The greatest pressure Taiwan has faced in negotiations stems from its continuously growing trade surplus with the US. Taiwan’s trade surplus with the US reached an unprecedented high last year, surging by 54.6 percent from the previous year and placing it among the top six countries with which the US has a trade deficit. The figures became Washington’s primary reason for adopting its firm stance and demanding substantial concessions from Taipei, which put Taiwan at somewhat of a disadvantage at the negotiating table.
Taiwan’s most crucial bargaining chip is undoubtedly its key position in the global semiconductor supply chain, which led the US earlier this year to place certain semiconductor products on its exemption list. However, that is akin to a double-edged sword.
According to Ministry of Finance data released in June, Taiwanese exports to the US of information and communications technology and audiovisual products increased 63 percent annually, with electrical and electronic machinery products accounting for about 42 percent of the exports from January to May. Many such products might be considered sensitive to national security.
While that highlights Taiwan’s strategic importance, it also makes the nation a prime target for US President Donald Trump’s “Made in America” policy — which aims to bring manufacturing to the US — thereby adding uncertainty and risk to tariff negotiations.
The crux of Taiwan-US negotiations centers around three highly sensitive areas.
First are Taiwan’s red lines over agriculture and food safety. Allowing imports of US agricultural products such as pork and beef is a major source of food safety concern and political pressure within Taiwan; it is a line the government is reluctant to cross. President William Lai’s (賴清德) administration must find a balance between securing lower tariff rates and protecting public health.
Any compromise could trigger protests, similar to how Japan has defended its domestic rice industry and treated it as non-negotiable.
The second contention lies in high tariffs on certain products. Washington is demanding that Taipei lower tariffs on imports such as automobiles, currently set at 17.5 percent, and health supplements, which are taxed at 30 percent. If concessions are made in those areas, it could have a major effect on Taiwan’s domestic industrial supply chain and potentially trigger a major market revision.
The last major issue stems from the ripple effects of WTO regulations. Under the WTO’s “most-favored nation” principle, if Taiwan unilaterally lowered tariffs for US imports, it might be required to extend the same treatment to other WTO member countries such as Germany, Japan or the UK. The consequences of such a move could impact Taiwan’s entire system, making it an extremely complex decision.
Despite many challenges, the continued promotion of the US-Taiwan Initiative on 21st Century Trade — an agreement that covers commitments to customs administration and trade facilitation, regulatory practices, rules for running domestic service industries, anti-corruption, and small and medium-sized enterprises — illustrates Taipei’s willingness to align with high international standards. Such measures could help to build mutual trust in negotiations and could become a positive factor in striving for more favorable terms.
Experts had anticipated Taiwan’s “reciprocal” tariff rate would most likely fall within the 15-to-20 percent range. Had the US levied a 15 percent tariff rate — lower than most other Asian countries — it would have been regarded as a significant victory for Taiwan. A rate exceeding 20 percent would have been viewed as a failure and dealt a major blow to Taiwan’s export competitiveness.
However, as of Friday, Taiwanese exports to the US are subject to a 20 percent tariff, which — while considered to be within an acceptable range — would still exert considerable pressure on Taiwan’s export industries. However, Lai described that as a “phased” tariff rate, adding that negotiations with Washington are ongoing.
Lin Wen-pao is a professor in the Department of Business Management at National Kaohsiung Normal University.
Translated by Kyra Gustavsen
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