Following a meeting with the American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office in the U.S. (TECRO), the U.S.-Taiwan trade initiative was instated by the two titular countries. The United States signed the trade deal with Taiwan on June 1 to deepen trade connections, strengthen economic ties, and streamline customs. In response, China has denounced the discussion of trade between the U.S. and Taiwan.
History of the U.S. and China in Relation to Taiwan
The Chinese Communist Party, the ruling party of the People’s Republic of China (PRC), historically touts under its One China Principle that Taiwan is one of its 23 provinces. Taiwan, however, considers itself an independent nation. Trade deals and other international relations between Taiwan and the U.S. jeopardize this image of a unified China, and the PRC has protested the United States’ most recent trade agreement with Taiwan on this basis.
The embassy in Washington D.C. and the Ministry of Foreign Affairs in Beijing both sounded alarm bells following the trade announcement. China claims the initiative violates the One China Principle. Under the One China Principle that was passed in 1979, the U.S. acknowledges—though does not recognize—China’s position in claiming ownership of Taiwan.
In 1982, as part of the U.S.-China Communique, the U.S. stated that they have no position in pursuing a “two China” or “one China, one Taiwan policy.” As a result of this statement, the U.S. maintains formal relations with the PRC and unofficial relations with Taiwan.
Despite the United States having previously acknowledged China’s diplomatic stance on Taiwan, the U.S. nonetheless holds a vested interest in maintaining friendly and peaceful relations with Taiwan. The Taiwan Relations Act (TRA) was passed in 1979 to protect U.S. security and commercial interest in Taiwan. The June 1 trade initiative is an extension of the TRA in that it maintains the idea of fostering stability between the two countries and providing security to Taiwan.
What Will This Deal Accomplish?
Taiwan is an important trade partner to the U.S. because of its open economy. In 2015, Taiwan became the ninth-largest trading partner of the United States. Trade of goods between the two countries in 2020 alone was $90.6 billion.
The new trade initiative makes it easier to sell products to Taiwan by cutting red tape in terms of customs and smoothing out border procedures. The initiatives outlined in the trade deal allow the U.S. and Taiwan to partake in less expensive and quicker trades. Historically, the June 1 trade deal with Taiwan is the first written obligation to maintain an economic relationship with commitments between these two countries.
Why is Taiwan Important for Trade?
Taiwan is critical to the global economy due to many of its exports. Most notably, Taiwan produces 92% of the world’s semiconductor computer chips. In recent years, U.S. imports from Taiwan have started to exceed export rates. In 2022 alone, U.S. customers purchased $92 billion worth of products from Taiwan. In return, the U.S. sold $44 billion worth of products to Taiwan. Between 2019 and 2022, commercial imports increased 69%. The new trade deal could expedite the economic growth that is already evident between the U.S. and Taiwan.
Regardless of how important this trade deal is to the economic growth of both countries, the political repercussions are worrying. In August of last year, then Speaker of the House Nancy Pelosi visited Taiwan to prove U.S. support and defense for a democratic Taiwan. Beijing considered Pelosi’s visit to the island in August a dangerous act. Cross-strait tensions have risen in part due to the fear that a potential Chinese attack on Taiwan could bring the U.S. into war with China.
As part of the Taiwan Relations Act, the U.S. must act in support of Taiwan and its safety. While Taiwan views itself as a separate entity from China, China views Taiwan as a self-ruled territory of China that they want to reclaim. In turn, the U.S. maintains informal, but friendly, relations with Taiwan that include the sale of defense equipment under the guise of protection. Beijing does not perceive this arrangement favorably—just as they do not condone the new trade deal.