“Dispatch from Taiwan,” a podcast by USIP and Taiwan-based Ghost Island Media, delves into the policy debates within Taiwan that could have implications for the region and beyond. Each episode features Taiwanese local experts and voices weighing in on social, economic and defense issues and discusses how Taiwanese society is responding to these challenges. 

In this episode, we examine how China uses trade to try to influence Taiwan and how Taiwan pushes back. We also look at how Taiwan's trade partners help alleviate pressure, and how negotiators see the role of trade pacts with international partners.

This episode includes interviews with Benjamin Hsu from the Office of Trade Negotiations at Executive Yuan, Huai-Shing Yen from the Taiwan WTO and RTA Center at Chung-Hua Institution For Economic Research, and the family at Su’s Giant Grouper Farm, including Man-Chu Chao, Mia Su and Mack Chen.

Transcript

Mrs. Chao (Translated): To make fish soup. Boil the water first. Add fish. Let it boil again. Cook it some more. Around five more minutes if it’s the fish head. Otherwise, just two more minutes. Turn off the heat. Then let it sit for five minutes before you serve. That’s how you get the best fish.

Narrator: Mrs. Zhao’s fish soup is legendary among those who visit her family’s grouper fish farm in southern Taiwan. She makes liters of it to sell. Fish filet. Fish balls. Fish soup. Frozen packages of grouper fish shipped to households and restaurants across Taiwan, Canada, the U.S., Singapore, and Hong Kong.

Grouper is loved by Taiwanese. Its texture and size makes it a favorite at banquets, and it’s one of Taiwan’s most valuable seafood exports. It’s a hit too, over in China. In 2021, 91 percent of grouper exports were sent to China.

But that came to an abrupt end when China put a ban on Taiwanese groupers.

Today, on economic coercion, how China uses trade to influence Taiwan, and how Taiwan pushes back. How Taiwan's international partners help alleviate pressure, and how negotiators see the role of trade pacts with partnering nations.

This is “Dispatch from Taiwan”, a podcast series where we take a deep dive into debates that influence Taiwan’s policies that can shape the region. My name is Emily Y. Wu, and I’m your host. Welcome to episode four.

Along the western coast of southern Taiwan, between the ancient capital of Tainan, and the port city of Kaohsiung -- once the third largest port in the world -- is a coastline that stretches 80 kilometers -- or 50 miles. Here are patches of wetlands and fish farms. It’s a world away from the steel and chrome towers of Taipei City.

On Yongda Road in Yong An District, rows after rows of fish farms are the signs of productivity. We are at the estate of Mr. Su and his wife, Mrs. Zhao, who gave us that recipe at the beginning of the episode.

Mr. Su’s father started this fish farm in 1940. Today, grouper fish fill up 25 ponds here. Adult fish can weigh up to 30 kilograms, or 66 pounds. They need up to 4 to 5 years to grow. In the winter of 2016, extreme weather destroyed much of the agricultural products throughout Taiwan. An estimated 108.6 million US dollars was lost in the fish industry, all of a sudden.

Mia Su (Translated): This is a hard industry. Fish farmers depend on the weather for their fish to survive. So even if it’s fair weather all year, then every farm will have an abundant harvest. This pushes down everyone’s price. So you hoped in secret there’s a natural disaster somewhere else. It’s a vicious competition.

Narrator: That’s Mr. Su’s daughter, Mia. Growing up watching her parents and grandparents maintain fish farms, Mia thought this was a risky business. But she came back in the end. In 2016, Mia left her hospitality job in Hong Kong, and her husband Mack left his engineering job at the semiconductor manufacturer TSMC. They moved back. And they became third-generation fish farmers.

They had returned in time.

Six years later, in 2022, Beijing banned grouper fish from Taiwan. It said it found illegal chemicals in shipment samples, so it banned the fish from Taiwan altogether. At this point, 91 percent of grouper exports -- worth more than $50 million US dollars -- were being sent to China.

Taiwan is home to more than 1,000 grouper farms. It has an output of nearly 20,000 metric tonnes a year. The ban was meant to be devastating for Taiwan’s grouper industry, and it was seen as a move by China to create pressure on Taiwanese businesses.

