Economist Derek Scissors is urging Taiwan to diversify its international investment portfolio and seek a bilateral investment treaty with the US.
Scissors, a research fellow with the Asian Studies Center at the Washington-based Heritage Foundation, says that the US and Taiwan have an extraordinarily intense trading relationship.
With a population of 23 million, Taiwan is the US’ ninth-largest trading partner. However, excluding the microstates, it is actually the US’ third-largest trading nation on a “per person” basis.
Addressing a panel discussion at the Center for National Policy, Scissors said that using the “per person” formula, the only countries ahead of Taiwan in US trade were Canada and Mexico, and the US has free-trade agreements (FTAs) with both of them.
The US-Taiwan trade relationship, he said, was “absolutely classic,” “mutually beneficial” and “very positive and healthy.”
However, Scissors said the stalled Trade and Investment Framework Agreement (TIFA) was a “waste of time” and unneeded.
He supported an FTA with Taiwan, but said the real barriers to such an agreement were US’ lack of interest and Taiwanese protectionism. Scissors said a major problem was that while Taiwan held about US$250 billion in US securities, Taiwan holds only US$4.5 billion in direct US investments, and this at a time when the return on bonds is very low.
“They may as well stick their money under the mattress,” Scissors said.
“Taiwan is much smaller as an investment partner than it is as a trade partner,” he added. “This is a real flaw in the economic relationship. If an FTA is unrealistic at this point, we should think about a bilateral investment treaty. Taiwanese direct investment in the US is far, far, too low. More investment in the US would bring the two economies closer together, would improve political ties and would diversify Taiwan away from the mainland. You want a diversified portfolio. This has nothing to do with politics.”
Taiwan could be making a big mistake by putting most of its investment capital into the Chinese basket, because the Chinese economy could stall.
Scissors said that the labor surplus upon which China relies could end, the environmental devastation of land could take a toll, return on capital could decline and China could continue suppressing innovation.
“Hooking Taiwan to China is going to look like a very bad thing by 2020,” he said.
On top of that, Scissors said, all of the ingredients are in play for “a big America-China economic blowup.”
US President Barack Obama’s administration, he said, was not committed to open trade and markets, Republican presidential candidates will be trying next year to make names for themselves any way they can, a Chinese political transition is coming soon and the US economy is stagnant.
Taiwan needs to plan for contingencies, he said.