After the U.S. and Taiwan restarted the Trade and Investment Framework Agreement (TIFA) at the end of June and reached ten major agreements, China reacted relatively calmly and did not offer any specific economic and trade countermeasures against Taiwan. Analysts say that the TIFA talks have released a signal that the U.S. and Taiwan are working together to promote the decoupling of part of the supply chain from China, to the detriment of China. Therefore, if China continues to coerce Taiwan, it may catalyze the alliance of democratic countries including Taiwan, and even form a community similar to “trade NATO” in the future to economically encircle China, which will then be China’s next nightmare.
U.S.-Taiwan relations are heating up again, and both sides have recently deepened economic and trade cooperation through TIFA talks, but in the eyes of the Chinese Communist Party, this is the latest move by Taiwan’s Democratic Progressive Party government to “lean on the United States for independence.
Therefore, once the TIFA talks ended on June 30, they drew a strong backlash from Chinese President Xi Jinping, who vowed to “crush Taiwan’s independence plans” at the July 1 centennial celebration of the Communist Party. The official media “ship knowledge” magazine even synchronized with the military scare, specifically depicting the Chinese Communist military “armed unification of Taiwan” of the three major stages.
China’s Cold Treatment?
However, in addition to the usual civilian attack and military intimidation, China has not offered any actual economic coercion to Taiwan in the past two weeks.
Analysts have concluded that China already has few trade leverage with Taiwan, and that the imminent return of the two major powers to economic and trade negotiations, coupled with the recent rise of stronger anti-China voices in Western democracies, has left China with no choice but to “chill out” so as not to backfire and catalyze Taiwan’s alignment with the United States or the international community against China. The trend is for Taiwan to align itself with the United States or the international community against China.
In an interview with the Voice of America, Rafiq Dossani, director of the Asia-Pacific Policy Center at the RAND Corporation, said, “U.S. arms sales to Taiwan have not provoked China to impose specific sanctions on Taiwan, and a further reading of the U.S.-Taiwan TIFA talks should not provoke China to take tough measures against Taiwan. However, if China wants to express its displeasure, it is possible that it will withdraw from trade talks with the U.S., which would harm both U.S. and Chinese interests, so China should not react in a big way.”
It is a sensitive time for the U.S. and China to return to negotiations, and analysts believe that the U.S. is also normalizing U.S.-Taiwan economic and trade relations through the TIFA talks to open them on the one hand, and playing the Taiwan card to increase its bargaining chips and force China to give in on the other.
Normalization of U.S.-Taiwan economic and trade relations
Dossani expects that the subsequent political and economic impact of the U.S.-Taiwan TIFA talks may exceed expectations because, as U.S.-Taiwan relations become more and more like normal interstate exchanges, even if the U.S. adheres to the one-China principle, it seems that it will no longer be concerned about China and self-limiting exchanges with Taiwan.
Given China’s position, the red lines that trigger Beijing’s intervention are more in the realm of diplomacy and defense than in trade,” Dossani said. In other words, there is a lot that can be done in U.S.-Taiwan relations below the red line, including reducing barriers to bilateral investment between the two entities, and not affecting the further development of substantive U.S.-Taiwan relations.”
Timothy R. Heath, another senior fellow for international defense at the RAND think tank, agrees that the normalization of U.S.-Taiwan economic and trade relations after the TIFA talks bodes well for the increased strategic importance of Taiwan under the Biden administration-led Indo-Pacific layout. Under this premise, China can be blamed at every turn, and any adventurous moves toward Taiwan could both offend the United States and trigger greater resentment within Taiwan.
China can continue to pressure Taiwan through its usual tactics of online harassment and military intimidation,” He Tianmu said. However, this will do nothing to win favor in Taiwan and will instead have the opposite effect of making people on the island hate China even more.”
In fact, not only have U.S.-Taiwan relations warmed up, but Taiwan-Japan relations have also grown closer with Japan’s three-time donation of millions of doses of AZ vaccine to Taiwan. Japanese Vice Minister Taro Aso even recently made a public statement that Japan may join with the United States to jointly defend Taiwan if China commits an act of force against Taiwan.
He Tianmu believes that the Biden administration is sending a clear message that the U.S. will continue to build friendly alliances with democratic countries, including Taiwan, despite being constrained by the one-China principle, that is, “alliances to fight the herd,” which is the new international norm that China must face.
TIFA promotes industrial chain decoupling China?
In addition, some analysts believe that the resumption of U.S.-Taiwan TIFA talks also releases the effect of the U.S. and Taiwan joining forces to accelerate the industrial supply chain moving out of China. DPP spokesperson Hsieh Pei-Fen pointed out through a press release after the TIFA meeting, “Restarting the TIFA trade dialogue at this time will help Taiwan fight for a more critical position in the restructuring of the global supply chain.” She expects that after deepening bilateral cooperation and accumulating goodwill and mutual trust, Taiwan and the U.S. can become the driving force for future negotiations on bilateral trade agreements (BTA).
