Rep. Tom DeLay (R-Tex.)

Participants in a June 2 AEI conference debated the economic benefits of a U.S.-Taiwan free trade agreement, weighed the consequences for Taiwanese and American relations with China, and noted the wide-ranging political potential of such a pact.

House majority leader Tom DeLay described the economic significance of such a treaty. He noted that in 2002 America imported $32.2 billion in goods and services from Taiwan, making it America's eighth largest source of imports, while Taiwan imported $18.4 billion in goods and services, more than from any other country. "A formal American free trade agreement with Taiwan would lower prices for American consumers on those goods and services," DeLay said. "In turn, it would lower--and eventually eliminate--Taiwanese taxes on American exports."

Attorney Greg Mastel commented that a free trade agreement with Taiwan would be larger than any of the FTAs the United States now has in negotiation or in the planning stage. "Here is a place where there is a real possible trade benefit. There's some real bang for the buck, if you will, in trade negotiations."

Still, because of the size of the American economy, the United States would feel only a small impact. AEI scholar Claude E. Barfield explained that political considerations, not the relatively minor economic ones for the United States, are driving this treaty. It often does not make sense in trade issues, Barfield said, "to try to split economic considerations from political considerations because always in free trade agreements . . . political considerations overlap." The Bush administration, in particular, has "explicitly stated that it will tie its priorities and decisions on free trade agreements and trade policy to larger political, security, and diplomatic goals."

A major consideration in the debate over this treaty is Taiwan's relationship with China. Taiwanese businessmen are increasingly focused on the dynamic Chinese economy for investment opportunities. They are drawn to China by cheap land and labor, proximity, and cultural similarities. Gordon Chang, author of The Coming Collapse of China, warned that America's economic links to Taiwan will start to erode as Taiwan and China become more closely bound together. A greater concern is that Taiwan's ever tighter economic ties with China will result in political integration. "Beijing officials will tell you that political integration follows economic integration one right after the other and that's why they're very much in favor of accelerated cross-straits trade and investment, as well as transportation and communications links," Chang said.

I Chung Lai, a foreign policy scholar in Taiwan, worried about Taiwanese investments in China. "The overconcentration in China is proving to be too risky and Taiwan needs to maintain a healthy balance. . . . [A] Taiwan-U.S. FTA will be essential for Taiwan's economic globalization." Stressing this issue's importance, Chung said, "Taiwan needs [this] FTA to survive. Otherwise, Taiwan's economy is in serious danger of Chinanization."

Another benefit of the FTA is that it could help Taiwan overcome its unique diplomatic isolation. However, it would also result in additional difficulties in Sino-American relations. "Will we anger Beijing if we start discussions with Taiwan?" Chang asked. "Well, of course we will. Any contact with the island republic upsets the leaders in Beijing because the one-China policy is the bedrock of their foreign relations. Making Taiwan a part of the People's Republic is the number one foreign policy goal, and nothing else comes close." Chang insisted that this factor should not weigh too heavily in Washington as China needs America much more than America needs China.

Like the other speakers, DeLay particularly noted the political benefits that America and Taiwan would realize. "A free trade agreement between the United States and Taiwan will increase Asian prosperity and security. And if history teaches us anything about prosperity and security, it is that freedom--in communist China, North Korea, and elsewhere--won't be far behind."