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As Bob Marley said, “If you know your history, then you would know where you’re coming from.”
Wednesday’s post — My Proprietary Chipset — included hyperlinks to specific publications and websites from the 2000s. Some of these are more easily accessed than others. For instance, the link to my testimony before the U.S. China Economic and Security Review Commission in the 109th Session of Congress (2005) takes you directly to that testimony. However, the links to my testimony at the 108th (2003) and 107th (2001) sessions takes you to the full text of the Commission’s work covering the full session and it takes some perseverance to find one’s way to my testimony. In the spirit of presenting my work on these issues from the 2000s in one, easily accessed location, I will add here to the blog a few archive posts to fill in behind Wednesday’s My Proprietary Chipset post providing readier access to those harder-to-navigate publications.
2003 Testimony, 108th Session of Congress
SUMMARY:
In the information technology sector, Taiwan semiconductor and electronics manufacturing firms are major global actors, and their
expansion into China continues, but without noticeable erosion of Taiwan equity control. In testimony before the Commission, Merritt Cooke, former senior commercial officer at the American Institute in Taiwan, attributed this to the relative stability of ‘‘highly differentiated, high-value supply chains’’ as opposed to the ‘‘instability of far simpler manufacturer-retailer networks characteristic of commodity products.’’ Cooke believes this distinction helps explain the historical pattern of Taiwan investment into the mainland. While many light industry sectors that Taiwan moved to the mainland in the 1980s and 1990s ‘‘have been swallowed up by mainland competitors,’’ highly differentiated, relatively high-value consumer products such as brand-name athletic shoes and high-performance bicycles have remained largely in Taiwan equity hands. ‘‘If these product sectors, with their relatively lower levels of technology and slower product cycles, could stay in Taiwan control for decades, there is every reason to believe that the various IT [information technology] hardware sectors will stay even more firmly in Taiwan’s grip in years ahead,’’ Cooke said. Despite the large and growing Taiwan business presence in the mainland and burgeoning indirect cross-Strait trade and investment, there is a sense in the Taipei business community that Taiwan itself—as a venue for investment, manufacturing, logistics, or finance—is in danger of becoming marginalized within Asia. Kaohsiung’s container port—once the fourth busiest in the world— now ranks sixth, with the Chinese ports of Shenzhen and Shanghai jumping ahead. The American Chamber of Commerce in Taiwan reports that a number of U.S. corporations’ regional headquarters in Taiwan have been eliminated or downgraded to local offices.
2001 Testimony, 107th Session of Congress
TESTIMONY:
STATEMENT OF MERRITT TODD COOKE, JR., CHIEF, COMMERCIAL SECTION, AMERICAN INSTITUTE IN TAIWAN
Mr. COOKE. Mr. Chairman, thank you. I hope the Commission will feel free to overlook the confusion that my parents introduced
with my legal name and call me by the name that I most often respond to, Terry. [Laughter.]
I will also request that, with the consent of the Commission, some paragraphs that I delete in the interest of brevity do be entered into the record. I will spare the Commission a recap of Taiwan’s ten-year structural transformation in the 1990s.
It is an honor to be asked to testify in front of this distinguished panel of Commissioners. In the following brief statement, I will bring to bear my perspective as current Chief of the Commercial Section at the American Institute in Taiwan to address the issues
identified by the Commission in its July 24 invitation letter, specifically the growing interdependence of the U.S., Taiwan, and Chinese high-tech economies.
The strategic interdependence of the U.S. and Taiwan economies has grown steadily throughout the 1990s as Taiwan’s economy has shifted from its traditional structure as a labor-intensive export-oriented economy towards a more service-oriented investment and technology-intensive economy. While Taiwan’s industrial sector has shrunk in relative terms over this period, capital and technology-intensive industries have expanded dramatically. These industries accounted for approximately 75 percent of total manufacturing in 2000, compared to 48 percent in 1986.
Taiwan now supplies 60 percent of the world’s motherboards and is the world’s leading supplier of notebook computers, monitors,
mice, keyboards, video cards, sound cards, on/off switches, LAN cards, graphic cards, scanners, and laser disk drives. Through the
strength of its foundry model, Taiwan has emerged as a preeminent semiconductor supplier to the world.
This transition from the production of labor-intensive goods to high-tech goods has to date proceeded relatively smoothly, even
against the background turbulence of the Asian financial crisis in 1997–98 and a major earthquake occurring on September 21, 1999.
