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Taiwan sees U.S. trade deal as vital to maintaining its democracy

A top Taiwanese official said on Thursday that the biggest benefit from a proposed trade agreement with the United States would be to prop up Taiwan’s economy and democracy in the face of China’s attempts to isolate the country.

“If our economy can not be strong enough, then there’s only one place that we can go — China,” John Deng, Taiwan’s minister without portfolio, said in an interview. “More reliance on their market. More dependent.”

That’s a concern because Taiwan’s economy is heavily entwined with China, giving Beijing increased leverage in the ongoing fight between the two sides over whether Taiwan is a separate country. The island nation of nearly 24 million people lives under constant fear of a Chinese invasion that would squash its democracy and put it directly under Beijing’s control.

Nearly 45 percent of Taiwan’s exports went to China and Hong Kong in 2020, compared with just 14.5 percent to the United States, 6.8 percent to Japan and 6.6 percent to the EU, according to World Trade Organization statistics.

The situation is somewhat better on the import side, with China accounting for 22.2 percent of Taiwan’s overseas purchases, followed by 11.5 percent from the United States.

Trade between the United States and Taiwan has boomed over the past two years, driven by increased demand for semiconductors, personal protective equipment and other goods as a result of the coronavirus pandemic.

But Taiwan would like to expand its economic ties with the United States as it diversifies its trade away from China over the next 20 to 30 years, Deng said.

Earlier this week, the United States and Taiwan formally launched talks on the new U.S.-Taiwan Initiative on 21st-Century Trade, despite Beijing’s strong objection.

“China firmly opposes all forms of official interaction between the Taiwan region and countries having diplomatic ties with China, including negotiating or concluding agreements with implications of sovereignty and of official nature,” Chinese Foreign Ministry spokesman Zhao Lijian said Tuesday.

Taiwan’s political leaders “need to give up on the idea that they could seek independence with U.S. support. Otherwise the higher they jump, the harder they will fall,” Zhao said.

China further isolates Taiwan by bullying countries that treat it as an independent nation, as happened to Lithuania earlier this year when it agreed to let Taiwan open a representative’s office in the Baltic republic.

The new initiative with the United States promises to be far less than the full-fledged free trade agreement that Taiwan has long sought. But Deng said it is still an important development because it will establish “a very solid legal infrastructure” for trade between the two sides.

That will pay off over the long term by aligning standards and dealing with emerging issues, even if it doesn’t provide substantial new market access gains in the nearer term, Deng said.

The new talks are also significant because there is every expectation of producing a concrete agreement for the two countries to sign, as opposed to the more open-ended dialogue under the longstanding U.S.-Taiwan Trade and Investment Framework Agreement, he said.

Deng said he hoped negotiations on the 21st Century trade pact could be finished by the time the United States hosts the annual APEC leaders summit in late 2023, if not before then.

After former President Donald Trump turned traditional free trade trade agreements into a potent political weapon in the 2016 presidential campaign, the Biden administration has shown little interest in negotiating new deals that reduce tariffs.

The White House’s nascent trade agenda focuses instead on raising labor and environmental standards; lowering nontariff barriers in areas such as agriculture; and developing rules on topics such as regulatory practices, anti-corruption, digital trade, state-owned enterprises and nonmarket policies and practices.

Many of the issues that the Biden administration plans to negotiate with Taiwan are also on the agenda for the proposed Indo-Pacific Economic Framework for Prosperity — a much bigger proposed trade initative between the United States and 13 other countries.

Taiwan had hoped to be part of the IPEF, but the Biden administration — in a nod to China’s sensitivities about Taiwan being treated as a sovereign nation — left it out in order to attract more participation from other countries in the region.

For now, Taiwan’s focus is on forging a bilateral deal with the United States, rather than thinking about how the agreement might be linked to the IPEF in the future, Deng said.

However, it could be easier — and quicker — for the U.S. and Taiwan to reach agreement on issues also being negotiated in IPEF, creating the potential for the U.S.-Taiwan pact to become “a model” for the bigger regional pact, Deng said.

Deng also said he remains hopeful the proposed U.S.-Taiwan deal could morph into a free trade agreement when the U.S. political environment is more “agreeable.”

“It’s always our goal,” Deng said. “But we don’t need to push something which cannot succeed now.”