Taiwan/China: trade tiff targets island’s presidential election  

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Normally, import bans and tariffs between China and Taiwan would not warrant global attention. But this week, the power play over trade is notable. It underlines Beijing’s attempts to influence approaching elections in Taiwan.

On Thursday, Beijing announced the end of tariff cuts for certain chemical imports from the island. The affected list of 12 products includes acrylic and p-xylene. This follows China’s complaint last week that Taiwan had adopted discriminatory measures on importing mainland products. It wants Taiwan to take measures to remove trade restrictions. 

The latest moves could have an impact on Taiwan’s biggest petrochemical companies, including Formosa Plastics, which has a market value of $16.2bn, and state-owned CPC Corporation. China is the world’s largest importer of chemicals such as p-xylene, accounting for three-quarters of the world’s total.

The affected list has a relatively narrow focus. China’s imports of p-xylene, for example, stand at about $11bn. The impact from changes to tariff cuts is unlikely to be severe. But the timing is telling. Taiwan’s hotly contested presidential election is looming in the second week of January. 

Beijing has put pressure on Taiwan’s independence-leaning ruling party by sending military aircraft and warships near the island almost daily this month. Since 2000, Taiwan’s presidents have served two terms, or eight years, which highlights the importance of this election for Beijing.

But this tension goes well beyond trade politics over chemicals. The rise of AI and the importance of Taiwan-made chips have raised the stakes. Chipmaker Taiwan Semiconductor Manufacturing Company makes more than 90 per cent of the world’s advanced chips. Meanwhile, the US has cut China off from advanced chips and chipmaking equipment.

For now, investors have ignored any geopolitical risks for TSMC. Its local share price has climbed 23 per cent over the past year.

TSMC has faced growing US pressure to manufacture its products in America. It has been investing and building a new plant in Arizona, threatening to widen any technological gap with China. As Beijing runs out of options, influencing Taiwanese elections has become that much more important.

Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore