Partial U.S.-Taiwan trade deal is just a first step but China still hates it

The United States and Taiwan signed a modest trade agreement Thursday, underscoring Washington’s commitment to the self-governing island that China claims as its own.

The partial accord, covering issues such as customs forms, regulatory practices and anti-corruption measures, falls short of a traditional trade deal. It does not change tariffs on traded goods and does not address Taiwanese complaints about double taxation in the United States, which will be tackled in separate talks with the U.S. Treasury.

Still, the agreement represents the first tangible progress under the U.S.-Taiwan Initiative on 21st Century Trade, which the Biden administration launched last year. Additional negotiations on labor, environmental and digital trade rules are scheduled for the remainder of this year.

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“It’s a significant milestone in the U.S.-Taiwan economic relationship. We’ve never really had a written agreement with them containing actual commitments before,” said Wendy Cutler, vice president of the Asia Society Policy Institute and a former U.S. trade negotiator.

Though home to fewer people than Texas, Taiwan is a critical node in the global economy. Its semiconductor industry produces 92 percent of the world’s leading-edge computer chips, according to Commerce Secretary Gina Raimondo.

In recent years, U.S. imports from Taiwan have been growing faster than exports. U.S. customers purchased $92 billion worth of Taiwanese products in 2022, up more than 69 percent from 2019 levels. U.S. companies sold almost $44 billion in products to Taiwan, representing a 40 percent gain from the pre-pandemic mark.

The deal comes as tensions over Taiwan, which Beijing regards as a renegade province, remain high. Chinese President Xi Jinping has called the reunification of Taiwan and the mainland “a historic mission.” Some U.S. military leaders have warned that China could try to regain control of the island by force in the next few years.

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Efforts to boost commercial links between the United States and Taiwan are part of a broader campaign to discourage Beijing from acting. Over the past year, top U.S. officials — such as then-House Speaker Nancy Pelosi (D-Calif.) and Rep. Mike Gallagher, the Republican chair of the House select committee on China — have visited the island.

“Its economic impact is very limited but, combined with other actions including highly visible meetings between U.S. and Taiwanese officials, its diplomatic impact could prove meaningful,” said attorney John Veroneau of Covington & Burling, a former U.S. trade negotiator.

China has repeatedly warned the United States against deepening its official ties with Taiwan. Despite its limited scope, the agreement inked on Thursday drew an immediate rebuke from Beijing.

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“The U.S. should stop any form of official exchanges between the U.S. and Taiwan, refrain from negotiating agreements with Taiwan that have sovereign connotations and are official in nature, and refrain from sending any false signals to the ‘Taiwan independence’ separatist forces in the name of economic trade,” said Mao Ning, a spokeswoman for the Foreign Ministry in Beijing.

The United States began work on a Taiwan trade deal last year, shortly after starting a separate negotiation with 13 countries called the Indo-Pacific Economic Framework. That deal also lacks traditional market access provisions, a feature that has sparked complaints from American business groups.

Though Taiwanese officials also would prefer a deal that facilitated trans-Pacific commerce by lowering tariffs, Taipei is intent on completing a package that produces “the high-standard commitments and meaningful outcomes” that the United States is seeking.

“This is only phase one of the agreement, and it is mostly the low-hanging fruit — the easiest things to agree on. Phase two will be more significant but also more difficult, though I do think they’ll finish by the end of this year,” said William Reinsch, a trade specialist at the Center for Strategic and International Studies.

The partial agreement was signed by officials from the American Institute in Taiwan, the de facto U.S. Embassy in Taipei, and the Taipei Economic and Cultural Representative Office in the United States, which represents the Taiwanese government in Washington.