But the Su family wasn’t affected. Here’s Mia’s husband, Mack, who said they had begun to look beyond the Chinese market, starting in 2016.

Mack Chen (Translated): By 2022, only about twenty or thirty percent of our output was going to China. So the ban affected us just little. There was also a lot of patriotic orders, so there were still a lot of products that were out of stock. Yeah we’re still trying to fill the supply.

Narrator: Did you catch that phrase? Patriotic orders. This refers to the increase of purchases by the Taiwanese public when an industry is suddenly banned by China.

Here’s another example. A year prior to the grouper ban, China put a ban on one of Taiwan’s most important agricultural exports: pineapples. 97 percent of that export was supposed to go to China. This created a shock in the industry, naturally. But in the end, the pushback was stronger.

A combination of patriotic orders from within Taiwan and record purchases by Taiwan’s economic partners filled the gap. In just four days, Taiwanese bought everything that was meant for China for the entire year. Japan, Singapore, and Australia all put in additional orders of pineapples from Taiwan.

There have been other bans. Bans on squid, tuna, mahi mahi. Bans on Taiwan’s most recognizable beverage brands, Taiwan Beer, Kinmen Kaoliang. Bans on fruits, from pineapples to wax apples. And honey, snacks, and pastries. The list goes on.

Beijing gives a lot of reasons for the bans. Pests and chemicals were supposedly found on different fruits. Companies that made processed foods were accused of providing incomplete import documentation – some were even asked for information tantamount to revealing their trade secrets.

The bans carried the hallmarks of economic coercion.

Huai-shing Yen: I’m Huai-shing Yen. I work with Taiwan WTO and RTA Center in Chunghua Institution for Economic Research.

Narrator: Dr. Yen is senior deputy executive director of the center at the policy think tank. Her office focuses on trade policy, supply chain, and economic issues.

Huai-shing Yen: Economically, I would say, China uses all kinds of -- I mean -- to pressure Taiwan, particularly Taiwanese businessmen; attempting to use business leaders to influence Taiwan society, and to pressure our government to adopt more appeasement-based Cross Strait policy.

And, of course, particularly, there are some economic restrictions on trade, investment and also travel frequently used by [the] PRC against Taiwan. And among this, I mean, the most common practice [the] PRC uses is banning products from Taiwan based on food safety issues.

Narrator: Dr. Yen says China’s moves come from a playbook other countries have also seen before.

Huai-shing Yen: All economic coercion that China uses, actually they use the same tools against Australia, Philippines, Lithuania. And of course, I will say, Taiwan certainly will be the one that -- we have better experience [with] confronted with this kind of economic coercions.

So, because China, they use this kind of economic coercion more and more, the international community also kind of thinking that we need to make a collective response to these kind of Chinese economic coercions. So I think G7 countries, they are thinking of a collective mechanism to respond, these kinds of coercion.

Narrator: China’s use of economic coercion to achieve political goals is well-documented.

In a 2023 report before the U.S. Congress, experts said China has been known to both offer and withdraw access to its market. It has either threatened to or imposed actual trade restrictions. It has suspended contracts. It has even used sanctions against specific officials, academics, and institutions to advance economic goals.

The experts even said, “China has demonstrated a willingness to break global trade rules and norms.”

Trade under Taiwan and China is mostly governed by a deal known as ECFA, Economic Cooperation Framework Agreement. It was signed in 2010 at a high profile event in Chongqing, China. The administration of Taiwan’s then-President Ma Ing-Jeou considered this a major win, as the deal was meant to balance trade and reduce tariffs. Taiwan had more items included than China did. The early harvest list for tariff reliefs covered 557 items from Taiwan, and 267 from China.

But scholars argued that ECFA only highlighted the differences between the two: China viewed it as a tool to control Taiwan, while Taiwan viewed it as further proof of its autonomy. And critics warned this would create an overreliance on the Chinese market, thus putting Taiwan in a vulnerable position.

In 2016, Ma’s political party, the Nationalist Party, KMT, lost the presidential elections to DPP, the Democratic Progressive Party. Since then, China has refused to engage with the DPP administration, resulting in a period of economic instability between Taiwan and China.

