An FTA that makes me queasy

To date, your humble blogger has never meet a free-trade agreement (FTA) he didn’t like.  Sure, in a perfect world I’d like to see the multilateral trade rounds have priority.  The perfect is often the enemy of the good, however, and FTAs often carry with them significant non-economic benefits.  Signatories to U.S. FTA’s, for example, often see an improvement in their human rights record. 

I have to admit, however, that the FTA Economic Cooperation Framework Agreement being talked about in this NYT article by Jonathan Adams gives me some serious pause: 

As negotiations move ahead on a Taiwan-China trade deal that could lower tariffs on handmade shoes and hundreds of other products from the mainland, fears are mounting that the island’s traditional industries — like shoemaking — may suffer, even as high-tech, financial services and other sectors gain from freer access to the giant market across the strait.

The government, however, contends that the benefits would far outweigh the costs, and Taiwan’s president, Ma-Ying-jeou, hopes to use the agreement to fully normalize economic relations with Beijing while expanding the island’s access to other markets.

“We can handle diplomatic isolation,” Mr. Ma said last month, “but economic isolation is fatal.”

The Economic Cooperation Framework Agreement, the Ma administration says, would be a prelude to similar deals with Malaysia, Singapore and, eventually, Japan or the United States. “Once E.C.F.A. is signed, we want to sign other free trade agreements and try to use mainland China to link with international markets,” a trade official involved in the negotiations, Hsu Chun-fang, said….

The economies of Taiwan and China are already connected. Taiwan has invested $150 billion in China since the early 1990s, according to a Taiwan government estimate. About 40 percent of Taiwan’s exports already go to China, where they face average tariffs of 9 percent. Half of those exports are semifinished goods that are shipped to factories for assembly and other value-added services and then re-exported, according to Mr. Ma.

I get the economic logic behind this E.C.F.A. — it would unambiguously benefit Taiwan’s economy to have something like duty-free access to the mainland. 

The security ramifications are troubling, however.  While China’s economic leverage over the United States is limited, this kind of agreement would ratchet up the asymmetric dependence of Taiwan on the Chinese economy.   Maybe Taiwan has already crossed the point of no return with regard to interdependence with the mainland — but this agreement would surely guarantee  crossing that threshhold. 

What would China do with this leverage?  I don’t know, I really don’t.  If Beijing plays the long game, they would allow for the build-up of political interest groups in Taiwan with a powerful incentive to appease the People’s Republic in order to keep the economic relationship unruffled.  The thing is, China has often been clumsy in its initial attempts to translate economic power into political influence, and I could easily see such a misstep occurring a few years from now. 

Perhaps I’m being paranoid about this.  The one thing I’m certain about, however, is that the most likely flashpoint for a great power confrontation between the United States and China is anything involving Taiwan.  So I get veeeeeeerrrrrrry nervous about anything that upsets that particular apple cart.