taiwan can play such role.

China's semiconductor industry is mainly built on technology and capital brought in by a number of Taiwanese companies since 1990s. Taiwanese firms still control nearly half of the industry.

On the list of 21 core semiconductor suppliers revealed by Huawei last year, there were 10 Taiwan companies.

Among China’s top 10 tech firms in terms of exports to US, eight are from Taiwan, including juggernauts such as Foxconn and Compal Electronics.

The Taiwan firms came to China many years ago due to cheap labor and a massive domestic market in the mainland. However, semiconductor manufacturing has become highly automated now, and cheap labor is no longer a key factor.

As such, it is totally feasible for the firms to move their production lines back to Taiwan.

While the US is keen to contain China’s growth by waging a tech war, Washington wouldn't really want to force the world's second-largest economy to the corner, as that could be a disaster for the whole world.

As an alternative, if the US allows chips, patents and manufacturing equipment to be exported to Taiwan, Taiwanese firms can turn them into products and sell to Chinese buyers. That would offer some leeway for China.

Also, Washington can deploy delegates in Taiwan to prevent forced technology transfer and intellectual property theft, an issue that proved a hurdle in the recent US-China trade talks.

Relocation of Chinese factories to Taiwan may cost China some jobs and shave a small percentage off its GDP, but that is far better than a full-blown technology embargo.

But the window of opportunity for Taiwan could soon disappear. That is because several Southeast Asian nations are also eager to benefit from the China factory relocation moves. Taiwan needs to offer preferential policies in taxation and ensure sufficient supply of talents to win over others, and it needs to do it quickly.

As such, Terry Gou, the founder of Foxconn, might be the best candidate for Taiwan’s top post in the island's presidential election next year.

With his clout in the US and China tech industry and deep knowledge of what tech companies care for most, it’s hard to think of a better person to lead Taiwan and help the island tap a great opportunity.

This article appeared in the Hong Kong Economic Journal on May 21

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist