Cashing in Taiwan’s Chips: Trade Deals and Divergent Interests from Washington and Tokyo

Written by Shihoko Goto. 

Image credit: The logo of Taiwan Semiconductor Manufacturing Co (TSMC) by 李季霖/ Flickr, License: CC BY-SA 2.0.

The momentum for Taiwan to be an integral part of the global economic community is reaching unprecedented levels. Taiwan’s ability to keep the pandemic at bay when the international community was first gripped by the rapid spread of covid in early 2020 certainly opened the world’s eyes to Taipei’s efficient, capable responses to emergencies. But the disruptions to global supply chains and the recognition of Taiwan dominating the international semiconductor manufacturing market have catapulted Taiwan’s economic standing. At the same time, growing concerns about ensuring the status quo in cross-Strait relations have only raised awareness of the fragile situation that Taiwan finds itself in. The question is whether Taiwan has suitably leveraged its advantages to ensure its economic prospects and safeguard its future. 

The prospect of joining CPTPP has been regarded as a core part of resolving some significant challenges facing Taiwan. When the Tsai administration announced its interest in joining the Comprehensive and Progressive Trans-Pacific Partnership agreement in late September 2021, few were surprised. After all, Taipei had declared its interest in joining the preceding Trans-Pacific Partnership agreement, especially after the United States announced its interest in joining the pact in November 2009. For Washington and Tokyo, though, the need to balance supporting Taiwan’s economic future must be considered together with the risk of Chinese backlash against them as much as Taipei. 

At the same time, the United States and Japan have evolved where they see their trade relations moving forward. No longer are trade imbalances a sore point of contention and concerns about market access in their respective countries a top priority for negotiations. Indeed, the focus for Washington and Tokyo has been to provide a framework and rules of engagement that would push back against Chinese economic coercion. In short, the two countries are effectively working towards a mechanism that would offer collective economic deterrence against Beijing, with the expectation that the United States and Japan would lead the way in pre-empting China from effectively weaponizing its economic dominance in Asia.

In light of the focus on collective economic defence, the Biden administration’s recently launched Indo-Pacific Economic Framework fits into the broader U.S. goal of pushing back against China by partnering with like-minded countries. Given that Taiwan shares those goals with Washington and the fact that IPEF is a U.S. initiative whereby the White House can determine membership and content, Taipei’s disappointment verging on alarm about not being included in the latest framework has been expected. After all, the Tsai administration had made unpopular concessions to both the United States and Japan by opening Taiwan to the U.S. and Japanese agricultural exports despite public concerns about food safety. Those concessions were inevitable for Taiwan as a price to be paid to further ties with two of the world’s biggest economies. Unfortunately, that did not make a move any less unpopular with Taiwanese voters, and the government has been under pressure to deliver in return. 

From the U.S. perspective, the U.S.-Taiwan Initiative on 21st Century Trade, signed a week after IPEF’s official launch delivers a roadmap to accommodate the needs of the two sides. More significantly, the bilateral initiative is a concrete step in affirming Washington’s commitment that goes beyond rhetoric to support Taiwan. There is also an expectation that, given that negotiations only need to be conducted between the two parties, rather than going through collective efforts of negotiations and potential compromise, the US-Taiwan deal could actually move forward at a far quicker pace than IPEF. After all, when it comes to economic relations, Washington clearly needs Taipei in its efforts to bolster its own technological capabilities and, above all, secure its semiconductor supply chain. The motivation for the Biden administration to move forward quickly is apparent. 

It would be foolhardy for Taiwan to focus too heavily on the need to join IPEF and go beyond the bilateral deal with the United States to bolster its international standing. IPEF is not the mechanism in which to provide greater clarity to the U.S. position on Taiwan. Rather, the goal of the latest bilateral trade initiative with the United States should be to encourage similar deals with other staunch supporters, especially Japan. Bearing in mind that semiconductor behemoth TSMC was able to reach its commanding height without Taiwan being part of a multilateral trade deal, the focus for Taipei must be to develop strategies that would ensure its economic future at a time when technological interoperability and spheres of trust will be defining trade relations. Taiwan’s challenge will be less about market access for its competitive products but to have its technology remain compatible and, primarily, trustworthy in the ecosystems being developed by the United States, Japan, and other like-minded countries in the face of an ever-growing China threat. 

Taiwan’s ultimate goal must be to ensure its economy remains resilient and irreplaceable. Accordingly, priority must be given to ensuring its technology industry is compatible and compliant with the standards that are now being established between the United States and Japan. The focus thus must remain on ensuring its future economic relevance and resiliency rather than on furthering its diplomatic presence and international stake.

Shihoko Goto is the Acting Director of the Asia Program and Deputy Director for Geoeconomics at the Wilson Center Asia Program. She is also a columnist for The Diplomat magazine and contributing editor to The Globalist. Before joining the Wilson Center, she was a financial journalist covering the international political economy, focusing on Asian markets for Dow Jones News Service and United Press International. She was also formerly a donor country relations officer at the World Bank. She received the Freeman Foundation’s Jefferson journalism fellowship at the East-West Center and the John S. and James L. Knight Foundation’s journalism fellowship for the Salzburg Global Seminar. She received an M.A. in international political theory from the Graduate School of Political Science, Waseda University, Japan, and a B.A. in Modern History, from Trinity College, University of Oxford. 

This article was published as part of a special issue on “Comprehensive and Progressive Agreement for Trans-Pacific Partnership.”

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