1. Background
Taiwan WTO & RTA Center of Chung-hua Institution for Economic Research (CIER) and Center for Strategic and International Studies (CSIS) jointly held a one-day seminar on “Digital Trade, Supply Chains, and Economic Security: Perspectives from Taipei and Washington” on October 19, 2023.
The seminar comprises three sessions, each featuring expert speakers representing views from Washington and Taipei. The seminar addressed topics such as U.S.–Taiwan cooperation on digital trade issues, global trends in supply chain reform and Taiwan’s role, and ways in which allies and partners could collaborate to deter economic coercion by China.
2. Enhancing the Digital Economy: Indo-Pacific Economic Framework and the US-Taiwan Initiative on 21st Century Trade
The first session titled “Enhancing the Digital Economy: Indo-Pacific Economic Framework and the U.S. -Taiwan Initiative on 21st Century Trade,” moderated by Erin Murphy, Deputy Director at CSIS. The speakers shared their views on how Taiwan and the U.S. can work closer through the U.S.-Taiwan Initiative on 21st Century Trade or IPEF on digital trade issues, and the prospects for bilateral cooperation through IPEF. The key views from the discussions are summarized as follows:
- Given that the U.S. administration has increasingly engaged in non-binding trade deals without the need for congressional involvement, there is flexibility in negotiations, but concerns are also raised about the sustainability of such deals.
- While the Congress emphasizes closer cooperation with Taiwan, offering an opportunity to overcome diplomatic constraints, it also hints at potential stricter conditions in future Taiwan-US negotiations.
- To expedite the trade negotiation process, Taiwan should align its interests with those of the U.S. Congress to exert pressure on the administrative branch of the US government.
- Taiwan should signal its preparedness to engage in trade agreements with a high level of commitment, demonstrating its willingness to contribute meaningfully to the trade relationship. By emphasizing its dedication to mutually beneficial agreements, Taiwan can navigate the complex terrain of international trade negotiations more effectively and strengthen its position on the global stage.
- Taiwan prioritizes digital trade through internal initiatives like DIGI+, focusing on development, innovation, governance, and inclusion. Externally, it engages in digital trade negotiations, collaborating with the U.S. and participating in global forums like APEC and the WTO.
- To enhance digital cooperation, policymakers should prioritize critical trade issues between Taiwan and the U.S., integrating non-binding DEPA principles into binding regulations, focusing on areas like Business Facilitation and Data Security. While not part of IPEF, Taiwan can collaborate on digital trade through APEC forums, establishing U.S.-Taiwan Joint Committees and IPEF contact points for effective communication. Active engagement and strategic partnerships can position Taiwan as a significant contributor to global digital trade and safety measures, solidifying its role in the digital economy.
3. Diversifying and Building Resilient Supply Chains
The second session titled “Diversifying and Building Resilient Supply Chains,” moderated by Dr. Huai-Shing Yen, Senior Deputy Executive Director at the Taiwan WTO & RTA Center, CIER. The session aimed at exploring key questions surrounding the impacts and direction of global supply chain reform, Taiwan's contribution to the global supply chain, and its role in supporting the IPEF supply chain agreement. The observations drew from the session are underlined as follows:
- Taiwan strategically focuses on de-risking and fortifying supply chain resilience, diversifying investments away from China. While 80% of outbound FDI was once directed to China, recent data shows a substantial decrease to $ 4 billion from 14.14 billion.
- Taiwan’s export trade flow reflects a surge in investments in the Indo-Pacific and ASEAN regions, demonstrating efforts to establish a more diversified and resilient global presence.
- Taiwan’s trade policies align with economic security, maintaining the status quo, and cultivating alliances for regional economic integration, positioning itself as a critical player in the evolving global economic landscape.
- Prioritizing resilience and agility, Taiwan aims to contribute to smart manufacturing, EVs, personal health, and the circular economy. By offering cutting-edge semiconductor solutions, Taiwan positions itself as a key player in the global supply chain, epitomizing the “Smart Taiwan Value” and advocating its inclusion in the IPEF.
- Qualcomm emphasizes proactive participation in supply chain initiatives, which positions Qualcomm as a key player, ensuring resilience and shaping the future of the global supply chain through industry experience and dynamic adaptability.
- Despite TSMC's dominance, Mediatek thrives by nurturing its workforce, showcasing Taiwan’s commitment to technological advancement. Taiwan excels in crisis management, emphasizing collaborative innovation. The evolving tech landscape prioritizes skilled engineers, and Taiwan's focus on talent development cements its role as a global hub for innovation and a key player in the tech supply chain.
4. Responding to Economic Coercion
The third session “Responding to Economic Coercion,” was moderated by Bonny Lin, Senior Fellow at CSIS. Two dimensions of issues were addressed: (1) The tools available to allies and partners to deter economic coercion; (2) examining various forms of coercion exercised by China. Summaries of the panelists' views are underlined below:
- China’s coercive measures towards Taiwan take various forms, such as imposing restrictions on cultural and economic exchanges, the manipulation of extraterritorial censorship, as well as punitive actions against Taiwanese private firms in China.
- Taiwan’s countermeasures against China primarily focus on building resilience and ensuring economic security. Examples include visa-exempt measures to attract tourists from ASEAN countries, diversifying export markets for agricultural products, and implementing strategic high-tech export controls. These measures have proven successful in safeguarding Taiwan's economic and national security.
- There are two schools of thought within the U.S. regarding strategic approaches to China’s economic coercion: (1) an economic NATO; (2) resilience-building efforts and relief measures. Moreover, there are ongoing policy discussions at the G7 and the EU’s proactive steps, emphasizing the need for collaboration and strategic coordination in countering China's economic coercion.
- One reason why China’s economic coercion against Taiwan has proven ineffective is its reluctance to impose large-scale restrictions, as doing so could risk antagonizing Taiwanese society as a whole. The resilience of Taiwanese society also plays a crucial role in countering external pressures and disinformation campaigns.
- The exploration of hybrid threats by China could signify a potential escalation of hostilities. Such moves may entail an escalation in economic coercion, irrespective of its impact on China’s domestic economy.
5. Conclusion
In concluding remarks, Dr. Huai-Shing Yen from CIER and Erin Murphy from CSIS encapsulated the insights from each session, shedding light on pivotal points. Erin Murphy underscored the potential of referencing from the DEPA, the strengths of Taiwanese SMEs, the platform provided by the forthcoming APEC meetings that are beneficial to build a more resilient and inclusive environment for digital economy to prosper. Moreover, Dr. Huai-Shing Yen emphasized that Taiwan should be included in multilateral conversations like the IPEF. Particularly Taiwan’s participation will serve for interests of both Taiwan and IPEF countries. She suggested that the United States could play a more "bridging" role in this regard.
Both speakers stressed the importance of de-risking from China to counter China’s economic coercions. They both agreed that whether establishing an “economic NATO” or offering emergency relief for countries targeted by China, governments around the world should implement policies with determination, while not neglecting the impact of market dynamics on each country’s competitiveness, to address risks posed by China’s economic coercion measures.