In this regard, Xie Tian, chair professor at the Aiken School of Business at the University of South Carolina, believes that the impact of the U.S.-China trade war and the new crown epidemic has led to a trend of restructuring the global industrial supply chain, especially as many industrial chains have begun to move out of China, which, he believes, has laid the foundation for the democratic countries to organize an “economic NATO”.
As early as 2018, Xie Tian supported the formation of an alliance similar to the “Economic NATO” to resist the unreasonable practices of “economic hegemony” by the Chinese Communist Party, such as unfair foreign competition, theft of intellectual property rights, or economic coercion in exchange for political benefits. He said that if the U.S. leads the European Union and other Asian democracies, including Taiwan, to form such an alliance, “Economic NATO” will be China’s next nightmare.
Xie Tian told Voice of America: “If we can further promote (Economic NATO), then this is a trend that can be used to shift the industrial chain, move out of China, remove the Chinese Communist Party, and the countries in the region around China can form a new industrial chain distribution …… Chinese Communist Party is hostile to all countries, to exclude the devil (Chinese Communist Party). Chinese Communist Party) the devil out of the picture, other countries to form a new industrial chain, is a kind of economic kind of alliance.”
He said that since economic alliances do not involve sovereignty, Taiwan’s participation will not be limited. Only, Taiwan’s economy is now overly dependent on China, with more than 40% of its exports going to the Chinese market, so joining this alliance could trigger Chinese retaliation and bring negative economic impact. Therefore, Xie Tian suggested that Taiwan should reduce its dependence on China as soon as possible and diversify its export markets or exports in order to strengthen its economic competitiveness.
However, Xie Tian stressed that China’s economic coercion often violates economic and market principles, and the force and effect are not sustainable, which is why China’s recent boycott of Australian wine, iron ore, and even lobster imports have not been effective.
However, Victor Shih, an associate professor at the University of California, San Diego, cited China’s Anti-Foreign Sanctions Law passed in early June, saying that Taiwanese businessmen doing business in China are likely to be the first to fall victim to the “political sacrifice” if China imposes sanctions.
Speaking to Voice of America, Shi said, “Taiwanese investors still have billions of dollars of investment in China, and from an economic and trade perspective China could easily bring direct or indirect pressure on these Taiwanese businessmen.”
U.S. and British think tanks launch “trade NATO” initiative
On the eve of the TIFA talks, the China Research Group, a group formed by the Information Technology and Innovation Foundation (ITIF), a Washington think tank, and conservative British lawmakers, also proposed a “NATO for trade” initiative. NATO for trade” initiative, which is similar to the economic NATO idea called for by Professor Sheida.
The two British and American think tanks call for the establishment of a Democracies’ Alliance Treaty Organization (DATO) to confront China, just as “The two think tanks point out that as the economy grows, the United States will need to establish an alliance with China.
The think tanks note that as its economic power has grown, China has used economic coercion to achieve political goals, for example, by threatening Western democracies not to challenge China on issues such as human rights. The U.K. and U.S. think tanks call on the democracies to counteract such Chinese bullying through the formation of DATO. In other words, if any member state of DATO is subjected to economic coercion by China, the other member states will take collective retaliatory measures against China without conditions, just as any member state of NATO will join forces to resist when threatened militarily. Taiwan is also welcome to join this initiative.
The Trade NATO initiative has not yet received official support, so Dossani of the RAND think tank believes that it is still essentially a bargaining chip for the United States in its negotiations with China, with the ultimate goal of forcing China to make trade concessions.
Liu Dehai, a professor at the Department of Foreign Affairs of the National Chengchi University, believes that the failure of the WTO system, the paralysis of the dispute settlement mechanism, and the lack of substantive binding force are the reasons behind the launch of the trade NATO. Liu Dehai told Voice of America, “With governments around the world interfering in markets and structural changes in economic and trade relations, some Western policymakers are eager to come up with a solution to trade with China.”
Can a “trade NATO” really happen?
But the backlash against Trade NATO in the Chinese official media has been quite fierce, calling it a “threatening and vindictive organization” and the West’s own “small-circle politics” to deal with China and decoupling, with some commentaries saying that it is ” Western hawks looking for the wrong solution, will not succeed.”
Liu Dehai pointed out that the main economic and trade partners of the countries are now China, so similar decoupling or anti-China front is not a touch. Even though the EU-China investment agreement was frozen, Germany and France, the two leading EU countries, recently held a summit with China, reflecting that some European countries are still unwilling to let the human rights controversy affect their economic and trade interests in the Chinese market, or hinder the competitive posture of the EU and the United States.
Liu Dehai said: “Germany has lost its dominant position in the important auto industry, which was the world’s largest exporter of electric vehicles, but was overtaken by Japan’s Toyota (Toyota) in the Chinese market last year, and the sales of Japanese cars are on the upside, only the German cars are going down. In other words, German Chancellor Angela Merkel is walking a tightrope between denouncing China’s human rights oppression and expanding trade with China in order to preserve her assets, her historical position in power.”
However, he also said that the EU pursues “strategic autonomy” and remains uncertain about China in the context of joint European and American political and economic interests.