Walter Lohman on Taiwan: Taiwan caught in the crossfire on trade

Mon, Sep 03, 2018 - Page 6

Taiwan is not always top of mind for American policymakers. As a result, despite the best intentions of Taiwan’s friends in government, Washington can inflict damage on it without knowing it. This is only to be expected given the disparity in the two countries’ size and roles in the world. There are discrete issues, however, where the US should be much more mindful of the effects its policies have on a country so central to its strategic commitments in the Pacific — and take action to mitigate them.

Take American trade policy.

Free traders, the American business community and not a few foreign policy experts have been very critical of the Trump administration’s approach to trade. Every development from the imposition of steel and aluminum tariffs to the incipient trade war with China and pending auto tariffs have fed serious concerns about the costs to the American economy and its international leadership.

Even so, critics, rarely comment on the impact of these developments on Taiwan. One could therefore get the impression in Washington that all is well with Taiwan when it comes to US trade policy. Such an impression would be wrong.

First, the indirect effects. Before ringing alarms about the effects of US trade policy on the global economy, it is important to put things in perspective. In total, from all sources, the US has imposed new tariffs on about US$100 billion in goods entering the US. This is out of a total of about US$2.4 trillion in annual US imports, or about 4 percent. Not too big a deal. Even when one brings in the cost of retaliation, it is a drop in the bucket relative to global trade flows and economy.

The more significant concern is about what remains pending. Add tariffs on US$200 billion more in Chinese goods, a threat to impose tariffs on all US$500 billion Chinese imports, the new tariffs on US$360 billion on auto imports currently under consideration, and related retaliation. Now, we’re starting to talk about real money. This doesn’t take into account other measures that may be on the horizon — action on aircraft, shipbuilding and semiconductors, for instance, that the Administration formally singled out for possible tariffs last spring — and what Don Rumsfeld once called the “unknown unknowns,” areas of protection that could emerge from Washington’s new philosophy on trade.

There are so many variables that the precise impact of this worst-case scenario is extremely difficult to predict. The upper limit in damage is probably represented by a June 2018 World Bank report which states, “A worldwide escalation of tariffs up to the limits permitted under existing international trade rules could lead to cumulative trade losses equivalent to those experienced during the global financial crisis in 2008-09.” Whatever the actual numbers, however, it is clear that an American trade policy with the prospect of going from new tariffs on 4 percent of its imports to imposing them on 30-35 percent catalyzes a huge amount of uncertainty for businesses around the world — including Taiwan.

Second, the direct impact of the incipient US-China trade war. Most analysis points to minimum immediate effect on Taiwan. The US$50 billion in China-assembled products so far targeted by the US do not have enough Taiwanese content to raise much concern. Depending on how things develop, though, trade tensions between the US and China could ultimately have a significant effect. At the very least, tariffs on items like Chinese-assembled smartphones and laptops that require Taiwan-made inputs will require companies to restructure their commercial relationships. This will take time while the associated liabilities will develop more quickly.

Third and most immediately relevant, the effect of tariffs imposed on American imports of steel. It has always been a dubious case that imports of steel from allies like Canada and Japan to the US constitute threats to national security. Given its dependence on the US for its security, the case concerning Taiwan’s steel exports is particularly strained. Even so, the Taiwanese have not relied on this argument for an exemption. Taipei has offered, instead, to do whatever the Trump administration demands.

Initially, Taiwanese officials had difficulty making the contact necessary to state their position. Since this spring, however, they have made abundantly clear directly to both the US Trade Representative and Commerce the steps they are prepared to take. Among other things, the Taiwanese have volunteered to restrain their steel exports to the United States; they have offered to strengthen measures to prevent any transshipment of Chinese steel through Taiwan; and they have offered to initiate more anti-dumping and countervailing duty cases against imported Chinese steel — something, in fact, they have already started to do.

In short, the Taiwanese have presented themselves as an ideal partner for the Trump administration. Yet, although Argentina, Australia, Brazil, and South Korea have all received exemptions for reaching such deals — and the US has launched talks with the EU — Taiwan is still waiting for a phone call.

It shouldn’t have to.

Washington is in the midst of a momentous debate over the way it formulates trade policy, the domestic interests it prioritizes and the relationship between trade and foreign policy. This debate turns on big economic, political, and philosophical considerations. At most, the impact on Taiwan will serve as a minor plank in the argument for a return to an approach to trade that promotes economic freedom. Taipei cannot reasonably expect otherwise. What it can expect is that when it is directly affected — as in the case of steel — its constructive offers will be taken up.

Walter Lohman is director of the Heritage Foundation’s Asian Studies Center.