Why the China-Taiwan trade agreement doesn’t solve everything

The signing by Taiwan and China of the Economic Cooperation Framework Agreement is a welcome development. The agreement cuts tariffs on 539 Taiwanese products bound for China and 267 Chinese products exported to Taiwan. The cuts on the Taiwan items are valued at $13.84 billion and those from China $2.86 billion.

Economically, Taiwan, the PRC, and the United States will all benefit. Politically, the agreement means a reduction in tension across the Strait, and it provides incentives for Chinese restraint (it is easy to forget that interdependence works both ways — Taiwan may rely on China for final assembly and low-end manufacturing, but China is dependent upon Taiwan’s investment and managerial know-how).

However, Washington should not be lulled into complacency — the cross Strait problem has not disappeared. With over a thousand missiles pointed at it, Taiwan faces Chinese coercion every day: All of Taipei’s negotiations, including those over the ECFA, are conducted with the equivalent of a gun pointed at its head. We should view the ECFA as only the first step in a series of measures that will strengthen Taiwan, stabilize the Strait, and liberalize trade in Asia.

Next up, we should sell Taiwan the additional F-16 aircraft it has requested, which it needs in order to counter China’s daunting threat to the island’s airspace. An F-16 sale would demonstrate America’s abiding commitment to Taiwan’s security and strengthen the hand of Taiwan’s President Ma Ying-jeou as he continues to negotiate stability in the Strait. Would Beijing raise a stink? Of course. But it has no leg to stand on. Taiwan already has F-16s and simply needs more to replace the numerous aging aircraft in its fleet. Moreover, it is China that has decided to negotiate and threaten at the same time. In response, Taiwan needs to simultaneously negotiate and deter. Finally, the cost to Washington would be low: Beijing has already thrown its quarterly temper tantrum by cutting off bilateral military talks and prohibiting Secretary of Defense Robert Gates from visiting China.

Beyond arms sales, the United States can help Taiwan become the place to do business in Asia, a move that would benefit both Washington and Taipei. Taiwan has already liberalized its trading relationship with China, its high-end manufacturing and design capabilities are world class, and its businesses succeed in the China market where many others fail. Washington should negotiate a free trade agreement with Taiwan for three reasons. First, an FTA with Taiwan will provide  economic benefits to both sides. Second, now that Taiwan has liberalized trade with China, U.S. businesses can use Taiwan as a launching pad to succeed in the China market. Third, other Asian economies will only move forward with their own FTAs with Taiwan — necessary for both Taiwan’s security and its future prosperity — if Washington provides political cover.

With some help from Washington, Taiwan could make itself into the region’s business hub. If Taiwan becomes Asia’s economic nerve center, its security will improve immeasurably.