Against the broad backdrop of its structural transformation, two major dynamics have emerged: First, the growing regional partnership and global interdependence of the U.S. and Taiwan high-tech industries, and secondly, the accelerating shift of the lower end of Taiwan’s high-tech production offshore, particularly to mainland China.
One clear indicator of the degree of evolving interdependence with the U.S. was the fact that following the 9/21 earthquake in
Taiwan, the tech markets in New York dropped more in percentage terms than in Taipei.
The scale of this interdependence is likewise highlighted in other ways. For example, four of the top U.S. suppliers of PCs alone procured $20 billion of components from Taiwan to support their 1999 global sales. Additionally, Taiwan will soon have more state-of-the-art 300-millimeter chip wafer fabs in operation than the U.S., Germany, Japan, or any other world market.
The accelerating shift of high-tech production from Taiwan to mainland China has been equally pronounced over this period. The
Taiwan government’s Office of Budget, Accounting, and Statistics reported in February that government approved Taiwan investments in China for 2000 more than doubled from the 1999 levels.
The Taipei Computer Association reported in the same month that 30 percent of Taiwan’s 411 high-technology companies had established major investments in mainland China and that fully 90 percent of those 411 companies planned to be invested in China by the end of 2001.
Lastly, China edged out Taiwan in 2000 for the first time for the number three slot in world IT production value. China came in behind the U.S. and Japan, with $25.5 billion of production value, against Taiwan in fourth place with $23 billion. The key point to
note, however, is that Taiwanese companies generated fully 70 percent of that $25.5 production value in mainland China.
The impending accessions of China and Taiwan to the WTO will likely further accelerate this process of growing cross-straits commercial interdependence in high-tech, with consequent implications for the already highly interdependent U.S. and Taiwan high-tech economies. Although Taiwan’s relatively late liberalization and privatization of its fixed-line monopoly regime will limit somewhat the impact of this development in the telecom sector, the likely effect will be continued fast accelerating cross-straits interdependence in sectors such as PC and notebook assembly, motherboard and other PC component manufacture, production of chip sets for mobile telephony and other applications, scanner and computer peripheral production, and lower end IC production.
A number of important trends will reinforce WTO financial linkages and commercial disciplines and tend to produce this outcome.
First, the network of business relationships which Taiwan firms have established in China represents largely an extension into
China of preexisting product and service supply chain relationships originally established in Taiwan. This greater Taiwan phenomenon in China, localized in growth centers such as Donguan in Guangdong, Xianen in Fujian, and increasingly in the greater Shanghai area, has now reached a critical mass sufficient for greater efficiency in the global supply chain.
Second, the commoditization of IT production worldwide is increasingly pressuring production costs, forcing manufacturers to
distribute a growing number of lower end steps in their production processes to the world’s lowest-cost production centers. Under more than a decade of the KMT or Guangdong’s ‘‘Go South’’ policy, Taiwan manufacturers have quite fully exploited the advantages of relatively low-cost production centers in the Philippines, Thailand, and elsewhere in Southeast Asia, the one exception to that probably being an expected spurt of Taiwan investment in Vietnam following the ratification and implementation of the U.S.-Vietnam bilateral trade agreement.
At the same time, the KMTs, and now the new administration, the DPP’s ‘‘go slow’’ policy vis-a-vis investment in the mainland has tended to limit the degree to which Taiwan firms could take advantage of the even lower costs of production in China. However, since cost pressure started mounting sharply in March 2000, Taiwan high-tech firms have found themselves no longer able to maintain global competitiveness without relocating a greater share of their production to China, the lowest cost major production center in the Asian production platform.
A third trend really represents a number of technology trends that underlie an emerging division of labor in high-tech production
between Taiwan and the PRC. Without trying to go into any of these, I would just note the increasing specialization of national
economies in the globalized IT industry segments. For instance, fully half of Finland’s GDP is dedicated to wireless telephony.
Secondly, the migration of value away from hardware assembly and towards embedded software technologies in scanners, in peripherals, in Internet appliances, and so on.
And a third technology trend being the steep rise in investment costs and shorter product cycles in the IC semiconductor sector.
