In Why Taiwan Matters! we quoted a Business Week article that outlined the development and importance of the Taiwan high-tech industry to the world. Today, while browsing around the internet, I found a fascinating report by the American Enterprise Institute for Public Policy Research (try saying that in one breath!) from February, 2008. The article is a fascinating read about the cross straits relations and interesting look at perhaps what America should be doing to help Taiwan.
First, we have noted many times on this blog that we are not political, but business in Taiwan and business between Taiwan and China can be very political as we see happening with the regulations for 12-inch fabs. So we cannot be naive and ignore the political aspects of what is going on around us. But the article (and report) gives clear arguments as to why Taiwan is important! The report says (and I quote at length, emphasis added):
Over the past decades, the Asia-Pacific region has been marked by rapid trade liberalization, democratization, and prosperity. Taiwan is one of the prime examples of the region's success. It is a vibrant, free society with an economy that has become central to the functioning of the global high tech market. Alongside this transformation, and particularly since 9/11, Taiwan has contributed to international security and development, including international counterproliferation and counternarcotics efforts, the promotion of democracy, and the provision of humanitarian relief. Taiwan's valuable role in the international community remains hidden to most casual observers. Many think of Taiwan as a small place with a limited impact on our interests. But with a population of 23 million (larger than treaty ally Australia), a GDP ranking twenty-first in the world (well ahead of Asian economic powerhouses such as Hong Kong and Singapore), and geography that positions it along major commercial routes (the Port of Kaohsiung handles more containers per year than any single port in Japan or South Korea), Taiwan is, by most objective standards, a major player.
For the United States, the bilateral trading relationship alone argues for greater attention to the U.S.-Taiwan relationship. Such Taiwanese companies as Asustek Computer, Quanta, Foxconn, and Taiwan Semiconductor Manufacturing Company are global industry leaders and have become crucial suppliers to U.S. titans like Apple, Dell, Hewlett-Packard, and Qualcomm. The revenues of Taiwan's top twenty-five technology companies surpass $122 billion a year, and the production value of communications equipment made by Taiwanese companies exceeded $30 billion in 2006. Dell and Hewlett-Packard alone source tens of billions of dollars in computer components from Taiwan. Taiwanese companies have captured over 80 percent of both the wireless and DSL modem markets and 70 percent of the PDA manufacturing market.
Already the world's biggest producer of computer components, Taiwan is moving rapidly into the production of telecommunications equipment. Foxconn and Quanta produced millions of iPhones for Apple, building upon relationships forged by their inclusion in the production chains for Apple notebook computers and iPods. Taiwanese companies have proven themselves extremely adaptable in a complex market in which many firms have difficulty keeping pace with the rapid rate of product evolution. In short, Taiwan is a crossroad of the global supply chain.
But U.S. interests extend beyond commerce. Americans should take pride in Taiwan's advancement as a vibrant democracy. While the Taiwanese people themselves created the democratic institutions that flourish today, American diplomacy and aid provided key assistance. Today Taiwan gets high marks from Freedom House and the U.S. State Department for its protection of civil and political liberties and its free and fair elections. Taiwan's successful democratic transition demonstrates that Chinese culture is not inimical to democracy--a powerful answer to those who claim that free institutions and popularly elected governments are the sole preserve of the West. Taiwan's democracy is a beacon to other societies seeking peaceful political liberalization.
Taiwan, formerly a developing economy, has become the kind of entity that Washington hopes for all developing countries to become. It is one of few countries to have graduated from American aid assistance, and it is now an international provider of aid. Taiwan has been one of the world's most successful economies over the past five decades. It has peacefully transformed from authoritarian to democratic. Indeed, among the aid it provides to other nations is democracy promotion assistance. If today there is a "backlash" against democracy promotion, Taiwan is a potentially powerful response. It has become a "responsible stakeholder," doing its best to contribute to global efforts to fight terrorism, proliferation, and infectious diseases, and to provide disaster relief.
The report continues on page 14
Taiwan’s economic growth over the past decades provides an example for developing countries worldwide. Taiwan is called by many economic observers “a hidden center of the global economy,” acting as a middleman between U.S. companies and the mainland’s assembly plants in both computer components and telecommunications equipment. Taiwan’s success is rooted in a deep bench of hightech talent fostered by an entrepreneurial culture and company partnerships with leading international technological universities.
The United States thus has significant economic interests in the continued prosperity of Taiwan’s hightech sector. America must also deter any disruption to the flow of commerce through Taiwan—including deterring aggressive action by the PRC. With global computer manufacturing dependent upon Taiwanese components, a PRC attack on Taiwan—or even PRC intimidation and coercion—could potentially shut down the global information technology supply chain for months as manufacturers seek to replace their primary suppliers. It may be nearly impossible to find alternative suppliers with the same skills as Taiwanese businesses.
Today, the Taiwanese economy continues to grow at a rate of 4 percent per year. The environment for foreign direct investment is attractive to foreign capital pursuing large investments in Taiwan’s technology sector or other avenues of entry into the Chinese economy. The banking industry, in particular, could prove strategically valuable as the Chinese banking sector liberalizes. Foreign investors in the banking industry thus have the opportunity to serve both the Taiwan banking sector and, potentially, many of the 70,000 Taiwanese companies doing business in the PRC.
There you have it! Basically any attack on Taiwan or disruption to Taiwan will make a big hole in the global PC supply chain. Basically, the global high-tech sector will be stuffed! Taiwan's development of technology has made them an indespensible part of the global economy. But hardly anyone knows....!
AEI Report: Strengthening Freedom in Asia (PDF report can be downloaded here)
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