Prospects of a US–Taiwan Free Trade Agreement: The China Factor and Critical Assessments

Abstract

We first examine Taiwan’s position in the world economy. This is followed by discussions of Taiwan’s role in the US economy, and its role in the Chinese economy, both as special state-to-state economic relations. We compare and contrast Taiwan with the countries with which the United States International Trade Commission (USITC) has concluded or has been negotiating bilateral free trade agreements (FTAs).We submit that Taiwan’s important role in the Chinese economy will benefit the United States under a US-Taiwan FTA. The next section introduces the concepts and theory of free trade agreement in general and reviews some recent literature on FTA discussions between Taiwan and the United States. Based on a current study, we illustrate the results of Global Trade Analysis Project (GTAP) modeling diagrammatically, and study the costs that accrue to Taiwan if Taiwan and the United States are excluded from six Asian FTA scenarios, and the benefits to Taiwan if Taiwan is included and if a US-Taiwan FTA is formed. We also expand our scope and discuss the cost-benefits of FTA among members and non-members of FTA under different scenarios. Next we evaluate critically four major bilateral trade issues between the United States and Taiwan. We then examine geo-economic issues, including possible contributions of Taiwan and expected competitive liberalization triggered by a US-Taiwan FTA arrangement. The last section concludes with discussions of geopolitical considerations related to The China factor and US foreign policy in completing a US-Taiwan FTA.