A fourth and final trend, the Taiwan and China markets are
largely complementary, creating unique opportunities for commercial cooperation between these political rivals. For instance, Taiwan firms have generally failed to establish global brand and to capture the higher valuations that accrue to brand-name products. However, the large size of the China market, the skill and cultural familiarity of Taiwan business managers, and the high regard which China’s consumers have for Taiwan’s products are now giving Taiwan firms a chance to establish brand names on a large-scale regional basis as opposed to global basis.
Each one of these trends holds important implications for U.S. interests. The establishment of Taiwan regional brands might, for
instance, tend to weaken the existing cooperative bonds between U.S. and Taiwan alliance partners and foster more direct competition in the region. Conversely, the combination of U.S. innovation, Taiwan regional management skill, and the largely untapped potential of the developing China market is already creating a set of
opportunities for enhanced commercial cooperation among traditional U.S. and Taiwan partners.
The rapid proliferation of commercial ties between Taiwan and China is of major importance to U.S. interests. There are the narrower set of commercial implications for the U.S. competitive posture in regional and global markets, to which I have just alluded. Also, as Rupert Hammond Chambers, President of the U.S. ROC Business Council suggested in his June 14 testimony to this Commission, there are equally important implications which fast-growing commercial interdependence between Taiwan and China have for traditional U.S. military and security interests in the Straits of Taiwan.
I commend the Commission for focusing attention on the extent to which commercial dynamics in the computer electronics and telecommunications sectors are affecting these interests. It is my personal observation that these market and technology-driven dynamics are not always fully captured in the dialogue regarding our key
interests in this potential flash point region of the world. Thank you very much.
[The statement follows:]
PREPARED STATEMENT OF MERRITT TODD COOKE, JR.
It is an honor to be asked to testify in front of this distinguished panel of Commissioners. It is also, personally, a distinct pleasure to see again a number of former Departmental and Embassy colleagues as well as others with whom I have had the
past pleasure of working on various overseas and stateside activities. In the following brief statement, I will bring to bear my perspective as current Chief of the Commercial Section at the American Institute in Taiwan to address the issues identified by the Commission in its July 24th invitation letter.
The strategic interdependence of the U.S. and Taiwan economies has grown steadily throughout the 1990s as Taiwan’s economy has shifted from its traditional structure as a labor-intensive, export-oriented economy towards a more services-oriented,
investment- and technology-intensive economy. While Taiwan’s industrial sector has
shrunk in relative terms over this period, capital- and technology-intensive industries have expanded dramatically. These industries accounted for approximately 75 percent of total manufacturing in 2000, compared to 48 percent in 1986. During this
structural transition, labor-intensive industries, such as toys, footwear, umbrellas,
and garments, relocated offshore. Their place was taken by petrochemicals, metal products, machinery, and ‘‘most dramatically during the 1990s’’ by technology-oriented industries, such as electronic, electric, and information products.
By 2000, more than half of the top ten manufacturing firms in Taiwan were electronic and computer manufacturing firms, compared with only two in 1993. More than half of the top ten manufactured products were in the areas of integrated circuits (ICs), personal computers, and computer peripherals, whereas in 1993, only ICs had been among the top ten. Taiwan now supplies 60% of the world’s motherboards and is the world’s leading supplier of notebook computers, monitors, mice, keyboards, video cards, sound cards, on-off switches, LAN cards, graphics cards, scanners, and laser disk drives. Through the strength of its foundry model, Taiwan has emerged as a preeminent semiconductor supplier to the world. This transition from the production of labor-intensive goods to high-tech goods has, to date, proceeded relatively smoothly, even against the background turbulence of the Asian Financial Crisis in 1997–98 and a major earthquake occurring on September 21, 1999.
Against the broad backdrop of this structural transformation, two major dynamics have emerged: (1) the growing regional partnership and global interdependence of the U.S. and Taiwan high-tech industries and (2) the accelerating shift of the lowerend of Taiwan’s high-tech production offshore, particularly to mainland China. One clear indicator of the degree of evolving interdependence with the U.S. was the fact that, following the 9–21(–99) earthquake in Taiwan, the tech markets in New York
dropped more in percentage terms than in Taipei. The scale of this interdependence is likewise highlighted in other ways. For example, four of the top U.S. suppliers of PCs alone procured $20 billion (USD) of components from Taiwan to support their
1999 global sales. Additionally, Taiwan will soon have more state-of-the-art 300mm chip-wafer fabs in operation than the U.S., Germany, Japan or any other world market.
