Australia’s reset with China doesn’t need to be at Taiwan’s expense

By Hayley Channer

Taiwan plays a central role in global supply chains and is a key partner for Australia’s clean energy transition.

Taiwanese heartrates were sent racing last month when Australia’s Prime Minister said Taiwan’s lack of statehood made it ineligible for membership of a major trade pact, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Speaking on the sidelines of APEC in Bangkok, Prime Minister Anthony Albanese said, “The CPTPP is a relationship between nation-states which are recognised,” and “Taiwan is represented here [at APEC] as an economy….”. He went on to say there was bipartisan support in Australia for the ‘One China’ policy and that Australia supported the status quo on Taiwan. The Prime Minister later clarified his statement, reassuring Taiwan that ‘economies’ applying for CPTPP membership would be dealt with ‘on their merits’.

Considering Taiwan’s complex status and repeated US gaffes on policy towards the island, it’s perhaps unsurprising an Australian leader might muddle the nomenclature. More generally however, the slip raises this question: does Australia’s relationship with Taiwan need to change now that we’re on a new setting with China? As partners go, China’s importance to Australia significantly outweighs Taiwan’s, and Canberra needs to safeguard its relationship with Beijing. But, does this mean Australia should forego the economic and supply chain opportunities Taiwan presents?

Prime Minister Albanese has supplied the catalyst to clarify our thinking on Taiwan and identify where it’s in Australia’s interests to work with Taipei.

Over the last 12 months, Australians have been more focused than ever on Taiwan. Beginning in November 2021, then Defence Minister Peter Dutton said he couldn’t conceive of circumstances where Australia wouldn’t support the US in a conflict over Taiwan. In the last month, Australia’s national broadcaster and mainstream media have featured deep-dive commentaries into the possibility of war over Taiwan. Late last month, former Australian Prime Minister Kevin Rudd gave war over Taiwan a timeline, saying China was likely to take action within the next five years. The alarmist political and media attention on Taiwan has led more Australians than Taiwanese to fear a Chinese attack.

At the same time debates over Taiwan seem to be peaking in Australia, the freeze in Australia-China bilateral relations appears to be thawing. Last month – for the first time in five years – the Australian Prime Minister and Chinese President met in person. In the context of warming relations with China, Australia’s unlikely to do something to jeopardise the positive momentum. This includes making any positive gestures towards Taiwan, such as supporting its CPTPP membership. However, Taipei’s a valuable economic partner for Australia.

In 2020, Taiwan was Australia’s 12th largest trading partner (worth $16.1 billion) and invested $15.6 billion in Australia. Taiwan also plays a critical role in global supply chains, particularly for high-end technologies. For starters, Australia – and the world – needs secure access to semiconductors, the advanced computer chips used in virtually all modern appliances. Australia’s almost entirely dependent on foreign-controlled microchip technology and Taiwan’s placed itself at the centre of global supply.

Taiwan treats the design and manufacture of semiconductors as a national endeavour. It’s reminiscent of the US-Soviet space race, although, Taiwan’s mostly in a race with itself: one Taiwanese company alone, TSMC, controls more than half the global share of semiconductors. TSMC’s engineers pioneer such advanced chip patterns that they must work in complete secrecy and without mobile phones to prevent corporate theft. It conjures imagery from Roald Dahl’s Charlie and the Chocolate Factory: like Wonka’s chocolate, the quality of Taiwan’s semiconductors is so high there are multiple Arthur Slugworths trying to steal the recipe.

Australia benefits from Taiwan’s semiconductor manufacture by gaining reliable access to this critical technology and exporting Australian coal and liquified natural gas to help power this energy-intensive industry. Semiconductor fabrication plants consume a significant portion of Taiwan’s energy (increasing to 10% by 2030) and Australia is Taiwan’s largest energy supplier. However, both Taiwan and Australia recognise that traditional power generation is unsustainable and are moving to renewable sources. And it’s this area – renewable energy – that it’s in both Canberra and Taipei’s interests to cooperate.

The two areas that hold promise are green hydrogen and lithium-ion batteries.

Independent energy advisers have identified hydrogen supply and manufacture as an area for Australia-Taiwan cooperation and officials have also gotten on board. Last year Australia and Taiwan’s trade ministers hosted a hydrogen trade and investment dialogue and, last month, the Australian Government hosted a Taiwanese business delegation to explore green hydrogen opportunities.

Another country Australia has prioritised for hydrogen cooperation is Japan. Earlier this year Australia and Japan announced a Clean Hydrogen Trade Partnership and Australian and Japanese businesses have been partnering on world-first hydrogen projects. Japan frequently voices support for Taiwan, including welcoming its CPTPP application (the only country of the 11-member trade pact to do so). Plus, synergies between Australia, Japan and Taiwan on hydrogen are already being recognised.

Considering Japan’s endorsement of Taiwan and the hydrogen priorities of all three, an opportunity exists to combine effort.

A trilateral partnership between Australia, Japan and Taiwan on a hydrogen supply chain could streamline bilateral efforts.

A trilateral partnership could start with formal dialogue between officials and industry leaders and progress to a trilateral MOU and joint development.

The other opportunity Taiwan presents Australia is in lithium batteries. Taiwan has a sizable battery industry and Australia produces 60% of the world’s lithium, needed for lithium-ion batteries. Lithium batteries are used in electric vehicles, grid storage, and consumer electronics, demand for which is greatly increasing.

Taiwan and Australia are just beginning to capitalise on their complementarities in the battery industry. In September, Taiwanese battery company Aleees and WA-based miner Avenira inked a deal with the NT Government to develop a lithium battery cathode manufacturing plant in Darwin. Once operational, the facility could manufacture up to 200,000 tonnes of battery material annually. The move has the potential to supplement the global supply chain of lithium batteries.

Australia and Taiwan both stand to benefit from cooperation on batteries. Australia would benefit from value-adding to its mineral resources, accessing Taiwanese technical capabilities, and attracting more Taiwanese investors and customers. Taiwan would benefit through diversifying its battery manufacture, better securing its critical supply chains, and supporting its burgeoning EV sector. Beyond the commercial advantages, there are strategic drivers too. China currently dominates the midstream and downstream portions of battery processing and manufacture, so an Australia-Taiwan partnership in this area could help reduce Beijing’s monopoly.

One way to increase Australia-Taiwan battery cooperation could be through the WA State Government considering a similar partnership with Taiwan as the Northern Territory.

In 2021, Western Australia was the largest lithium supplier in the world, accounting for 52% of global supply. The lithium battery industry is a priority for the State Government and a partnership with Taiwan could help WA expand into the international market.

Australia’s relationship with Taiwan will remain complicated. However, Australia’s greatly benefited from Taipei’s economic success and there are opportunities to benefit further. Although the Albanese Government doesn’t want to jeopardise the incremental gains it’s made with China, partnering with Taiwan will boost Australia’s clean energy transition and local economies. Australia’s withstood the onslaught of Chinese economic coercion over the last five years; there’s no compelling reason to take a backwards step now.

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