ABSTRACT
This chapter first reports a previously developed structural decomposition of input-output tables to investigate from the demand side whether there has been a rise in the domestic supply chain in the PRC, otherwise known as the ‘red supply chain’, defined in this chapter as import substitution in relation to intermediate inputs. An earlier work that developed the method found that the phenomenon became evident in 2011–2012 and 2013–2014 in the PRC. Since Taiwan is an important upstream supplier of components and materials to that economy, the rise of the phenomenon has increased concerns inside Taiwan. More recently, the ongoing Sino-American trade conflicts have also been disturbing to Taiwan as 15 of the largest 20 exporters (to the US) inside the PRC are Taiwanese firms. Moreover, trade conflicts would hasten an expansion in the domestic supply chain in China, which would in turn reduce its dependency on key imported components from outside sources including Taiwan. So both these developments affect Taiwan and also reinforce each other. The root cause of the trade conflicts has been the deterioration in the economic status of middle-class families in the US, particularly those living in the heartland. Tariffs would not be a solution to their economic plight, but a major redistributive effort by the US government would be an effective response.