The accelerating shift of high-tech production from Taiwan to mainland China has been equally pronounced over this period. The Taiwan Government’s Office of Budget, Accounting, and Statistics reported in February that government-approved Taiwan investments in China for 2000 more than doubled from the 1999 levels. The Taipei Computer Association reported in the same month that 30 percent of Taiwan’s 411 high technology companies had established major investments in mainland China and that fully 90 percent of those 411 companies planned to be invested in China by the end of 2001. Lastly, China edged out Taiwan in 2000 for the first time for the number three slot in world IT production value. China came in behindthe U.S. and Japan with $25.5 billion of production value against Taiwan in fourth place with $23 billion. The key point to note, however, is that Taiwanese companies generated fully 70% of that $25.5 production value in Mainland China.
The impending accessions of China and Taiwan to the WTO will likely further accelerate this process of growing cross-straits commercial interdependence in hightech, with consequent implications for the already highly interdependent U.S. and Taiwan high-tech economies. Although Taiwan’s relatively late liberalization and privatization of its fixed-line monopoly regime will limit somewhat the impact of this development in the telecoms sector, the likely effect will be continued fast-accelerating cross-straits interdependence in sectors such as PC and notebook assembly, motherboard and other PC component manufacture, production of chipsets for mobile telephony and other applications, scanner and computer peripheral production, and lower-end IC production. A number of important trends will reinforce WTO financial linkages and commercial disciplines and tend to produce this outcome:
—First, the network of business relationships which Taiwan firms have established in China represents largely an extension into China of pre-existing product and service supply-chain relationships originally established in Taiwan. This ‘‘Greater Taiwan’’ phenomenon in China, localized in growth centers such as Dongguan (Guangdong), Xiamen (Fujian) and, increasingly, the Greater
Shanghai area, has now reached a critical mass sufficient for greater efficiency in the global supply chain;
—Second, the commoditization of IT production worldwide is increasingly pressuring production costs, forcing manufacturers to distribute a growing number of lower-end steps in their production processes to the world’s lowest-cost production centers. Under more than a decade of the KMT’s ‘‘Go South’’ policy, Taiwan manufacturers have quite fully exploited the advantages of relatively low-cost production centers in the Philippines, Thailand and elsewhere in Southeast Asia. (The exception to this being an expected spurt of Taiwan investment in Vietnam following the ratification and implementation of the U.S.-Vietnam Bilateral Trade Agreement). At the same time, the KMT’s (and now the DPP’s) ‘‘Go Slow’’ policy vis-a`-vis investment in the mainland tended to limit the degree to which Taiwan firms could take advantage of the even lower costs-of-production in China. However, since cost pressures started mounting sharply in March 2000, Taiwan high-tech firms have found themselves no longer able to maintain
global competitiveness without relocating a greater share of their production to China, the lowest-cost major production center in the Asian production platform;
—Third, a number of technology trends underlie an emerging division of labor in high-tech production between Taiwan and the PRC. Among these, are (a) the increasing specialization of national economies in globalized IT industry-segments (e.g., fully half of Finland’s GDP is now generated from wireless related technologies); (b) the migration of value away from hardware assembly and towards imbedded software (e.g., scanners and other peripherals, Internet Appliances, etc.); and (c) the steep rise in investment cost and shorter product cycles in the IC/semiconductor sector; and
—Fourth, the Taiwan and China markets are largely complementary, creating
unique opportunities for commercial cooperation between these political rivals. For instance, Taiwan firms have generally failed to establish global brands and to capture the higher market valuations that accrue to brand-name products. However, the large size of the China market, the skill and cultural familiarity of Taiwan business managers with that market, and the high regard which Chinese consumers have for Taiwan products, are now giving Taiwan firms the chance to establish brand-names on a large-scale regional basis. Further, Taiwan’s proven skills in development and service-oriented management of global IT technologies, coupled with the breadth and potential of China’s basic research capabilities, create distinct opportunities for partnership in regional innovation.
Each one of these trends holds important implications for U.S. interests. The establishment of Taiwan regional brands might, for instance, tend to weaken the existing cooperative bonds between U.S. and Taiwan alliance partners and foster more direct competition in the region. Conversely, the combination of U.S. innovation, Taiwan regional management skill, and the largely-untapped potential of the developing China market is already creating a set of opportunities for enhanced commercial cooperation among traditional U.S. and Taiwan partners.
