Negotiation of a US-Taiwan FTA is something that American friends of the “beautiful island” have been talking about for a really long time. What has changed that makes it worth another run?
Well, first, let’s talk about what hasn’t changed.
When Heritage Foundation analysts first proposed an FTA with Taiwan in 1987, they touted Taiwan’s status as America’s sixth largest trading partner. As for Taiwan, it traded more with the US than any other country in the world. Today, Taiwan is still in the top ten of US trading partners, while the US is Taiwan’s second largest.
In 1995 — the first year of Heritage’s Index of Economic Freedom — Taiwan ranked the 6th freest economy in the world, out of 101. Last year, it ranked 10th out of 180.
Now, that’s a darn good, sustained record of economic achievement.
Yet, the numbers have always failed in persuading Washington about the value of an FTA.
Proponents have made a geopolitical case. The US cannot afford to have Taiwan absorbed by China. Period. To prevent that, Taiwan needs to diversify its economic partners. Because the biggest difference between now and 30 years ago is Taiwan’s excessive economic dependence on China.
Partly, this is natural. China is going to be Taiwan’s biggest trading partner for many reasons, most notably proximity. Free traders in the US are not looking to subvert naturally occurring interaction between these two economies. They just want trade to take its normal, market-directed course.
The problem is that when the region is being stitched together with formal trading arrangements that exclude Taiwan, when China offers unmatched incentives to Taiwanese investors, trade (and the influence that comes with it) tilts toward China more than it should. An FTA with the US, and the example its sets for others, would help rebalance this equation.
But alas, geopolitics have not convinced American leaders either.
In fact, from China’s accession to the WTO until the election of President Trump, their overriding impulse has been to avoid offending China. If that meant no FTA with Taiwan, well, then, no FTA.
Besides, there are always so many other things on America’s trade agenda. Bush negotiated FTAs with Singapore, Australia, and South Korea. Under Obama, there was TPP. The Trump administration opened trade disputes with South Korea, Japan, and India.
Then there is China. Sure, the administration’s attention to China has been uncomfortable for Beijing. There are many in Washington, and in Taipei for that matter, who celebrate this. But the attention to China has also sucked all the oxygen out of the government offices necessary to negotiate an agreement.
Herein, however, lies opportunity.
Criticize the phase one China deal all you want. But pro-China-trade or anti-China-trade, there is a reality here that is good for Taiwan. The temperature of the US-China economic relationship has cooled and will likely remain cool through the US election. It may be stable for the next 2 years — given the structure that has been put in place, e.g., the phasing of future negotiations and new regular consultations.
Add to this the settlement of differences with South Korea and Japan, and passage of USMCA, and it means new government resources are available. The US will use these to reach an FTA with the UK, and now, it looks like, with Kenya.
There is essentially one more slot. It’s gotta be Taiwan’s.
It is going to take real leadership on Taiwan’s side to seize it. The old arguments are not going to work any better today than they have before. As difficult as it may be, with her new mandate — and her lame duck status — President Tsai Ing-wen (蔡英文) must take unilateral action to prove Taiwan’s good faith. She has to resolve difference with Washington over beef and pork imports.
I have long argued against holding Taiwan hostage like this. I still think it is wrong — even though USTR is right on the substance. After all, much more fundamental differences with China didn’t stop USTR from talking to Beijing. The thing is Taiwan is not China. Outside of Taiwan’s circle of friends, Washington just cares more about China — even if for its negatives. And honestly, the broader Washington trade community barely even knows Taiwan exists.
In such circumstances, USTR holds all the cards. Moving on the issues it cares most about will remove it as an obstacle.
There is a risk that Madam Tsai’s overture will fall on deaf ears. The greater risk, however, is in missing the chance. Taiwan has been presented a strategic opening by an American administration less programmed than any in 40 years to placate China, and a tactical opening in its slate of trade priorities. In short, the stars are aligned, and they may not be again for another 30 years.
It is time to act. Let it not be said of Madam Tsai that she “lost the victory by being too concerned to ensure the possibility of retreat.” This is her legacy moment.
Walter Lohman is director of the Heritage Foundation’s Asian Studies Center.
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