Title: Taiwan Leading the Global Shift, Paving the Way for ‘China-Free’ Supply Chains
In a significant move towards supply chain de-risking, Taiwan is spearheading a global shift by creating ‘China-free’ supply chains. Amid rising concerns about over-dependency on authoritarian partners, particularly China and Russia, world leaders, including those at the G7 summit, have emphasized a de-risking approach rather than complete decoupling.
The de-risking policy aims to address economic vulnerabilities related to national security, encompassing the ability to respond to unforeseen risks as well as concerns associated with trading partners that hold divergent values. While the preferred de-risking strategy for democratic nations in critical sectors like advanced semiconductors and AI is decoupling, non-critical sectors such as home appliances, clothing, and food continue with business as usual.
However, certain topics like forced labor prevention and carbon emissions have a profound impact on reshaping the global supply network. To ensure ethical and sustainable practices, the proposed EU Forced Labour Regulation grants customs authorities the power to prohibit products made with forced labor from entering the European Union. Similarly, the EU and US have been negotiating a steel and aluminum agreement since 2021, which includes carbon intensity reduction obligations to regulate the entry of steel from producers lacking relevant environmental standards. Notably, China is a main target in these efforts.
These regulatory reforms prioritize universal values such as environmental and labor justice, aiming to prevent compromises that could undermine them. While these reforms do not explicitly target China, the country’s status as the world’s factory coupled with growing concerns about labor and environmental abuse suggest that some supply chains are likely to reduce their presence in China. This non-national security economic risk must also be acknowledged by the business community.
Taiwan has emerged as a leader in economic de-risking vis-Ã -vis China, with a noticeable decline in manufacturing investment to China over the past decade. In 2022, Taiwan’s investment in China stands at approximately $4.5 billion, a third of its peak value in 2010 ($14 billion). Reflecting this trend, China’s share of Taiwan’s outbound investment has decreased from 83.3% in 2010 to 34.7% in 2022. In contrast, Taiwan’s investments in other regions have been growing and surpassing those in China.
This shift in Taiwan’s investment strategy to reduce exposure to China predates the actions taken by the US and EU, both of which now consider China as a strategic competitor. With its proactive stance, Taiwan is setting an example for democratic countries seeking to foster ‘China-free’ supply chains and mitigate economic risks associated with an authoritarian partner.
As the global community grapples with the intricacies of supply chain de-risking, Taiwan’s leadership demonstrates the potential for countries to diversify their investments and forge trade relationships that prioritize values like labor rights and environmental protection. While the path forward may vary across sectors, the need to secure a resilient and responsible supply chain remains an overarching goal, one that demands collaboration and concerted efforts from nations worldwide.
References:
[1] G7 summit: https://www.g7uk.org/
[2] EU Forced Labour Regulation: [Link]
[3] EU and US negotiations on steel and aluminum agreement: [Link]
Note: The article is generated by OpenAI’s language model.
