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This CSIS brief on "decoupling" US interests from Huawei and its effect on the Taiwan economy, makes a number of one-sided assertions about the nature of PRC-Taiwan economic ties and of Taiwan's economy. A thread: 1/n
The author, Kennedy, argues against decoupling, which he says is would harm the US economy as well as US security interests in East Asia. This is fundamentally an IR interdependence argument, which has been made before to justify trade liberalization. 2/n
(An aside: as a historian, I should also point out that the interdependence argument as a constraint to war making has been debated thoroughly in IR with regards to World War I. For example, refer to 3/n
I won't speak to the issue of Huawei and backdoor security, or to the US side. However, Kennedy extends this argument specifically to cross-strait relations in problematic ways, including the implications for Taiwan's economy. 4/n
First is this characterization of Taiwan's economic growth. It's true that China has been an integral part of Taiwan's GDP growth in the past 25 years. As domestic labor costs have risen since the 1970s, Taiwanese capitalists have offshored labor-intensive manufacturing 5/n
to the PRC, where Taiwan benefits from Sinophone ties (see…). This is similar to the dynamic of the US and other Western economies in taking advantage of China's vast labor markets. However, does this signify China's role is irreplaceable for Taiwan? 6/n
As of recent years, DPP led administrations starting with Chen have advocated for decoupling from the PRC by moving labor-intensive manufacturing and investments into Southeast Asia. Tsai's current New Southbound Policy has encouraged greater Taiwan-SE Asian ties. 7/n
This mirrors moves from other East Asian economies and the West too, including during the US-China trade war. Of course, the depth of interdependence is still massive for Taiwan & China, and decoupling is no easy task even with government policies seeking to decouple. 8/n
But the important point here is to recognize that the type of economic relationship is one of labor-intensive manufacturing, where profit primarily comes from a differential in labor prices. As wage prices rise in China, this decoupling is occurring without any 9/n
political intervention, as is natural for capitalist systems (see David Harvey's "cascading capital" thesis, where capital seeks spatial fixes for blockages resulting from capital surplus: ). 10/n
I should add Taiwanese capital is exploitative as well; Taiwan firms like 鴻海/Foxconn benefit from controlled labor regimes in Zhengzhou, Shenzhen, etc., and in Southeast Asia contribute to environmental pollution as seen with Formosa Plastics:… 11/n
Second is this paragraph, where Kennedy argues that Huawei represents a deep blow for TSMC's business. This is overblown. To understand why, we need to understand what business TSMC is in as a pure-play foundry. 12/n
Semiconductors require design and manufacturing. Major semiconductor firms like Qualcomm, Apple, etc. are fabless, meaning they just design semiconductors and offshore their manufacturing (fabs) to foundries like TSMC, which produces chips on contracts. 13/n
This benefits fabless firms because manufacturing is costly and difficult to produce high yields with predictable timing. TSMC excels at this, and is the dominant global pure-play foundry. I recommend reading William Kirby as well as Gary Hamilton and Kao Cheng-shu on TSMC. 14/n
Kennedy, to his credit, cites evidence that TSMC has already made up for the shortfall in Huawei orders. But he neglects to mention that TSMC's business is booming. Last month, Apple announced TSMC will manufacture its new ARM-based SoCs, which is 15/n
a large contract as Apple transitions off of its x86 Intel-based architecture for its consumers PCs: . More importantly, just a few days ago, Intel announced significant delays in its 7nm manufacturing process, and that it would seek to contract 16/n
third-party foundries like TSMC to make up for the shortfall. TSMC stock prices shot up after this news:…. All of this is to say that TSMC is not hurting for Huawei's business, and in fact is benefitting from changes in the semiconductor industry. 17/n
On a third point, Kennedy asserts that China needs Taiwan, and this is evidence of interdependence. This, to me, is naive. Kennedy cites SMIC, a competitor to TSMC that still lags behind in its manufacturing and size. 18/n
SMIC of course is the same firm that has been accused of trade secret theft and settled with TSMC, and whose co-CEO is a former TSMC executive charged with selling secrets to competitors:… and… 19/n
But what is particularly naive is that the PRC is keen to develop its own semiconductor industry, not just for economic competitiveness, but as a form of technology security. This dates back to the early PRC, as shown by Covell Meyskens:…. 20/n
If the price of attaining technology security is a temporary setback to access to TSMC, I believe this is a tradeoff that Beijing is very willing to make in the long-term. I've argued about this viewpoint in my Guardian op-ed with regards to replacing Hong Kong finance, and 21/n
I also believe the same applies to Taiwan's tech industry, which is arguably the PRC economy's other major dependency (after global consumer markets and HK as a capital hub) that is outside of its control. 22/n
This brings me to my final point, which is who benefits from "dependency, and who loses from decoupling? US actions toward Huawei components does not significantly affect Taiwan's trade ties with China as I've already illustrated above with the analysis of TSMC's clients. 23/n
Most importantly: while Kennedy may argue interdependency encourages peace, it can also create one-sided dependency. Beijing has used economic incentives to its political benefit, for example utilizing ECFA to gain political influence via the previous Ma administration. 24/n
This has been the PRC policy toward Taiwan under the pre-Xi 1C2S paradigm: the carrot of economic gains at the cost of political independence. This is the "stick" side of economic ties that is relevant in the Taiwan instance that Kennedy has conveniently overlooked. /end
*would harm (I always miss something)
P.S. For more on the "economic carrot" and how this reflects PRC strategy, I'd recommend… Note, I don't endorse all the views in this chapter, but it is a reasonable reflection of policy thought from Beijing's perspective.
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