Today there is an ad hoc feeling to China’s economic sanctions. It’s turned guessing which industry could be China’s next target into a game of whack-a-mole. And the Taiwanese government has had to find alternative markets for different products -- both at home and abroad -- and that’s had an impact on Taiwan’s exports to China.

Last year, in 2023, while Taiwan’s largest buyer remains China and Hong Kong -- accounting for 35.2 percent of total exports -- this is a decline from the previous year of 38.8 percent in 2022.

Then, just before the January elections, China said it would suspend tariff reliefs on a range of Taiwanese petrochemical products. This was supposed to have been protected under ECFA.

So what if China was to put pressure on Taiwan by suspending ECFA altogether -- something China has threatened to do.

Dr. Yen doesn’t think it will happen for one simple reason – it’s one way for Beijing to keep Taiwan under its thumb.

Huai-shing Yen: I wouldn't say China will suspend or just terminate the ECFA as a whole, because that is the only way to show, to demonstrate that China still wants to make harmonisation with Taiwan. That is the only tool.

He couldn't stop or terminate this kind of tool. He needs to keep it there, and that he can use it or manipulate that whenever he wants. Particularly for his perspective, because we are a democratic system, we have election every two, every four years. So ECFA is the best way to keep manipulating Taiwan’s society and to make our business leaders who have impact on our government policy.

Narrator: So if Taiwan can’t reliably do business with China, what options does it have?

Benjamin Hsu: My name is Benjamin Hsu. I am an Assistant Trade Representative within the Office of Trade Negotiation. We always call it OTN. It’s the task force under the Executive Yuan in Taiwan. My main portfolio is our trade relationship with the United States.

Narrator: The Office of Trade Negotiation was set up to manage trade deals with potential partners other than China.

Benjamin Hsu: The direction that we diversify our trade is I will talk about the three parts. The first part is New Southbound Policy, and then the second part is we are [applying] to CPTPP, and then the third part is bilateral trade deals.

Narrator: The New Southbound Policy, NSP.

Let’s turn our globe to the region to the south of Taiwan.

The NSP was initiated in 2016 to cultivate relationships with Southeast Asia, South Asia, Australia, and New Zealand. It’s meant to create mutually beneficial exchanges in trade, talent, and resources. It’s to help Taiwan diversify its markets.

The NSP is Taiwan’s second attempt to pivot away from China by looking to Southeast Asia. Its first attempt came in the early 1990s and was packaged as a series of “Go South” policies – but the policy failed, because businesses then were reluctant to leave China. This time, things are different.

Benjamin Hsu: The outcome is we can already see our export to New Southbound Policy countries [have] already increased. In year 2021 tt’s increased by 18.9 percent. And then, [in] year 2022 it’s 19.44 percent. And then, last year it’s already over 20, increased by 20.8 percent. So the trade [has] continued to increase.

Narrator: Taiwan’s view on building partnerships is holistic and doesn’t just offer its trading partners economic benefits. Hsu says Taiwan works with them in areas like agriculture, medicine, and scholarly exchanges, and even provides humanitarian assistance like free surgeries, building shelters.

Benjamin Hsu: So these humanitarian assistance also help build up Taiwan's positive image in those New Southbound policy countries.

Narrator: All these efforts, Hsu says, have resulted in a jump in two-way investments. In six years, his office saw an increase of 121.4 percent worth of Taiwanese investment in NSP countries.

Benjamin Hsu: So the number is USD$5.27 billion. And then from NSP countries to Taiwan it [has] increased by eight-folds, because the base is smaller. So right now the number is about USD$2.07 billion.

Narrator: Let’s move to a different part of the world.

Taiwan is trying to join the CPTPP, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership – which has its roots in the Trans-Pacific Partnership, TPP.

That group, led by the U.S. was partly set up to counter China’s economic dominance. But the U.S. under then-President Donald Trump pulled out of the TPP, leading to the creation of the CPTPP. The current grouping includes Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Benjamin Hsu: Joining CPTPP is also one of our important [policies] to diversify export markets. Although CPTPP members have not decided how to deal with the new applications and are still collecting information regarding new applicants, we did make some progress in our application.

