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Taiwan in International Economic Relations

Political Context

In 2020, President Tsai Ing-wen of Taiwan won re-election with 57% of the vote, retaining control of the legislature through her party, the Democratic Progressive Party (DPP). Upon taking office in 2016, Tsai faced expectations from the electorate for economic revitalization, focusing on key areas:

  • High economic growth

  • Low unemployment

  • Equitable income distribution

  • Affordable housing

  • Food safety

  • Improved quality of life

Despite Taiwan's success in managing the COVID-19 pandemic—having reported only 724 confirmed cases and seven deaths by December 2020—Tsai's administration has encountered ongoing challenges. Taiwan's economic progress is constrained due to global economic slowdowns and its exclusion from various international economic frameworks.

Economic Challenges and Opportunities

The chapter delves into how Tsai's administration can strengthen Taiwan's economic statecraft amidst these challenges:

  1. Building on Past Economic Statecraft: Forming successful partnerships through the World Trade Organization (WTO) and furthering multilateral agreements.

  2. Expanding Bilateral FTA Negotiations: Focusing on partners within multiple trade blocs to enhance Taiwan's economic standing.

  3. Maximizing GVC Integration: Deepening de facto economic connections through investment and participation in Global Value Chains (GVCs).

  4. Maintaining Stability with China: Adopting a conciliatory approach to avoid provocations, crucial for cross-Strait relations.

  5. Seeking Mega-Regional Trade Memberships: Pursuing participation in major trade deals to reduce reliance on the Chinese market.

  6. New Southbound Policy: Enhancing economic ties with South and Southeast Asian nations.

Together, these strategies aim to globalize Taiwan's economy, leading to both significant economic benefits and political gains in international recognition.

Historical Economic Trends

Prior to the 1990s, Taiwan managed to counteract the negative impacts of diplomatic isolation by expanding trade and investment with various partners, maintaining robust growth rates averaging 7.49% from 1991 to 1995. This growth has since been hindered by:

  • Increased free trade agreements (FTAs) in the Asia-Pacific region, limiting Taiwan's economic participation when compared to Korea, which has established multiple FTAs.

  • The rising prominence of China and its subsequent exclusionary policies against Taiwan, pushing it to the edges of international economic activities.

Taiwan's average growth rate decreased steadily from 5.93% (1996-2000) to 2.76% (2016-2019). Concurrently, issues such as stagnating real wages and increased unemployment emerged, exacerbated by globalization's effects.

International Economic Relations

Participation in Multilateral Institutions

Taiwan's WTO membership offers advantages through the Most Favored Nation (MFN) principle, applicable to more than half of global trade flows. Taiwan has joined several sector-specific trade agreements:

  • Information Technology Agreement (ITA): Revamped in 2015 to cover a broader range of IT products, Taiwan's participation helps secure a crucial market share in this vital sector. For instance, ITA II encompasses about $1.3 trillion in global trade, significantly benefiting Taiwan's ICT sector.

  • Government Procurement Agreement (GPA): This agreement allows Taiwanese suppliers to compete internationally for government contracts.

  • Trade Facilitation Agreement (TFA): Expected to increase Taiwan’s GDP by $3.9 billion and exports by $3.3 billion if fully implemented, necessitating improvements in regulatory frameworks and port facilities.

Despite China’s opposition thwarting many FTAs, Taiwan’s engagement in multilateral platforms sustains its international economic relations.

APEC Membership

Taiwan's entry into the Asia-Pacific Economic Cooperation (APEC) under the designation "Chinese Taipei" has facilitated interactive participation in trade discussions. Although representation is constrained and Taiwan has not attended summits directly, it maintains engagement through chief negotiators and relevant ministers addressing critical trade issues.

Opportunities for Bilateral Agreements

Taiwan's bilateral trade agreements have seen limited success largely due to China's influence over other nations. While past FTAs with Latin American countries accounted for only 2% of trade, recent agreements with New Zealand and Singapore highlight Taiwan's pursuit of deeper ties within multiple trade blocs—especially significant because both are members of the RCEP and TPP.

Economic Cooperation with China

Taiwan's current economic relations with China, its largest trading partner since 2004, are complicated by political tensions. The Economic Cooperation Framework Agreement (ECFA) signed in 2010 aimed to facilitate trade, but negotiations stalled under Tsai's administration, especially after the opposition surrounding the Cross-Strait Services Trade Agreement (CSSTA). The socio-political implications of these engagements drive debates on sovereignty and the potential for economic dependency on China.

Trade with Japan and the United States

Taiwan’s trade relations with Japan amounted to $67.22 billion in 2018, supported by a bilateral investment agreement established in 2011. The contentious issue of food safety regarding imports from the Fukushima area complicates negotiations around Taiwan’s membership in the CPTPP.

In discussions regarding the U.S.-Taiwan Trade and Investment Framework Agreement (TIFA), contentious issues surrounding food safety have impeded progress. Notably, Tsai's administration signaled intentions to lift certain bans on U.S. pork—complicating local political dynamics but potentially easing negotiations for an expansive U.S.-Taiwan trade agreement

Engaging with Global Value Chains

Taiwan's participation in GVCs positions it among the top exporters globally, emphasizing the value-added in cross-border collaborations. However, Taiwan faces challenges as Chinese manufacturers evolve into direct competitors and localization trends reduce reliance on intermediate goods from Taiwan. Taiwan's strategic direction should focus on increasing its value-added share and technology advancement within these global supply chains.

Pursuing Trade Block Membership

Taiwan's aspiration to join emerging trade blocs, such as RCEP and CPTPP, is crucial for its economic future. Engagement with these frameworks could boost Taiwan's globalization efforts while mitigating economic isolation from international markets.

RCEP's formation from existing ASEAN FTAs emphasizes trade liberalization but poses barriers to Taiwan's participation due to China's opposition. Conversely, CPTPP membership represents an opportunity for deeper integration, attracting major sponsorship from Japan, aligning with Taiwan's interests in expanding its economic footprint in the region.

Taiwan's strategies for joining these economic agreements must navigate complex geopolitics while capitalizing on existing partnerships and increasing domestic economic resilience.

Conclusion

Taiwan's international economic standing, primarily through its WTO and APEC membership, positions it amid significant challenges—chiefly from China's diplomatic strategy and exclusion from broader trade frameworks. However, Taiwan's economic survival hinges on proactive statecraft to forge meaningful partnerships, increase international visibility, and structure domestic reforms to support sustainable growth amid heightened global competition.