The rapid proliferation of commercial ties between Taiwan and China is of major importance to U.S. interests. There are the narrower set of commercial implications for the U.S. competitive posture in regional and global markets, to which I have just
alluded. Also, as Rupert Hammond-Chambers, President of the U.S.-R.O.C. (Taiwan) Business Council, suggested in his June 14 testimony to this Commission, there are equally important implications which fast-growing commercial interdependence between Taiwan and China have for traditional U.S. military and security interests in the Straits of Taiwan. I commend the Commission for focusing attention on the extent to which commercial dynamics in the computer electronics and telecommunications sectors are affecting these interests. It is my personal observation that these market- and technology-driven dynamics are not always fully captured in the dialogue regarding our key interests in this potential flashpoint region of the world.
China Partnership of Greater Philadelphia (CPGP) has been truckin’ along the main street of U.S.-China clean energy cooperation since 2011. As seen through our eyes, it sure has been a trip. Here’s a brief history of the long, strange journey …
Timed well to the moment we’re in right now, the peer-reviewed science journal Environmental Progress & Sustainable Energy has published this month an overview article recapping CPGP’s 10-year journey and peering forward at the road ahead. You can read the article here and feel free to comment below.
Sometimes the light’s all shinin’ on me
Other times, I can barely see
Lately, it occurs to me
What a long, strange trip it’s been…
There are a lot of things people don’t realize about Taiwan. I’ll mention three. First, it is the United States’ 11th largest trading partner worldwide, despite the island’s small population of just under 24 million. Second (and surprisingly given that China maintains iron-fisted control over its strategic industries), Taiwan “owned’ (both figuratively and in the sense of being the equity owner) most of the factories producing semiconductors, advanced information technologies and even some of the key communications equipment in China throughout the 1990s and, diminishingly but still decidedly, into the new millenium. (These Information and Communications Technologies make up the so-called ICT industry. Just think of Apple, Microsoft, Hewlett-Packard, AT&T and Verizon and all of their various competitors as comprising one vast and strategically vital sector). Third and still somewhat under-appreciated in the U.S. is the story of the growth of Taiwan’s vibrant democracy, which started taking root with reforms under Generalissimo Chiang Kai-shek’s son, Chiang Ching-kuo, in the mid-1980s and flowered under President Lee Teng-hui who was in power from 1988-2000 (and who passed away last month, on July 30th). The significance of this last point is that Taiwan’s experience has repudiated, with underlining, bolding and an exclamation mark, the self-serving claim voiced by generations of authoritarian-leaning leaders in Greater China and Asia – namely, that the Chinese (ethnic Han) people, heirs to a long tradition of imperial rule, are simply not suited to Western-style democracy.
Today’s post is a scene-setter for the “Global TECHtonics: U.S./China Faultline” series of technology-related posts which will be forthcoming on a weekly basis, usually on Mondays, starting next week. This scene-setter will draw mostly on my personal experience. It will also tug mostly on the economic and technological threads mentioned above and will only touch lightly on the political one. (In two weeks’ time, we’ll pick up the political thread more directly and weave it more visibly as the background to an examination of the current, very acute semiconductor supply chain tensions involving Taiwan, China and the United States in the run-up to the U.S. elections as well as what China’s recent imposition of a new security law in Hong Kong portends for Taiwan.)
Personally, I’ve had the good fortune to live in Taiwan for three separate periods in my life: for six months in early 1977 (trying to consolidate, in an entirely ad hoc and ultimately ineffective way, the Mandarin language I had studied for three years in college), for a full year in 1979-80 (finally succeeding at consolidating my Mandarin through the rigorous Stanford Inter-University Program for Chinese Language Studies at Taiwan National University in Taipei, the springboard I did succeed in identifying in 1977 as a way of achieving, on a deferred basis, my goal of nailing down the language ) and finally for three years 1999-2002 when I served as head of the Commercial Section of the American Institute in Taiwan (AIT operates as the de facto U.S. Embassy in Taiwan. Along with the AIT Washington Headquarters – the de facto counterpart to the U.S. Department of State for all things Taiwan – AIT was created in 1979 as part of the Taiwan Relations Act, whereby the U.S Congress spelled out the terms of continued U.S. involvement with Taiwan (the Republic of China) following President Carter’s decision earlier that year to de-recognize the Republic of China as “China” and to our recognize the Peoples Republic of China as “China” instead.
