US Should Pursue More Trade With Taiwan, Experts Say

“We talk a lot about our dependence on China, but we are equally and in some ways even more dependent on Taiwan, particularly in very advanced areas of semiconductor manufacturing,” said David Moschella, a research fellow at the Leading Edge Forum, speaking during an Oct, 7 event hosted by the Information Technology and Innovation Foundation. Taiwan may soon become a main alternative to Hong Kong, Moschella said, which has become subject to a range of trade restrictions after the U.S. certified earlier this year it was no longer autonomous from mainland China. Those restrictions include sanctions, export controls and the suspension of license exceptions (see 2008070039, 2008270032 and 2006300050).

“Our competitive position if Taiwan is the next Hong Kong” would benefit U.S. industry, Moschella said. “It's considered a vital issue in the future of the tech sector.” Both Taiwanese and U.S. officials have pushed for a free trade deal (see 2008130010 and 2010020020).

Although the U.S. should pursue more trade with Taiwan, the U.S. should be careful not to further damage its relationship with Beijing, U.S.-China Business Council President Craig Allen said. China has warned the U.S. against cooperating with Taiwan on arms sales and other matters (see 2007140018). “It's an area where the U.S. and China could come to blows,” Allen said. “It is one of the most dangerous geopolitical issues we have out there, and we should treat it with enormous sensitivity.”

Allen suggested that both the U.S. and Taiwan join the Trans-Pacific Partnership, which he said would “effectively give us a bilateral FTA through a regional FTA.” He said the U.S. “needs creative diplomacy on this. With that, we could go a long way.”

James McGregor, who oversees the greater China region for APCO, a consulting firm, said the U.S. has an “obligation” to work more closely with Taiwan as China tries to block them from bilaterally cooperating with other countries. “It could inflame China so much that it's bad for Taiwan but I can’t make that judgment,” he said. “I'm all for America having a robust and friendly and actually somewhat protective relationship with Taiwan.” But Allen stressed caution. “Taiwan should not be the primary U.S.-China issue,” he said. “If it becomes the centerpiece of the relationship, we're going to pay a high price.”

Allen also emphasized the importance of a phase two deal with China, which he said is possible and could successfully address a range of delicate trade issues, including transparency among Chinese state-owned enterprises, government subsidies and disagreements in technology policy. But Allen also said the U.S. should expect “incremental” progress on those issues and a challenging set of negotiations. “If we do this with our European and Japanese colleagues, I think we can absolutely make incremental progress, and we should not give up on that,” he said. “But we should also not underestimate how difficult it will be.”

McGregor was less optimistic about a phase two deal, especially if U.S. negotiators come too strong with sweeping demands. “Phase two, as structured, is basically saying to China, 'Change your system,'” he said. “And I don't think they have any inkling to do that.” But McGregor added that the two sides should resume talks to try to make progress. “We need discussions. We need dialogues,” he said. “And if phase two is the structure for that, I’m all for talking.”