Worries linger over Taiwan’s exclusion from the US-led Indo-Pacific Economic Framework (IPEF), thinking that the move might undermine US-Taiwan relations. Amid controversy over the commitment of US President Joe Biden’s administration to supporting Taiwan, Washington has reassured Taiwan — and regional partners — by proposing a bilateral economic initiative.
Representatives of the US and Taiwan announced at a virtual meeting on Wednesday last week a new trade mechanism, dubbed the “Taiwan-US Initiative on 21st-century Trade,” to bolster bilateral economic ties. Like the IPEF, this initiative is not a trade agreement, so it does not require the approval of the US Congress.
Since the US’ withdrawal from the Trans-Pacific Partnership in 2017, Washington’s interest in signing a free-trade agreement — which Taiwan has long angled for — has diminished, leading to the possibility of a bilateral trade agreement. Under such circumstances, the trade initiative could be viewed as an economic upgrade for the two partners.
The trade initiative shows that Taiwan holds strategic value for the US. “As a leading democracy and a technological powerhouse, Taiwan is a key US partner in the Indo-Pacific,” says the US-Taiwan Relations fact sheet updated on May 28. The initiative’s launch allows the two sides to collaborate on deeper bilateral ties, promote shared values, and address common challenges and opportunities.
With this timely initiative, the US seeks to alleviate concern that it is “all talk and no action” when it comes to economic ties with Taiwan, and to showcase that Washington and Taipei are vital trading partners with significant strategic convergences.
Equally important is that the US and Taiwan underline their efforts to bring Taiwan’s laws, policies and regulations in line with global standards. This earnest vision demonstrates Washington’s determination to make Taipei a resilient economy, with great potential to meet higher economic standards.
In the trade initiative, each side touched on sensitive topics that need equitable dialogue and long-term commitment. For example, the US has long criticized Taiwan for failing migrant workers. Washington’s 2021 Human Rights Report blasted Taiwan for forced labor, which “occurred primarily in sectors reliant on migrant workers, including domestic service, fishing, farming, manufacturing, meat processing and construction.”
As stated in the trade initiative, the US and Taiwan underlined joint efforts to “support the protection of labor rights, including the elimination of forced labor in global supply chains,” opening the door to Washington providing Taiwan with pragmatic policies to address this lingering issue. Like-minded partners can bring delicate issues into the open and sincere dialogue indicates a mature relationship, with each side respecting the other’s needs and concerns while striving for a common benefit.
Having aligned with free-market values, the US and Taiwan have stressed the need to jointly address harmful policies and practices from non-market economies. Although not explicitly mentioned, China was the “elephant in the room.” Beijing has utilized its economic clout to ratchet up pressure on China-based Taiwanese companies and businesspeople in exchange for economic benefits and political concessions.
With practical support from the US, Taiwanese manufacturers operating in China might have greater determination to reduce their operations there. They might shift their supply chain hubs to Taiwan, or to thriving Southeast Asian markets with skilled workers, as well as ongoing legal and environmental reforms, such as Singapore, Malaysia, Vietnam and the Philippines.
As these Southeast Asian nations have joined the IPEF, Taiwanese companies can reap the benefits of the countries’ economic maturity and demographic advantages. Multilateral economic arrangements between the US, Taiwan, and two or three ASEAN economies could prove feasible to bolster Taiwan’s economic ties with Southeast Asia.
Toward this goal, the US should encourage other IPEF members to enhance trade linkages with Taiwan, especially where supply chains have become more vulnerable due to Beijing’s growing economic coercion or Russia’s prolonged invasion of Ukraine.
Some areas of cooperation in the US-Taiwan initiative — such as trade facilitation, the digital economy, anti-corruption efforts and support for climate action — are also goals of the IPEF, which shows that Biden’s team is furthering ties with Taiwan through similar means, and in similar ways, as it is with its IPEF partners.
Given the strategic importance of Taiwan in global supply chains — including its semiconductor exports and its status as a key logistical hub in the Indo-Pacific region — supporting Taiwan would not only benefit the US, but could also open more opportunities for collaboration between Taiwan and other Indo-Pacific economies.
The initiative could also serve as a geostrategic lever facilitating Taiwan’s participation in the IPEF. As the IPEF’s core values are openness and inclusiveness, the participation of Taiwan, as a full member or an observer, should not be neglected. Such a scenario would work if the US could bolster US-Taiwan ties while selling the strategic value of Taiwan to IPEF members.
This US-Taiwan initiative might antagonize Beijing, which has framed growing ties between the US and Taiwan as detrimental to China’s interests. The day after the initiative was announced, Chinese Ministry of Foreign Affairs spokesman Zhao Lijian (趙立堅) said the US should “stop all forms of official interaction with Taiwan, stop negotiating agreements with implications of sovereignty and of official nature.”
Beijing might increase pressure on Taiwan in retaliation for closer cooperation between Taiwan and the US on trade. Washington and Taipei should prepare for Chinese aggression and turbulence.
Taiwan is on the front line of the fight against authoritarian regimes. Its strategic position has come to the forefront amid the COVID-19 pandemic, Russia’s invasion of Ukraine and a receding globalization, so like-minded powers — such as the US, Japan, Australia and India — should help enhance Taiwan’s strategic role in the global supply chain. For example, these countries could dispatch experts to Taiwan for short and medium-term exchanges, and engage in multifaceted dialogue to help Taiwan address shortages of production capacity and manufacturing talent.
Taiwan should work harder to enhance its comparative advantages, such as in the semiconductor industry and high-end manufacturing. Taiwan should address its shortages of land, power, water, labor and talent. President Tsai Ing-wen’s (蔡英文) administration should reform regulations and policies to fulfill trade commitments and woo foreign investment.
The trade initiative could serve as a stepping-stone to a more robust US-Taiwan partnership. The US and Taiwan should collaborate to bolster Taiwan’s status in the Indo-Pacific region, thereby signaling China’s leadership of the deterrence being forged by Taipei and Washington.
Huynh Tam Sang, a doctorate holder and international relations lecturer at Ho Chi Minh City University of Social Sciences and Humanities, is a research fellow at the Taiwan NextGen Foundation and nonresident WSD-Handa Fellow at the Pacific Forum.
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