So first, we express our strong willingness to meet the agreement’s high standards. That’s already well known among the CPTPP members.

And then second, we continue to engage with individual CPTPP members and already have some positive results. For example, we signed [an] investment deal with Canada and signed an overarching arrangement on trade partnership with the U.K. And then third is we develop our engagement with CPTPP members through other means.

Narrator: That brings us to the evolving relationships with individual trading partners like the United States, Canada and the U.K.

In June 2023, the US-Taiwan Initiative on 21st Century Trade was signed.

Benjamin Hsu: The negotiations held under this initiative are very comprehensive and involve many different government agencies.

Narrator: Hsu said it was a milestone in Taiwan-U.S. bilateral economic and trade relations.

Benjamin Hsu: It also shows that Taiwan has taken a critical step to work to negotiate trading trade agreements with Taiwan's major trading partners.

The first agreement covers five important trade topics, including trade facilitation, good regulatory practice, service domestic regulations, anti-corruptions, and small and medium enterprises, or we call SME. And the subsequent negotiations of seven other topics will cover all our major emerging trade issues that are mostly discussed in the world.

Narrator: Taiwan hopes this will pave the way for more, down the road.

Benjamin Hsu: The first agreement will help build solid legal foundation for our bilateral economic engagement with the United States. So in the future, we hope that Taiwan and the United States can gradually expand the contents of the agreement based on the consensus and mutual benefits, and have the potential to develop into a more comprehensive free trade agreement, FTA.

Narrator: Similar deals were also concluded with Canada, and with the U.K.- all in 2023 before Taiwan’s 2024 elections.

Official moves to encourage industries to decouple from China is not surprising for Dr. Yen, whose research institution has been calling on Taiwan businesses to do just that.

Huai-shing Yen: China is not a reliable market anymore. And of course, considering their economic performance. Because of its bad economic performance, China has to pursue more protectionism measures for their domestic industry. We already urge our industry to be aware of this.

But I think before the US-China rivalry, because Taiwan is well renowned for our professional contract manufacturing business model.

Narrator: Dr. Yen points to Taiwan’s manufacturing industry and its high number of factories that used to be in China. Much of it had long been moving out of China.

Huai-shing Yen: 10 years ago, even before the China-U.S. rivalry, we considered the increasing competition in China, and also there [was] a rise of Chinese domestic market. That [generated] some pressure for Taiwanese companies. So we began to approach China Plus One, 10 years ago. We can see there is a decreasing trend for Taiwan's investment in China, even before the China-U.S. rivalry or even the COVID-19 breakout.

So I think our industry have the awareness based on their business decisions, and also their discussion with their outsourcing companies. They already pursued China Plus One or One Plus China Strategy.

Narrator: China Plus One is a term said to have been coined in 2013. It’s when a business pivots from China, and looks at working with other markets instead, like India and Vietnam.

In a way, this is what the grouper farmer Mr. Su and his family have done on their own. Let’s head back to southern Taiwan.

Su’s grouper farm had begun to diversify their exports in 2016. Third generation grouper farmer Mack said, the point wasn’t to not sell to China. The point was to sell to everyone.

Mack Chen (Translated): Take groupers, I can’t say if Taiwan can survive without the Chinese market, or whether or not it will be affected. It’s a weird answer. The thing is, this fish is for anybody who loves it, no matter where they are. We export to Canada. We export to the U.S.. To Singapore. And we’re preparing to export to Japan. China is also part of our market. People within Taiwan also love our fish. Nearly anyone can enjoy our fish, no matter where you are.

Narrator: By the end of 2022, Taiwanese grouper exports to the rest of the world had increased, including the U.S., Japan, Thailand, Korea, Vietnam, Canada, Singapore, Malaysia.

Would Mack be upset if he lost the China market altogether?

Mack Chen (Translated): Yeah. But of course, if we lose our China market, indeed, Chinese consumers do love this fish, so surely this would have some impact. But at the end of the day, I think the market will have to return to its free mechanism. If you continue to interfere and intervene, I don’t think most people will be happy about that.

