Unveiling the True Value of Cross-Strait Trade: The Global Value Chain Approach

As the tension eases across Taiwan Strait, the economic ties between Taiwan and Mainland China are strengthened over the recent years. Powered by China’s vast consumer market and rapid industrial demand, the cross-trait bilateral trades soared drastically. According to customs statistics by the Ministry of Finance, Taiwan’s exports to Mainland China (including Hong Kong) amounted to US$ 121.2 billion in 2013, which was higher than exports to the traditional U.S. market and accounted for 39.7% of Taiwan’s total exports. Taiwan enjoyed a US$ 77.0 billion surplus toward China, which was more than double of Taiwan’s overall surplus. Despite the close economic relationship between Taiwan and China, concerns about too much reliance on China deepen in Taiwan’s society. Indeed, these superficial trade statistics from the conventional methodology has gradually revealed deficiencies in signaling external competitiveness and tends to exaggerate China’s influence on Taiwan. As such, the purpose of this paper is to unveil the true value of cross-strait trade. According to the existing practices of custom statistics, the exported and imported goods are recorded every time they enter or exit the border. With global value chains (GVC) flourishing in recent years, this conventional trade statistics not only fails to highlight the vertical specialization among different countries, but also distorts the measurement of a country’s competitiveness (Backer and Miroudot, 2012). Value chain is an activity that manufacturers adopt to transform the products from their initial state to end use (Gereffi and Fernandez-Stark, 2011). In the past, most producers used to conduct all production process in one location. Nowadays, more and more firms split their value chains into various many parts such as design, production, sale and so on, and relocate them to different regions. The main drivers of GVCs are declining transport, information and communication costs, the sharp increase in t...