Taiwan and the US on Thursday inked the first part of a new trade pact. Negotiated under the beak of a hawkish China, the pact is hailed by involved parties as the most significant trade deal between Taipei and Washington since Taiwan joined the World Trade Organization in 2002.
After a year of extensive talks, representatives from Taiwan and the US on Thursday signed the first round of a new trade deal between the democratic self-ruled island and its superpower ally.
Lauded by authorities as the most significant step taken in trade relations between the US and Taiwan since the latter’s accession to the WTO twenty years prior, the new trade agreement has been hammered out within the frameworks of the US-Taiwan Initiative on 21st Century Trade, a joint effort launched last year seeking to extend trade ties.
Focused on facilitating the exchange of goods between Taiwan and the US by cutting red tape at customs and reducing wait times at borders, the agreement also looks to combat bribery and other forms of corruption by establishing matching standards.
According to representatives from both sides, the agreement is also aimed at boosting trade and investments between small- and medium-sized businesses in the US and Taiwan.
Politics over economics
The announcement of the deal drew harsh criticism from China as it slammed the US earlier on Thursday for approving it.
Accusing the White House of violating agreements on the status of Taiwan, the Chinese foreign ministry demanded that the US “refrain from sending wrong signals to the ‘Taiwan independence’ secessionist forces”, AP reported.
China sees the trade deal as a “diplomatic move that seeks to affirm the island’s sovereignty which is contrary to US commitments to China”, said economist and WST & Partners chairman Jean-Paul Tchang as he emphasised the political undertone of the deal.
Although the White House insisted that the trade deal with Taiwan is brokered under the US One China policy, Beijing remains adamant and urged Washington to cease contact with Taipei.
China’s fierce reaction coupled with rising tensions across the Taiwan Strait has raised fears over potential economic retaliations targeting Taiwanese exports, a move that Beijing has previously undertaken over another perceived political slight.
“Beijing is certainly more prone these days to use its trade relationship with Taiwan, and others, as a tool for political coercion. I believe we’re seeing that right now as Taiwan nears its presidential election and China is preparing new tariffs if the DPP (the Democratic Progressive Party, Taiwan’s current ruling party) wins again,” said Riley Walters, the deputy director of the Hudson Institute Japan Chair.
While China is unlikely to drastically change its trade policies regarding Taiwan, Beijing could potentially “target Taiwanese companies that join in on US boycotts of Chinese products in the future”, said Tchang.
A symbolic deal?
While China may feel sidelined politically, it has little to fear on the economic side of things.
Unlike conventional trade deals, the agreement between the US and Taiwan fails to include tariffs, which ultimately raises the question regarding its efficacy on deepening ties between the trading partners.
“Taiwan has been trading with the US for decades … starting with manufactured goods in the 70s up to semiconductor chips now … and while there’s been a few hiccups in the 90s due to issues with intellectual property rights, trade has been going smoothly [between both] for the most part”, said economics professor Wu Dachrahn from Taiwan’s National Central University.
“To be frank, the trade agreement signed between the US and Taiwan doesn’t appear particularly constructive”, said Wu, adding that trade volumes between the US and Taiwan have remained relatively stable over the past two decades.
“I would definitely say this deal is more symbolic than anything else. While the new deal could help ease some of the regulatory barriers to trade between the US and Taiwan, I don’t see this as having a significant impact on trade flows,” said Walters.
“What could’ve been beneficial to Taiwan’s exports [to the US] is finding a solution to trade obstacles between China and the US,” Wu said as he pointed to US tariffs levied on certain Chinese imports including semiconductors and consumer electronics.
While the US currently ranks as Taiwan’s second largest export market, China remains Taiwan’s top trading partner, accounting for up to 40 percent of the island’s total exports, of which over 50 percent are electronic components, said Wu, adding that most of these components are used in products destined for the US.
Free trade agreement?
“So what Taiwan really needs is to be able to better export its goods which of course have been affected ever since the US started a trade war with China,” Wu said.
Although Washington has shown little inclination in lifting current tariffs imposed on Chinese goods, the Taiwanese government hopes to counter the indirect impact on the island’s exports by signing a free trade agreement with the US.
In a published statement Thursday, Taiwanese President Tsai Ing-wen alluded to an FTA between the US and Taiwan as she hailed the newly inked trade agreement.
“While the new deal does provide a more complete framework to serve as a basis for an FTA and perhaps even help with Taiwan’s application to join the CPTPP (editor’s note: Taiwan applied in 2021 to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which is an FTA between 11 countries on either side of the Pacific), it still seems quite unlikely given the current political climate,” said Wu.
Despite the large support in the US Congress for Taiwan, the Biden administration has little interest in traditional trade agreements, said Walters.
The US, as well as most countries except for Panama, Honduras and Guatemala, have refrained from inking FTAs with Taiwan since 1979 when the US switched diplomatic recognition from Taiwan to China, for fear of provoking Beijing's ire.
“It’s not about economics anymore, it’s politics”, said Wu.
