It’s time for United States to explore free trade with Taiwan

With the collapse of the Doha round of trade negotiations, economic liberalization may depend more on bilateral and regional free trade agreements. In America’s case, FTAs also provide geopolitical benefits, giving Washington a means to strengthen bilateral ties with other states at a time of increasing international challenge.

Employing creative tactics to enhance American influence is particularly important in Asia, where China’s rise is transforming the region. The rapid growth of the People’s Republic of China has spawned growing Chinese investment and trade throughout Asia.

At the same time, Beijing is asserting itself diplomatically and substantially augmenting its military. As a result. PRC influence is increasing even in nations long friendly to the U.S.

Political tensions between Tokyo and Beijing cannot obscuretheir growing economic relationship. Australia and South Korea enjoy increasing trade with the PRC.

Economic ties also are increasing between China and Taiwan even as the latter attempts to forge a separate political and cultural identity. Beijing hopes and independence-minded Taiwanese fear that the prospect of economic gain may cause Taipei to compromise on its territorial integrity.

China’s evident rise has caused some Americans to see the PRC as a dangerous military adversary. But the future is not fixed.

America risks playing a losing hand if it bets U.S. simplicity against Chinese subtlety, however. Both Canberra and Seoul, for instance, are not interested in joining the U.S. to “contain” the PRC.

A more nationalistic Japan seems more inclined to back America, but such resolve might not survive an actual confrontation. Taiwan, too, prefers smooth relations between Washington and China.

Under these circumstances, the U.S. should look for additional geopolitical cards to play. The most important benefit of American friendship today may be access to the U.S. economy.

Washington should negotiate a Free Trade Agreement with Taiwan.

Taipei is America’s eighth biggest trading partner (and America is third on Taiwan’s list), with two-way trade running about $60 billion annually, and is a high-income consumer and high-technology producer. The U.S. exports more to Taiwan than to Australia, Chile and Singapore, all of which now enjoy FTAs.

Estimates of the likely increase in U.S. exports through an FTA run from about 15 percent to 30 percent. An FTA would position U.S. enterprises to take advantage of Taiwan’s ongoing transition toward a service-oriented economy.

The island, with widespread economic penetration throughout Asia, would provide a base for U.S. enterprises to expand their reach. More important, Taiwan’s proximity to China and increasing economic integration with the mainland would indirectly boost American ties with the PRC. Since Beijing views Taiwan as part of one China, U.S. firms operating in Taiwan and investing in Taiwanese concerns might find improved access to the larger China market.

Other, larger geopolitical considerations also favor an FTA.

Such an agreement would strengthen Taiwan’s position as it deals with a China determined to absorb the island.

An FTA would help grow the Taiwanese economy. The Institute for International Economics suggests that such an arrangement would further integrate Taiwan into East Asia. Enhancing Taipei’s relative economic importance would increase its neighbors’ stake in regional stability.

The tighter Taiwan’s links to surrounding nations, the higher the price everyone would pay in any military conflict. Neighboring countries would be more likely to press the PRC to rely on peaceful, evolutionary developments to bring Beijing and Taipei together.

A U.S.-Taiwan FTA would further demonstrate America’s commitment to Asia as that region races past Europe in importance for America’s future. Washington should forge similar agreements with other countries in the region.

Unfortunately, opposition to free trade is rising in Washington, even among Republican legislators. However, the benefits of moving ahead with a U.S.-Taiwan FTA are too great to ignore.

Doug Bandow is the Cobden Fellow in International Economics at the Institute for Policy Innovation and a member of the Coalition for a Realistic Foreign Policy.

General OpinionOpinion

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