Richard Bush catches up

On cycling vacation in Borneo with my man Michael C. That's him above on his recumbent somewhere between Kota Kinabalu and Papar last week.

My how things change. Last week former AIT head and longtime US gov't Taiwan expert Richard Bush observed (TT):

The returns on cross-strait economic exchanges may be diminishing because the Chinese economic model is changing, former chairman of the American Institute in Taiwan Richard Bush said on Wednesday.

“Taiwan was a real beneficiary of export-led growth relying on essentially cheap labor, abuse of the environment and local corruption,” he said.

However, China was moving away from that model, and Taiwanese companies aiming to position themselves in the middle of the global supply chain had better move with it, he said.

At the same time, Chinese companies that would like to displace their Taiwanese partners are coming to prominence, he added.

Under these circumstances, Taiwan’s economic future cannot rest solely on liberalizing the nation’s relationship with China.

Taipei should beware of “putting all of its eggs in that basket,” he said.

Those of us who watch Taiwan's affairs and love this place all had a good laugh, for of course these were the DPP and pro-Taiwan critiques of four years ago that so many of us put forth. It was courageous of Bush to say this; unfortunately it was already out of date four years ago. What was Bush saying two years ago? From a wonderfully titled speech at Brookings:

The first area is economic policy. A big challenge to maintaining Taiwan’s competitiveness is the economic regionalization occurring in East Asia. If Taiwan is kept outside the circle of regionalization and liberalization, its companies will be increasingly marginalized. Concluding ECFA is important because it holds promise for getting Taiwan inside the circle. Otherwise, Taiwan’s growth will decline.

But it is important to understand how ECFA will benefit Taiwan. It is not just because Taiwan exporters will benefit from reduced tariffs. More importantly, it will force a structural readjustment within Taiwan. Uncompetitive, previously protected firms will go out of business. Opportunities will blossom for the most advanced sectors.

It is obvious that the "structural readjustment" (an ideological construct of neoliberal religion with pretty much the same function in economics as penance has in Catholicism, basically self-administered punishment for being a bad bad economy) Bush refers to has not occurred. Such moves into advanced sectors as are taking place began long before ECFA. Instead, the adjustment to ECFA has been a government move, under the guise of "bringing Taiwan firms back", to subsidize big makers rather than to let them die while it implements 1960s-era development policies again.

Bush also claimed, as most supporters of the ECFA Cargo Cult did, that ECFA would enable Taiwan to get around the problem of regional trade blocs in Asia by... more deeply connecting itself to China. As I have pointed out countless times, this claim essentially argued that the way to make Taiwan more international was to marginalize it. Naturally FTAs with other nations have not been forthcoming (WSJ from 2011). Hopefully one with Singapore will materialize; it had already been negotiated under the Chen Administration but blocked by Beijing. There is also one with New Zealand coming down the pike. Beijing never really forthrightly stated that it would permit Taiwan to have FTAs (past hilarity), so it will be interesting to see what Beijing does.

In any case, a couple of years have gone by, and the trend is clear: trade with China is declining over time, Taiwan's share of the China market has declined since ECFA, and its trade with ASEAN is rising (example). Of course, this was all predictable based on the experience of other trade blocs with China (example)(and here too). The Legislative Budget Committee report from last year also said that Taiwan has by and large not benefited from ECFA.

One good thing contained in Bush's talk of last week was the identification of China's behavior in the Senakakus as 'worrisome'. Kudos to him for that, at least.
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Daily Links:

• Hegemonic Warfare Watch: Rise of China's ultranationalists and Aussies will have to choose between US and China. Even dullard CNN asks whether Japan and China will go war.
• NYTimes: the mutation that made East Asians different
• The Third Line of defense for Taiwan.
• A frustrating morning at Baihe Reservoir.
• US attack on chemical plant here in WWII
• Is China's renewed growth for real, or just cooked books?
• A German thinktank argues for positive econ outlook for this year.
• SCMP says Taiwan to tackle resentment caused by Chinese tourists.
• Upgrades coming for eastern train routes?
• Taiwan's king of the trees fights for the forests.

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