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The Daily Dish

Trade and Taiwan

Taiwan is an important geopolitical relationship for the United States, and a significant trading partner. In 2020, Taiwan was America’s ninth-largest trading partner and a top international supplier of semiconductors. Accordingly, one would think that the natural step would be to establish a bilateral trade agreement between the United States and Taiwan to lower barriers to trade and improve market access.

On June 1, the United States and Taiwan announced a new forum for economic engagement called the U.S.-Taiwan Initiative on 21st Century Trade. Is this the long-awaited trade agreement? To steal the punch line of Tori Smith’s excellent new piece on the agreement, no. Instead, the initiative is eerily similar to the existing economic dialogues between the United States and Taiwan. The Trade and Investment Framework Agreement, in place since 1994, is a forum for removing regulatory and non-tariff barriers, while the U.S.-Taiwan Economic Prosperity Partnership Dialogue and the Technology Trade and Investment Collaboration cover issues such as supply chain resiliency, 5G security, digital trade, and countering economic coercion.

So, what the heck is this new agreement with Taiwan? It sure looks like a consolation prize for not being included in the Indo-Pacific Economic Framework (IPEF). (The IPEF, which includes the United States and 13 other countries, is also not a trade agreement.) As Smith notes, the new Taiwan initiative looks a lot like the IPEF: “Both efforts will address trade facilitation, regulatory practices, agriculture, small and medium enterprises, digital trade, ‘worker-centric trade,’ and international standards. The third IPEF pillar on infrastructure, clean energy, and decarbonization will likely have goals similar to the new initiative’s efforts on environment and climate policies. Finally, the new initiative’s anticorruption area will likely be similar to the IPEF’s fourth pillar on tax and anti-corruption.” Notably, both efforts lack any mechanism to increase market access – the primary gains from trade — between the United States and Indo-Pacific countries.

Thus, this initiative allows very similar, and in fact largely duplicative, negotiations with the United States, without other countries running afoul of China by entering an agreement that contains Taiwan. Interestingly, the initiative also includes negotiations over state-owned enterprises and non-market economies; these are large points of disagreement between the United States and China.

Stepping back, trade agreements generally provide two benefits. They permit governments to impose valuable domestic market reforms under the guise of “having to do it” to satisfy the trade agreement, and also reducing barriers to trade. This agreement, along with the IPEF, seems to try to accomplish the former without the carrot of having additional access to the U.S. market.

Disclaimer

Fact of the Day

In the past year, at least 16 percent of Americans have traded cryptocurrencies.