Taiwan’s exports have performed badly since the start of this year. Economic growth in many countries still looks miserable, and Taiwan’s export market will inevitably face further hardships unless the government creates effective policies to stimulate exports. In addition, the European debt crisis will not be short term. Therefore, the government needs to come up with strategies for responding to these problems in the mid and long term in addition to devising methods to stimulate exports as an interim measure.
According to government statistics, a reduction in imports was the main reason that Taiwan maintained positive growth in the first quarter. If the government can come up with ways of turning the passive import decline into a more active type of import substitution, then Taiwan would not only be able to maintain domestic economic growth, but also achieve other goals, such as saving on energy, protecting the environment and building industrial competitiveness. Now is a good time for the government to enact the third period of import substitution.
The economy is slowing down and low-priced products have become dominant in the market. In the short term, exports could be enhanced if the government assists Taiwanese businesses in low-price competition. However, this would limit manufacturers’ profits and the salaries of wage earners. Seeing as Taiwan’s imports were worth approximately US$281 billion last year and the trade surplus was approximately US$26.8 billion, if the government substitutes 1 percent of imports, this could create an 11 percent growth in surplus. If 5 percent of imports could be substituted, then the growth in the surplus could exceed 50 percent. Such a measure would be much more beneficial and helpful for Taiwan’s domestic growth than simply increasing exports.
Referring to the previous two periods of import substitutions — first in the 1950s and then in the 1970s — shows that each implementation of import substitution created an increase in exports for a certain period. This proves that promoting import substitution can strengthen domestic industrial development, which could help the future growth of exports. Employing import substitution and economic structural adjustments would likely be an effective and feasible way to help the nation keep its exports competitive.
The government has promoted many industrial policies like the six key emerging industries plan and the development of the four major knowledge-based industries. These policies involved different governmental departments and split up the government’s limited resources. If import substitution could prioritize the concentration of government resources on items like precision machinery and the high-value petrochemical industries, or to allocating these resources into energy-saving industries that would help effectively reduce Taiwan’s energy imports, the government could effectively integrate various policies while also being capable of allocating administrative resources efficiently.
Since Taiwan already has an industrial base for precision machinery and high-value petrochemical industries, the government should provide incentives to get private businesses to upgrade their technology. In terms of import substitution for energy resource products, the government must invest money to build infrastructure for energy-saving technology as well as subsidize the industrial sector’s purchases or upgrades of energy-saving equipment. Only with the government leading the way with policy can private businesses have a concrete example to follow.