Taiwan’s foreign trade strategies following US presidential election

  • Date: 2016-12-02

I. Background

On November 8, 2016, Republican candidate Donald Trump and his running mate Mike Pence were elected president and vice president of the United States, and the Taiwan government promptly forwarded a congratulatory letter from President Tsai Ing-wen to the president-elect. The letter emphasized that Taiwan-U.S. relations have steadily developed under the principles set out in the Taiwan Relations Act and the Six Assurances, and expressed hope that under President Trump’s leadership and with Taiwan’s cooperation, bilateral relations will continue to grow so that both sides can work together to promote peace, stability and prosperity in the Asia-Pacific region.

As Taiwan’s second largest trading partner, third largest export market and third largest source of imports, the U.S. has a profound impact on Taiwan’s economy and trade. During his election campaign Mr. Trump advocated putting “America First” and a policy agenda that included encouraging domestic manufacturing, withdrawal from the Trans-Pacific Partnership (TPP), and ending unfair trade deals. This was a distinct shift away from traditional U.S. support for trade liberalization and globalization that is expected to change the course of global trade.

In response, the Taiwan government will continue to make every effort to stabilize the domestic financial markets, and maintain the momentum of the nation’s economic recovery by fast-tracking budget utilization, implementing investment expansion programs and the “five plus two” industrial innovation research and development (R&D) plan. It will also establish a new and mutually beneficial industrial division of labor model for Taiwan and the U.S. while strengthening diversified external trade strategies and facilitating domestic economic transformation to ensure stable development.

 

II. Respond to global economic factors by boosting domestic demand and investment

Forecasts by many economic institutions at home and abroad predict that global economic performance will improve next year. The global economic outlook, however, is still fraught with uncertainty regarding the new U.S. administration’s trade policies, the U.S. Federal Reserve’s timetable for raising interest rates, the United Kingdom’s withdrawal from the European Union, and the spillover from the structural transformation of mainland China’s economy. To reduce any impact on the pace of Taiwan’ economic recovery, the government plans to adopt the following measures to boost domestic demand and stimulate investment:

 

A. Promote the “five plus two” industrial innovation R&D plan and investment expansion programs to spur private-sector investment; amend the Company Act, relax residency restrictions on foreign talent in Taiwan, and make every effort to reform the nation’s economic structure.

B. Expand public works, fully utilize allocated budgets and accelerate urban renewal in order to stimulate domestic demand.

C. Plan and promote a new energy conservation plan that raises energy efficiency and expands domestic demand through government-led energy-saving initiatives, with industry responding in kind and the public participating.

D. Encourage financial institutions to strengthen risk control and self-regulation capabilities as a prerequisite to developing new financial products for investors; tap into business opportunities in investment, financing and wealth management created by infrastructure expansion and tax cuts in the U.S.

 

III. Optimize opportunities to establish a new, mutually beneficial Taiwan-US industrial division of labor model

During his election campaign the president-elect proposed “America First” policies, advocating bringing manufacturing back to the U.S. to create domestic job opportunities. He may also institute trade protection measures including high tariffs on mainland China and Mexico, which would change the current division of labor model wherein the U.S. places orders and mainland China manufactures products. To minimize the likely impact on Taiwan the government will establish a new, mutually beneficial Taiwan-U.S. division of labor model to take advantage of opportunities presented by the return of manufacturing to the U.S., linking up with U.S. industry by:

 

A. Strengthening links with U.S. in terms of technical R&D, advanced manufacturing and market expansion to upgrade Taiwan industries, integrate them into the U.S. industrial value chain, and bolster their innovation capabilities.

B. Strengthening Taiwan-U.S. cooperation in big data and internet of things to enhance bilateral digital economic ties so that Taiwan-Silicon Valley cooperative partnerships form a growth community.

C. Using Taiwan’s advantages in turnkey projects to form strategic alliances with multinational corporations to enhance Taiwan’s competitive advantages and facilitate the export of construction services to the U.S. petrochemical and infrastructure construction industries.

 

IV. Follow TPP developments, strengthen diversified external trade strategies

As Taiwan is an export-oriented economy, increasing foreign trade has always been an integral part of government economic policy. In both her inaugural address and National Day speeches, President Tsai Ing-wen highlighted the importance of Taiwan’s active participation in multilateral and bilateral economic cooperation and free trade negotiations. The government will therefore adjust its efforts to join the TPP based on the pact’s ratification status, and continue to strengthen economic and trade exchanges with countries in targeted regions, promote the New Southbound Policy, and seek to sign free trade agreements. Trade-diversification strategies include:

 

A. Continue to fortify exchanges and cooperation with TPP members

Whether the TPP enters into force or not, member states have already adjusted and modified their trade systems and regulations to meet TPP standards. Taiwan has close trade ties with these member states, which account for 36.91 percent of the nation’s total trade. The government will therefore continue to adopt new TPP standards, not only to improve Taiwan’s economic and trade structure and make trade systems more efficient, but also to keep the nation’s international trade mechanisms in synch with the 12 TPP members and maintain existing production chains.

B. Seek multilateral and bilateral trade cooperation

The government will continue to participate in multilateral trade negotiations and discuss various issues under the framework of the World Trade Organization, and seek breakthroughs in signing bilateral free trade agreements and economic cooperation agreements. Under the New Southbound Policy, the government seeks to foster economic cooperation, personnel exchanges, resource sharing and regional connectivity to create new, mutually beneficial models for collaborating with the 18 targeted countries, encompassing the Association of Southeast Asian Nations, South Asia, Australia and New Zealand.

C. Continue to deepen Taiwan-U.S. trade exchanges

The government will continue to enhance bilateral trade and economic cooperation with the U.S. under the Trade and Investment Framework Agreement, communicate and negotiate on various trade issues using existing collaboration platforms including the Taiwan-USA Industrial Cooperation Promotion Office, the U.S.-Taiwan Business Forum and the U.S.-Taiwan Digital Economy Forum and seek to ink a bilateral investment agreement and free trade agreement with the U.S.

 

V. Conclusion

The new U.S. administration’s policy direction will have a significant impact on the global economic recovery and trade liberalization. Based on the nation’s existing solid ties with the U.S., the government will seek to further cement Taiwan-U.S. relations by keeping in close contact with president-elect Trump’s transition team and new administration. It will also keep a close watch on global political and economic developments, fortify regional links, and continue cooperation with the U.S. and other Asia-Pacific countries to promote peace, security, prosperity, stability and sustainable development in the Asia-Pacific region.