How the Current State of U.S.-Taiwan Relations Affects Manufacturing
Whether you like it or not, geopolitical relationships affect business. No matter what side of the aisle you’re on, relationships among international governments will have an effect on where and how you do business…especially when you’re a company that relies on international sourcing.
Recent events between the United States, Taiwan, and China have many manufacturers concerned about the future of their work in China.
Let’s take a look at the current state of U.S.-Taiwan relations and how you can protect your business amid rising tensions in that region. In brief: if the majority of your manufacturing is done in China, it may be time to consider diversifying your business.
The Current State of U.S.-Taiwan Relations
Taiwan, officially known as the Republic of China (ROC), has been governed independently of mainland China (the People’s Republic of China, or PRC) since 1949, and has had a democratically elected government since 1996.
China does not recognize Taiwan’s government, and considers it part of China (a.k.a., the “one-China” principle). Tensions have increased in recent years, with China taking more aggressive action against Taiwan since the election of President Tsai Ing-wen in 2016, who, unlike her predecessors, has been uninterested in increasing ties with the PRC.
The United States and China have had a formal diplomatic relationship since 1979, when the U.S. officially severed diplomatic ties with Taiwan. However, the U.S. still has a strong—if unofficial—relationship with Taiwan.
The United States’ official policy on the matter, called the “One-China policy,” includes acknowledging China’s position that Taiwan is part of the PRC, but also maintaining cultural, commercial, and other ties with Taiwan. It also includes what the U.S. calls a “strategic ambiguity policy” regarding Taiwan, which states that the U.S. retains the ability to defend Taiwan without committing to doing so.
The U.S.’s primary goal is to maintain peace and stability in the region. It urges maintaining the status quo and doesn’t support Taiwan’s independence. However, the U.S. has strengthened ties with Taiwan under the past two presidencies, despite China’s objection.
There has been bipartisan support for Taiwan in Congress over the years, resulting in legislation supportive of boosting U.S.-Taiwan relations, encouraging their participation in international organizations, and bolstering their defense.
The latest proposed bipartisan legislation—the Taiwan Policy Act of 2022—would designate Taiwan as a major non-NATO ally and boost their defensive capabilities. It’s received some pushback from the White House, but is still in the works.
In August, House Speaker Nancy Pelosi visited Taipei to meet with President Tsai. China strongly condemned the visit and responded with military exercises and a ban on some imports from Taiwan.
With tensions increasing, there are concerns that war could erupt between the U.S. and China over Taiwan…though experts disagree about the likelihood and potential timing of such a conflict.
Rising Costs Have Prompted a Shift Out of Mainland China
Long before recent events in the region, the rising costs of manufacturing in China have prompted many manufacturers to begin moving production out of mainland China.
In fact, we have been trending net production out of mainland China since 2015. Before recent events, pandemic-related uncertainty sparked the need for a move; prior to that, it was tariffs; and before tariffs, it was rising labor costs.
And while China is certainly still a contender in the industry, it’s no longer the least expensive, most obvious overseas manufacturing solution.
For years, many companies have taken a “wait and see” approach, hoping for a return to the “good old days” of manufacturing in China. But now, most of our customers recognize they can’t afford to wait any longer. It’s time to seek alternative international sourcing options.
Improve Your Company’s Agility With Macrotech Marketing Associates
Macrotech is well positioned to help improve the agility of manufacturers looking to move production out of China.
We’ve made big moves like this before. In the early ‘90s, major electronics manufacturers made the shift from Taiwan to China, and Macrotech was part of that move. For the better part of a decade, we’ve been trending toward Taiwan again, as well as Indonesia, India, Malaysia, Thailand, and Vietnam.
We have always maintained an extended supply chain outside of mainland China. For nearly 10 years, we’ve relied on those suppliers to make the move out of China for customers who wanted to reduce labor costs, avoid tariffs, mitigate the uncertainty of the pandemic, and now, protect their business amid increased China-Taiwan tensions.
If you’re looking for OEM manufacturing solutions outside of China, Macrotech can help you make the move. We have relationships with factories throughout Asia, including Taiwan and other APAC countries.
Schedule a call with us to learn more about how we can help you diversify your manufacturing solutions.