It was my three years of experience as the Senior Commercial Officer at A.I.T. which gave me a front-row seat – and sometimes got me inside the ring – of the complicated, three-way tag-team match involving the U.S., Taiwan and China in the global ICT arena. I’m going to give a few glimpses of what that entailed. Not that any of this reveals anything particular about me (except for revealing my questionable golfing skills). The experiences were all simply part and parcel of the position I was lucky enough to fill. My point in sharing these experiences is to set-up to the main point which this post is aiming for – a glimpse into how timing matters, particularly in Washington.
So, what did that three years at AIT make possible for me? For starters, I was able to forge close relationships with the trail-blazers of Taiwan’s global IT preeminence – Morris Chang, the founder and then Chairman of Taiwan Semiconductor Manufacturing Corporation (TSMC); Stan Shih, the founder and then Chairman of Acer Computer and later of the Acer Group (Stan and I were equally erratic on the golf course which made for a strong bonding experience); and, to a lesser extent with the more aloof Terry Gou, founder and Chairman of Hon Hai Precision Industries (better known by its tradename Foxconn, the electronics contract manufacturer which assembles iPhones throughout China). This level of diplomatic access is somewhat rarefied even for Ambassadors around the world but in Taiwan – like in Berlin, the post I served in prior to Taiwan – the U.S. was viewed as the guarantor of the country’s existence (for Taiwan as a current and on-going reality and for Berlin as a Cold War period reality) and important doors, even in the Presidential Office Building, were open for me.
Along the way, I was called on by American companies to help prepare for Y2K and then to clear up the debris of their local operations following the ‘Tech Wreck,’ the fallout of the sudden collapse of the dot.com bubble following its a valuation peak in March 2000. Months later, I was involved in the delicate minuet whereby China was welcomed into the World Trade Organization in December 2001, followed by Taiwan’s accession minutes later.
Along the way, I was honored to be the local host in Taiwan when then-Taipei Mayor (and later President of Taiwan) Ma Ying-jeou invited Bill Gates, Carly Fiorina and Michael Dell, along with scores of other U.S. IT industry leaders, to the World Congress on Information Technology (WCIT) in June 2000. And, again in 2006, I was asked to be the “WCIT Ambassador” responsible for organizing and bringing to Austin, TX for WCIT XV the official delegation from Taiwan, the second largest international delegation among the more than 2,000 official delegates at that event.
So, as China’s economy continued to grow by double-digits over these years and as China began to close the technology gap between Taiwan-owned ICT manufacturers operating in China and its own home-boosted technology companies, the stakes started rising for the developed economies and particularly for the U.S. The crux of the high-stakes gambit involved the global supply-chains linking U.S. brands and Taiwan OEMs (Original Equipment Manufacturers) producing the hardware for top U.S. brand-name companies, such as Foxconn’s manufacturing of Apple iPhones, previously mentioned here, or TSMC’s backstopping of production and supply of Intel’s chips. The questions in the early 2000s were many: did relocation of so many Taiwan-owned production facilities to the mainland, where labor costs were cheaper, pose risk to the integrity and sustainability of these vital supply chains? Would the increasing economic integration taking place between Taiwan and China tend to stabilize the political situation in East Asia or would it add a new dimension of instability? In the simplest formulation, could – and would — economics trump politics? Could global supply chains function as the cords to tie together the Asian region – historically fragmented and politically divided – into a more integrated polity more closely resembling stable Europe or could they get ripped out on the whim of a political leader?
With these questions in the headlines – at least in the business sections – of major newspapers and business periodicals, I was invited on three occasions to give expert testimony about these global ICT supply chain issues to a Congressional Commission, then called the China Economic Security Review Commission, during the 107th ,108th, and 109th Sessions of the U.S. Congress.
On a parallel track over this same period, I was able to get peer-reviewed articles giving my answers to these questions in several academic journals and books. In 2006, my article The Politics of Greater China’s Integration into the Global Info Tech Supply Chain was published in The Journal of Contemporary China (Vol. 13, No. 40) and in 2007 my paper Taiwan’s FTA Prospects from the Global IT Supply Chain Perspective was published in the book Economic Integration, Democratization and National Security in East Asia, edited by Peter C.Y. Chow (Edward Elgar Publishing).
