International Trade

A Bilateral Pacific Partnership: The Great Potential of a U.S.–Taiwan Free Trade Agreement

President Trump’s withdrawal from the Trans-Pacific Partnership (TPP) was a major shift in America’s Asia-Pacific policy. Trump’s repudiation signals his desire for a new regional strategy, of which trade will be key. Protectionist rhetoric aside, Trump has shown enthusiasm for negotiating bilateral free trade agreements (FTAs). Taiwan should be near the top of any list of potential candidates for such a framework. The American Legislative Exchange Council (ALEC) adopted a model policy here that supports this concept as a way to promote the interests and prosperity of both nations. The Republic of China (ROC) is one of the leading economies in the region, a vibrant democracy and an obvious and willing partner. Combined with the potential diplomatic benefits and President Trump’s more hardline stance with the People’s Republic of China (PRC), a U.S.-Taiwan FTA is a smart move for the new administration.

Economic Benefits

As of November 2016, Taiwan is America’s tenth largest trading partner—ranking higher than other major economies like Italy, the Netherlands and Brazil and just below India. U.S.Taiwan trade has an outsized impact on the American economy given Taiwan’s status as a world leader in information technology and computer hardware. The United States has been the largest foreign investor in Taiwan for years and Taiwan plays a significant role in the global supply chain for many popular goods, including Apple products assembled in China by Taiwanese firms. Taiwan’s value as a trading partner would only grow upon the settlement of concerns like intellectual property rights (IPR) protections and foreign investment restrictions.

Negotiation of a bilateral FTA could spur Taiwan to accelerate IPR reforms. According to the most recent edition of the International IP Index published by the U.S. Chamber of Commerce’s Global Intellectual Property Center, while Taiwan has at least semi-adequate protection of patents and relatively high levels of transparency and public reporting of trade-related infringement, it is only 18th in IPR protection. Online piracy, weak judicial enforcement of IPR and poor protection of digital property in general, especially for foreign websites, continue to dog companies doing business in Taiwan discouraging potential investment and trade. An agreement that addresses these challenges would enhance economic cooperation. Trade between two advanced economies such as the U.S. and Taiwan would only spike further growth in technological development and investment, benefiting both. For an administration that is greatly concerned about American jobs, a focus on encouraging more Taiwanese investment in America and reducing restrictions and regulations on goods would result in domestic job growth while also securing American interests in the region.

Diplomatic Benefits

Taiwan’s President Tsai Ing-Wen, elected in 2016, defends the ROC’s independence. The PRC has responded by “punishing” what it continues to regard as a rogue province, including dispatching its sole aircraft carrier through the Taiwan Strait, a powerful sign of Beijing’s displeasure with the new Taiwanese government. Despite China’s actions, President Tsai, armed with an electoral mandate to assert Taiwan’s sovereignty, has focused on establishing new diplomatic and economic partnerships. This could be a great opportunity to secure American interests in the region with an FTA as Trump has taken a harder stance on China.

Trade agreements offer economic benefits and often serve as the basis for future strategic ties. While the U.S. already has defense partnerships with countries in the region, the Trump administration’s rejection of TPP created a diplomatic void that could be filled with multiple bilateral agreements in order to preserve America’s influence in the Asia-Pacific, with Taiwan being a primary candidate. A U.S.-Taiwan FTA not only establishes the ROC as a lucrative trading partner, but positions Taiwan as a potential critical ally.

A bilateral FTA also reduces the uncertainty surrounding America’s commitment to Taiwan. While Trump questions the “One China Policy,” a longstanding U.S. policy to recognize the PRC and not the ROC as the official Chinese government, his ultimate position on Taiwan is unclear. Finalizing a bilateral FTA with Taiwan would send a clear signal of American commitment and avert misunderstandings between the U.S. and PRC that could rapidly escalate into conflict. In the end, a U.S.Taiwan FTA, when combined with additional bilateral agreements with other regional powers, would enable the U.S. to restore some of its lost diplomatic influence with TPP’s demise while encouraging more mutually beneficial outcomes for countries in the region.

Free trade generally benefits all parties involved in the short and long terms. Taiwan’s status as a major economy and a world leader in information and communications technology, as well as the existing deep economic ties, position the island nation as an ideal partner for a bilateral FTA. Once finalized, such a framework could result in closer diplomatic ties that would be consistent with the Trump administration’s prospective East Asia strategy while reducing regional tensions. An FTA with Taiwan does not necessarily change the “One China Policy,” nor is it a major departure from the current U.S.Taiwan relationship. In fact, a more defined U.S.Taiwan partnership may ultimately avoid conflict with countries in the region.

In Depth: International Trade

International trade creates and supports millions of American jobs that offer higher than average wages and drive economic growth. As a testament to the strength of American entrepreneurship, the vast majority of U.S. exporters are not large corporations but small to medium-sized enterprises. Those that doubt the power of global…

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