Illustration: Chen Xia/Global Times

Taiwan's economy has not been growing favorably recently. Exports have historically served as the primary driver of the island's economic growth. However, in June 2023, both imports and exports experienced the greatest decrease in 14 years. The latest statistics from the island show that the annual economic growth rate is expected to be around 2 percent. Taiwan scholars sharply point out that Taiwan's economy is currently facing a comprehensive decline and recession.

The obvious economic slowdown of Taiwan is directly related to the cooling demand in the international semiconductor market. With the outbreak of the COVID-19 pandemic, there had been a significant increase in global demand for remote work, leading to a boom in the sales of electronic products such as computers. However, the "pandemic profits" have now disappeared, and in the future, stability can only be achieved by waiting for inflation to cool down in Europe and the US and for the market to recover.

Yet, a deeper understanding of the social fabric in the Taiwan region reveals that the current economy is brewing several significant risks that urgently require profound changes to resolve. 

First, the pattern that Taiwan's economic development heavily relies on economic globalization is being challenged. If one looks back at Taiwan's economic development since World War II, it is not difficult to see that it is deeply embedded in the US-led economic globalization system. After the US suppressed Japan's semiconductor industry, Taiwan found a suitable position in the globally dominant high-tech industry chain led by the US, achieving rare industrial upgrading. Especially around the turn of this century, Taiwan companies expanded into the Chinese mainland and fully utilized the low labor costs. During the early stages of the US-launched trade war against China and the pandemic, Taiwan utilized the advantages of the complete industrial chain on the Chinese mainland and cross-border production capacity allocation by Taiwan's businesses, resulting in a wave of profits.

However, the US' persistent suppression of China has posed unprecedented challenges to globalization. The once intricate and extensive global industrial chain is gradually breaking and fragmenting into "short chains" or even "broken chains." If the "anti-China industrial chain" is forcibly developed based on the US' emphasis on "democratic values," it will do no good to Taiwan's businesses. What is worse is that due to the Democratic Progressive Party (DPP) authorities' insistence on leaning toward the US and confronting Chinese mainland, Taiwan's high-tech industry directly faces the risk of being "hollowed out," with the most typical example being TSMC's forced investment in the US. Therefore, we can understand the lament of TSMC's founder, Morris Chang, who declared "globalization is almost dead" at the ceremony for the relocation of TSMC's new factory in the US in December 2022.

Second, Taiwan's economy and society face an endogenous dilemma of industrial pattern and the continuous accumulation of social contradictions. Taiwan's economic development over the past 20 years shows that it is evident its industries have become increasingly concentrated on a few sectors, such as electronics and information technology, while ordinary manufacturing and services industries have developed slowly or even declined. The core reason is that the DPP's insistence on the "Taiwan independence" push and the implementation of its economic policy centered on "separating" from the Chinese mainland. 

This has led to a serious lag in participating in regional economic cooperation. It has also caused Taiwan to miss out the opportunity to deeply integrate into the mainland market, resulting in a frenzy of internal competition within the region. The development of a few industries and the stagnation of the majority of industries has led to a serious imbalance in wage income for workers on the island.

In summary, with the gradual disappearance of the benefits of globalization and the "pandemic profits," the economy of Taiwan urgently needs to regain growth momentum. The upcoming regional leader election in Taiwan is indeed crucial for determining its future direction. It is not only a choice between "peace and war," but also between "prosperity and decline." If the DPP authorities continue to pursue a development path dominated by "Taiwan independence" and try hard to exhaust domestic resources for external support, the accumulated wealth of Taiwan will be squandered in no time.

The author is a special research fellow at ZhengQi Think-Tank. opinion@globaltimes.com.cn