Narrator: Geopolitics, like weather, is something he cannot control, he said. But he hopes for increased dialogue and exchange between Taiwan and China. And he is looking forward to having the Chinese market open to him again.

In December 2023, three weeks before the 2024 elections, Beijing lifted the grouper ban.

But at the end of the day, Mack believes that if you make quality products, then you will stand out in the market. People will come to you.

Mack Chen (Translated): I need your product, so I can survive. So I can defeat my competition. It’s like TSMC, everyone in the world knows they’re the best at manufacturing chips. So the same goes for grouper.

Narrator: On the day of our visit, the fish farm had just received close to 100 tourists. Mack says thousands of tourists arrive each year from all corners of Taiwan. They have come to see the home of the famous Taiwanese groupers, how they’re raised and harvested, the quality control. Mia, who grew up here, says this is good customer service -- for the public to meet in person those responsible for their food.

The Su family got so good at selling fish that they founded a co-op. They’ve gathered other fish farmers to market everyone’s products together, and directly to consumers and restaurants. They also run ecological tourism to promote the industry. It’s empowering the fish farmers with a sense of ownership and pride for their community. They’ve even won a national award.

In the same way, Taiwan could share its experience with countries and provide plans on how to pivot away from the risk of trade with China.

Benjamin Hsu from the trade office cites the example of Lithuania, which had also caught the brunt of China’s ire. Back in 2021, when Taiwan opened its new diplomatic mission in Vilnius, Lithuania agreed for the office to be named, “The Taiwanese Representative Office in Lithuania.” Because of this, China imposed trade restrictions against Lithuania, which was exporting $210 million U.S dollars worth of products to China annually.

The caused the European Union to take legal action against Beijing, because it said, “China has applied discriminatory and coercive measures against exports from Lithuania and against exports of EU products containing Lithuanian content.”

Taiwan also stepped up to help by buying Lithuanian alcohol and chocolate. And creating new investments.

Benjamin Hsu: I think there was some products that they were shipping to China and then got rejected. We did manage to find some Taiwanese buyers and then import them. So that's for the market.

We also helped with investments. I would like to say that we don't really compete dollar for dollar saying, Okay, you lost how much dollars market and we can compensate for that. We don't do that. We just tried to look at the relationship. How can we benefit economically for each other, and then we can help with that.

We set up a fund to help our companies to invest in Lithuania. They are good at laser technology, which can be used in semiconductor industries. So we help with matchmaking our companies with their companies to call to cooperate on this side. So that [creates] a win-win situation.

So I think those opportunities is, what we [try] to make our trading partner understand [is] that we want to work with you. And we want to work with you when you are economic coerced. Please don't just give us up, just because of this. That’s what we do.

Narrator: China has, and continues to launch repeated efforts to strong-arm Taiwan’s businesses… but businesses appear to be less willing to be cowed. And they seem intent on pushing back… at least for now.

The Economist has also reported on the decline of Taiwanese investment in China. While 80 percent of Taiwan’s investment went into China in 2010, it dropped to just 11 percent in 2023.

And the same goes for foreign companies based in Taiwan. In its newest Business Climate Survey for 2024, the American Chamber of Commerce in Taiwan said confidence among its members here is high. 92 percent of respondents plan to maintain or increase their investment in Taiwan. And 22 percent of all respondents had relocated their business out of China in the past five years -- with a majority moving to Taiwan, or Taiwan plus other markets.

Taiwan watchers say the island’s ability to successfully resist economic coercion will come down to strategies that will help delink Taiwan’s economy from China’s. This includes signing more bilateral trade agreements with like-minded countries, strengthening its position within the global supply chain, and providing meaningful employment at home – which will keep its citizens from seeking jobs in China.

Only then might it be possible for Taiwan to fend off attempts from China to make it part of the People’s Republic of China.

You’ve been listening to “Dispatch from Taiwan” from the United States Institute of Peace in Washington D.C. and Ghost Island Media in Taipei, Taiwan. Thank you to all the guests who took their time to speak to us. We urge you to follow their work, and ours, on all of our websites and social media. Views in the podcast do not reflect those of the United States Institute of Peace and Ghost Island Media. Subscribe to the show whatever you get your podcasts. See you next time.