Amid continuing tensions and possible risk of escalation, China has imposed trade sanctions on Taiwan in light of US House of Representatives Speaker Nancy Pelosi’s visit. Braving Beijing’s intimidatory tactics, Pelosi arrived in Taiwan on August 2 and left the next day with the country’s highest civilian honour. In response, China announced six live-fire military deals in the region and new economic sanctions and import bans. The affected goods include food items from nearly 100 Taiwanese brands and other products like fish and fruits.
Seems to be business as usual
Despite the tense relations between the two countries and their rocky history, China-Taiwan bilateral trade stands at roughly $320 billion as of now. The value of bilateral trade between the two countries stood at $328.3 billion in 2021. And despite the increasing hostility in rhetoric from Chinese President Xi Jinping towards the self-governing island, trade value increased by 26 percent year-on-year, reported Bloomberg.
Trade relations first resumed between Taiwan and China in the early 2000s, after Chen Shui-bian of the pro-independence Democratic Progressive Party (DPP) won the Republic of China Presidential elections and lifted the 50-year-old ban on direct trade and investment with the People’s Republic of China. The lifting of the ban, along with the entry of the two countries into the World Trade Organization (WTO) led to a steady normalisation of economic relations.
After the pro-unification KMT party leader Ma Ying-jeou won the presidential elections in 2008, high-level contact was re-established between the two. This led to the signing of the historic Economic Cooperation Framework Agreement (ECFA) and its supplemental agreements — the Cross-Straits Bilateral Investment Protection and Promotion Agreement (BIPPA) and the Cross-Straits Trade in Services Agreement (TSA). The ECFA was a free-trade agreement between the two countries that aimed at reducing tariffs and commercial barriers and improve cross-strait relations.
Since then, trade volumes between Taiwan and China have grown rapidly alongside deterioration in relations since the election of Tsai Ing-wen of DPP in 2016. Taiwan exports around $250 billion worth of goods to China annually, according to Chinese customs data. China is Taiwan’s second-largest trading partner and Taiwan is the seventh-largest Chinese trading partner.
Huge trade investments from Taiwan have also flowed into China. Taiwan is the third-largest source of foreign direct investment (FDI) to China with 70 percent of Taiwanese capital outflows going to China.
Taiwan’s semiconductor card
China imports mechanical and electrical goods, including high-tech goods like semiconductors, smartphones, electrical appliances and more from Taiwan. Additional imports include crude oil as well as fuel and related goods. While China can ban the import of semiconductor chips or even the export of sand, a key material which is in short supply in Taiwan, the lack of semiconductors and other high-tech goods could end up hurting the Chinese economy in the short term.
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Though exports from Taiwan to China have reduced slightly in 2022, it remains to be seen whether these changes are long term considering the newest diplomatic wobble.
But China using trade wars to exert its soft power is nothing new. The country had banned the import of pineapples from Taiwan in 2021, the export of sand in 2007, and has been accused of using trade threats to align Australia with itself in recent years.
