October 25, 2009 — In the year and a half since President Ma Ying-jeou took office in Taipei, the world has witnessed an unprecedented rapprochement between China and Taiwan. The two sides have hosted visits of party officials, established direct charter flights across the Taiwan Strait, allowed for greater Chinese investment in Taiwan, and expanded the scope for Chinese tourism on the island. These and other moves add up to a major relaxation of tension, in sharp contrast to the previous eight years of cross-Strait relations.
The United States has welcomed these moves. Indeed, Washington is right to encourage a more constructive relationship across the Taiwan Strait, one that will make any use of force a more remote possibility. Yet the main vehicles for the rapprochement—strengthened economic ties between Taiwan and the mainland—contain the levers of political influence. And though defense issues, and arms sales in particular, have traditionally driven much of the U.S.-Taiwan relationship, it is time for Washington to consider more carefully the potential geopolitical implications of economic policy.
Already, China is Taiwan's biggest trading partner, the destination for 4O% of all of its exports. Investment, too, has become increasingly two-way, as recent agreements have opened scores of Taiwanese sectors to mainland investment. And since the lifting of a ban on Chinese tourism in Taiwan, hundreds of thousands of mainlanders have visited the island—representing a significant component of Taiwan's tourist economy.
While there are numerous positive aspects to these trends, they also pose a threat. Greater economic ties with the mainland will correspondingly increase Taiwan's vulnerability to Beijing's use of economic policy as an instrument of foreign policy. By the end of the year, Beijing and Taipei are expected to have completed talks on an "Economic Cooperation Framework Agreement" (ECFA), a free-trade-agreement-like pact that would further liberalize trade. As China's share of overall Taiwanese trade climbs higher, the island economy will become increasingly sensitive to China's flows of trade, investment and tourists. Should Beijing seek—explicitly or implicitly—to affect political choices in Taiwan, it will have a potent nonmilitary instrument of influence.
In fact, this is occurring already. A number of Chinese tour groups reportedly cancelled their trips to southern areas where local governments are controlled by the pro-independence Democratic Progressive Party after the Dalai Lama visited Taiwan in early September. This despite the fact that President Ma had declined to meet the Tibetan spiritual leader. The Taiwanese government subsequently refused to allow U.S.-based Uighur activist Rebiya Kadeer to visit the island. Mr. Ma's decision not to meet the Dalai Lama and Ms. Kadeer's visa problem have been widely interpreted as rooted in a desire not to upset cross-Strait relations—relations that remain mostly economic in character.
This state of affairs suggests that the laser-like focus on the potential sale by the U.S. of F-16s and other weapons systems to Taiwan is to some degree missing the larger point. The chance that such systems would ever be employed is very small, and while their procurement by Taipei would arguably strengthen the Taiwanese negotiating position in talks with Beijing, a Taiwanese economy increasingly dependent on the mainland—and on Beijing's continued goodwill—represents the bigger challenge by far.
None of this is to argue that Taiwan should reverse, or even slow down, its efforts to improve relations with Beijing. It does, however, mean that both Taiwan and the U.S. should work to ensure that such economic arrangements do not become zero-sum in nature. Taipei should diversify its sources of trade and investment, including with the U.S. and the 10 members of the Association of Southeast Asian Nations. And Washington should see the compelling interest in an expanded trade relationship with Taiwan that neither permits Beijing to unduly constrain Taipei's political choices, nor upsets the delicate U.S.-China relationship.
Today that's not happening. Trade talks between Washington and Taipei have stalled for the second time in five years—this time over the importation of American beef, which represents just 1% of bilateral trade. Taiwanese officials seem confident that a satisfactory deal can be reached; once it is, both sides should move rapidly toward a trade relationship at least as liberal as the one Taiwan will have with China under the ECFA. The U.S. should lend some diplomatic muscle, or at least encouragement, to Taiwan's efforts to strike trade deals with other countries, including those in Asean and elsewhere. And the administration should consider opening talks with Taiwan and others in the region on a free trade agreement.
Trade is an essential tool of foreign policy in the Asia-Pacific, as both Taiwan and China are today demonstrating so vividly. To walk away from attempts to liberalize trade throughout the region is to court strategic liabilities that go far beyond economics. The U.S. should embrace the lesson that has been clearly internalized by so many powers across the Pacific Rim: Moving forward with robust attempts to free trade leads to economic and strategic strength, not weakness.