Amid escalating threats from the Chinese Communist Party (CCP) towards Taiwan and the increasingly fierce competition between the United States and China, Taiwan is shifting away from the Chinese market and turning towards the United States. In the first quarter of this year, the United States for the first time surpassed mainland China to become the largest destination for Taiwan’s exported goods. Experts believe that the CCP’s pressure on Taiwan is inadvertently pushing Taiwan away.
Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest computer chip manufacturer, announced last month its plans to expand its investment in the United States to a staggering $65 billion. Following suit, Taiwan’s semiconductor company King Yuan Electronics stated that it will be ending its operations in mainland China after a 20-year presence.
Official data from Taiwan shows that in the first quarter of this year, Taiwan exported goods worth $24.6 billion to the United States, surpassing the $22.4 billion worth of goods exported to mainland China. This marks the first time since 2016, when comparable data started being recorded, that the United States has overtaken China as Taiwan’s largest export destination.
Last year, Taiwan’s exports of semiconductors, electronic components, and computer equipment to the United States more than doubled compared to 2018, reaching nearly $37 billion. This shift extends beyond just technology sectors: between 2018 and 2023, Taiwan’s exports of tapioca and its alternatives (a key ingredient in bubble tea) to the U.S. more than doubled, and there is also an increase in the export of fruits, nuts, and farmed fish.
According to reports from the Associated Press, Hung Tran, a senior researcher at the Atlantic Council’s GeoEconomic Center, stated that recent trade data reflects alignments by “both Taiwan and the United States are adjusting their trade direction to reduce the risk from China.”
Taiwan’s export share to mainland China and Hong Kong has dropped from around 44% in 2020 to less than one-third in the first quarter of 2024. This significant decline is viewed by experts as a major shift, with expectations that the export share to China and Hong Kong may continue to decrease.
Taiwan’s Ministry of Economic Affairs revealed that Taiwan’s investments in mainland China have hit their lowest level in over twenty years, with a nearly 40% decrease last year to $3 billion. In contrast, investments in the United States surged nine-fold, reaching $9.6 billion. A trade agreement was signed between the U.S. and Taiwan last year, with negotiations ongoing for the next phase. U.S. lawmakers have also introduced a bill to end dual taxation on American and Taiwanese businesses and workers.
The Associated Press notes that these changes are occurring amidst heightened tensions between the U.S. and China. This indicates Taiwan’s efforts to reduce reliance on Beijing, shield itself from CCP pressure, while simultaneously strengthening economic and trade ties with its strongest ally, the United States. This shift also coincides with China’s slowing economic growth and global companies seeking supply chain diversification in the aftermath of the COVID-19 pandemic disruptions.
Quoting remarks from U.S. Assistant Secretary of State Daniel Kritenbrink, the motivations behind these actions are to enhance Taiwan’s deterrence and resilience, all aimed at supporting the status quo in the Taiwan Strait and preventing Chinese (CCP) actions towards Taiwan.
On April 8, the U.S. Department of Commerce announced a $6.6 billion subsidy for TSMC to support the company’s advanced semiconductor production in Phoenix, Arizona. The goal is for TSMC’s Arizona facility to produce approximately one-fifth of the world’s most advanced chips by 2030.
In addition to investments in the U.S., TSMC has also invested in Japan, a staunch supporter in the Indo-Pacific region. Taiwanese companies like Foxconn (Apple’s major assembly partner) are establishing manufacturing capacities in India, while another Taiwanese firm, Pegatron, which produces iPhone and computer components, is investing in Vietnam.
While the CCP does not rule Taiwan, it has persistently claimed sovereignty over the island and intensified pressure in recent years, even hinting at the possibility of military action to reunify with Taiwan. In response, the Taiwanese government has asserted that only the people of Taiwan can determine their future.
Alongside bolstering military defense capabilities, Taiwan is also working to enhance relations with the U.S. and its allies, a move that has irked the CCP. In retaliation, Beijing has employed economic leverage by restricting mainland Chinese tourists from traveling to Taiwan, halting imports of Taiwanese seafood, fruits, and snacks. In 2021, China even banned imports of Taiwanese pineapples.
Ralph Cossa, Honorary Chairman of the Pacific Forum, a foreign policy think tank, believes that Beijing’s actions are inadvertently aiding in pushing Taiwan away. Cossa argues that many decisions made by the CCP leadership are strategically unwise. Loyalty tests on Taiwan businesspeople and other high-pressure commercial actions have been key factors in Taiwan’s successful distancing policy towards China. President Tsai Ing-wen’s approach towards China is expected to continue under the new Taiwanese President, Lai Ching-te.
Specializing in semiconductor testing and packaging, Taiwanese company King Yuan Electronics announced on April 26 that it will be selling its stake worth $670 million in a joint venture in Suzhou, China. Zhao Jing-yao, Vice President and Chief Financial Officer, stated that recent geopolitical shifts impacting the global semiconductor supply chain, combined with U.S. restrictions on Chinese semiconductor industry technology and trade entity lists, as well as measures affecting product bans, have destabilized the semiconductor manufacturing landscape in mainland China, making market competition increasingly intense.