If you’re reading this sentence, it means you’ve stayed patiently with me through a lengthy set-up for an ending tag-line which holds irony and hopefully some insight into how things work (sic) in Washington and what pot is close to boiling over at the moment on the world’s front burner. I’ll be able to wrap this up now. Just keep in mind the title of that last article – “Taiwan’s FTA Prospects …” which refers to the Taiwan’s prospects for finalizing a Free Trade Agreement (FTA) with the U.S. (The knot identified in that article was that a U.S.-Taiwan FTA would shore up for U.S. firms the strength and resilience of supply chains to the most advanced ICT products from Taiwan’s top tech firms but come at the risk of provoking a rageful reaction from China for throwing shade on its “One China” shibboleth.)
So what’s the finale to this set piece? In 2005, Ambassador Jim Lilley took it upon himself to introduce me to the American Enterprise Institute for a possible appointment as a fellow or scholar there. AEI trends a little to the right of my own political perspective but Jim Lilley was already established there as a Senior Fellow and, having gone through Tiananmen with him at the helm of the U.S. Mission, I had utmost respect for him and was flattered by his effort to get me on board. Also, my boarding school classmate, Nick Eberstadt, was well-established there as a demographic diviner of the harsh realities underlying North Korea’s inscrutable surface as was Arthur Waldron, another China expert I knew well from UPenn. Jim arranged for me to have a series of conversations with various experts during the course of the day and, in each conversation, we grappled with the various questions outlined above. At the end of the day, I was invited into the President’s office and was informed by senior management that, although they found the day-long discussion intellectually invigorating, they didn’t see my expertise as particularly relevant to government policy or to AEI’s mission. The essence of the message was that the free market would take care of all these questions and that government policymakers didn’t need to, and actually shouldn’t try, to think about them too much.
So that was 2005. Now in 2020, the jury is in and those questions are not only recognized as highly relevant to policy makers, they are at the incandescent center of U.S.-China relations. The global supply chain question is now at the beating heart of the Trump Administration’s moves to “decouple” the U.S. and Chinese technology universes. Just Tuesday, Apple was on the line with the White House along with a dozen other top U.S multinational companies, explaining the massive hit they project their iPhone sales in China will take if the President’s banning of WeChat takes effect.
Another example: Throughout the year, Taiwan Semiconductor Manufacturing Corporation (TSMC) has found itself ever-closer to a “impossible choice,” one forcing it to abandon its long-established strategy of serving both the U.S. (including Intel) and PRC (including Huawei) markets and instead to choose one at the expense of the other. Some military strategists fret that Xi Jinping, after having brought Hong Kong to heel with imposition of a new security law, will be tempted to take advantage of the pandemic and make its next move in the near-term on Taiwan. The rationale? Fulfillment of a “Chinese Dream” ambition for reunifying an imagined China from the past, of course, but for much more practical aims as well. Ninety-miles across the Strait of Taiwan, in the Hsinchu Science-based Technology Park (and other locations nearby) lies perhaps the world’s greatest single concentration of advanced microelectronic engineering talent and production facilities. This prowess has eluded China’s attempts, over decades, to home-grow. A quick power grab by China — while the world is distracted with COVID and the U.S. is internally riven by partisanship – may be highly unlikely but it is not at all inconceivable. We need to be anticipating, and guarding against, worst-case scenarios if we hope to effectively forestall them.
For me, the most satisfying single example of how my set of questions and provisional answers from fifteen years ago is finally getting serious traction in DC happened on Wednesday. Earlier in the week, President Tsai Ing-wen had hosted Health & Human Services Secretary Alex Azar on an official, multi-day visit to Taiwan for discussions about Taiwan’s exemplary response to the COVID-19 pandemic and the need for Taiwan to be allowed full participation, over Beijing’s objections, in the World Health Organization. The visit by Azar was the highest-level visit to Taiwan by a U.S. official, and the only Cabinet-level visit, since Taiwan’s de-recognition in 1979. Immediately after the “wheels-up” departure of Secretary Azar, President Tsai held a news conference in which she set out a single priority for U.S.-Taiwan relations in the upcoming year: to begin negotiations with the U.S. Government for a U.S.-Taiwan Free Trade Agreement (FTA) to strengthen trade flows and to safeguard supply chains.
Sweet.
______Assessing China / The TEA Collaborative______ 