US-Taiwan 21st Century Trade Initiative: What’s Next?

As the U.S. presidential race unfolds, Taiwan finds itself on tenterhooks, each political event across the ocean potentially recalibrating the delicate triangular relation in which Taiwan is bound. Beyond scouring party platforms for Taiwan-related rhetoric—or its absence—keen observers focus on candidates’ off-the-cuff remarks and rumors of potential cabinet members. Every word is seen as a possible sign of future policy.

Yet, while the military-centric “to defend or not to defend” debate continues to dominate the discourse, it overshadows an equally crucial and more immediate concern: the fate of the US-Taiwan 21st Century Trade Initiative. This unconventional agreement, bereft of traditional tariffs and market access provisions, stands at a crossroads. How will this innovative trade pact adapt to shifting geopolitical currents? What adjustments might be needed to keep it relevant during and after election seasons? Or will it become a mere bargaining chip, sacrificed for short-term political gains?

Divergence and convergence with trade

There is often a saying that Taiwan is one of the few issues both sides of the aisle can agree on, but the same is true for trade. Fair, balanced, and healthy trade relations are what both mainstream Democrats and Republicans promise. However, neither side provides a clear definition of what this looks like or what approach they will pursue.

Former President and current Republican presidential candidate Donald Trump is brandishing his tariff strategy with renewed vigor, pledging to implement far-reaching tariffs—up to 60% or higher—on all Chinese imports. This hardline stance not only signals a continuation of his previous administration’s protectionist policies but also hints at a possible intensification of such measures. Allies should not expect a waiver from these tariff threats. Both long standing economic partners and perceived adversaries alike may face indiscriminate treatment with varying tariff rates, as Trump views every country’s trade surplus with the U.S. as inherently unfair. Regarding trade agreements, Trump tauts two key actions during his previous term—negotiating the USMCA and withdrawing from the CPTPP.

On the other hand, Vice President and current Democratic presidential candidate Kamala Harris has articulated a more measured perspective on trade policy. Her approach aims to address domestic economic concerns while maintaining international engagement. Harris’s vision centers on prioritizing the interests of the middle class, signaling a shift towards more worker-centric trade agreements. This stance could lead to a reevaluation of existing trade partnerships and the negotiation of new agreements that place greater emphasis on labor rights, environmental protections, and equitable economic growth.

Trade deals: not a new one, but the remaining one?

Any trade agreement currently in progress may undergo significant changes, ranging from recalibration to complete renegotiation, or in some cases, outright termination—a situation the US-Taiwan 21st Century Trade Initiative now faces. Should Trump be elected, potential appointees to the Office of the United States Trade Representative (USTR) and the Department of Commerce could dim the initiative’s future considerably. If Robert Lighthizer, Trump’s former trade representative, were to fill one of these two key trade positions, two outcomes would not be surprising: continuation with revisions or termination without replacement. However, Taiwan should prepare for both worst-case and less-worse scenarios, rather than staying on a passive “wait-and-see” posture. Indeed, the only predictable element in this situation is its unpredictability.

Trilateral approach to secure the deal

Taipei would be wise to adopt a three-pronged approach that engages stakeholders across the U.S. political and industrial spectrum. First, crafting a compelling narrative for the White House is paramount. Instead of highlighting how important sealing a trade deal with the U.S. will be for Taiwan, it needs to emphasize how such a deal can streamline cross-country financial and merchandise flows, especially increasing Taiwan’s exports and investments to U.S. states, from Arizona to Georgia. Importantly, the messaging should explicitly state that unlike traditional Free Trade Agreements (FTAs), tariff reduction and service market access are not present in the U.S.-Taiwan trade agreements, which should greatly decrease antagonism toward the deal.

Second, securing bipartisan support in Congress should be the baseline for moving forward. Efforts should be made to garner strong and consistent backing from both sides of the aisle in the legislative branch, emphasizing the trade agreement’s alignment with Congress’s staunch support for Taiwan against economic coercion and diplomatic isolation, and adding momentum for Washington to bring industrial competitiveness back home.

Third, state-level actors and interest groups should be engaged proactively. Taiwan should focus on demonstrating the tangible benefits that local communities and businesses stand to gain from the trade deal, thereby building grassroots support and leveraging the influence of governors and lobby groups. Moreover, Taiwan should hold business roundtables in different sectors or invite industrial groups to identify potential areas for cooperation and collaboration. While not guaranteeing success regardless of which candidate is elected, engaging with these three groups frequently and with persuasive talking points will put Taiwan in a better position to face potential political shifts on trade.

Taiwan’s future linked with the deal

President Lai Ching-te’s inauguration speech in May clearly anchored Taiwan’s future to a robust partnership with the United States. Lai identified five key sectors critical for the island’s growth and security: semiconductors, artificial intelligence, military technology, security and surveillance systems, and next-generation communications— every one of which rely heavily on American technological know-how.

This sends a clear message to Washington about Taipei’s commitment to aligning its policy priorities and technological capabilities with U.S. interests, fostering a mutually beneficial relationship. The appointment of Economic Minister Kuo Jyh-Huei, a businessman-turned-politician and prominent member of the “New Eastbound Alliance,” further underscores Taiwan’s dedication to strengthening economic ties with the United States.

However, the path to a comprehensive trade deal is fraught with obstacles. According to a negotiator involved in the talks, contentious issues have emerged, particularly surrounding agricultural exports—with beef being a notable point of contention—and labor rights. These challenges were not entirely unforeseen; as negotiations delve into more complex and sensitive areas, the process naturally becomes more arduous. The current political climate adds another layer of uncertainty to the negotiations. With the Biden administration approaching the end of its term, progress on bilateral trade deals may stall temporarily.

The future of these negotiations likely hinges on the priorities and approach of the next U.S. administration, potentially leading to a period of reassessment and realignment in U.S.-Taiwan economic relations. This pause, while potentially frustrating for those eager for immediate progress, is a reality that all democracies face.

(Featured photo by Adrian on Pixabay)