Much has changed in the world since the last US-Taiwan Trade Investment Framework Agreement (TIFA) conference was held in 2016. The start of the trade war with China in 2018 meant that the US’s economic relations with Taiwan would no longer be constrained by cross-strait considerations.Taiwan’s outstanding handling of the global COVID-19 situation cemented its status on the world’s stage, and global semiconductor shortage shortly thereafter highlighted its industrial strength.rength.

Finally, with Taiwan’s concession on the ractopamine pork issue, Taiwanese’ hopes for a bilateral trade or investment agreement have risen to unprecedented levels. This was the context of the TIFA conference, held virtually on June 30.

In order to understand the growing possibilities for economic cooperation from the US perspective, the Taiwan Banker magazine interviewed Ms. Arati Shroff, Deputy Chief of the Economic Section at the American Institute in Taiwan (AIT), the de facto US embassy in Taipei. Shroff was optimistic about the direction of bilateral ties, and spoke highly of Taiwan’s reliability as a partner.

Diversification into or out of Taiwan

The US has been increasingly focused on supply chain resilience since the start of the US-China trade war three years ago. The heightened sensitivity on this issue has helped Taiwan so far, reinforcing the trend towards re-shoring from China back to Taiwan. Nevertheless, there is no guarantee that this new thinking will continue to benefit Taiwan.

One of President Joe Biden’s first acts was to commission a 100-day inter-agency report on the topic, which was released on June 8. The report makes extensive note of the geographical concentration of semiconductor manufacturing in areas with geopolitical risk, and also makes note of the extensive subsidies given to TSMC.

Shroff however emphasized the strength of Taiwan’s rule of law and investor protections. “Where there are investments and trade going on, companies and countries and people can feel comfortable and confident knowing that these deals are going to be true and held up, and not held hostage by any type of political coercion.” These foundations help ensure stable commercial dealings.

There are a couple ways the financial sector can benefit from the increased attention being paid to supply chains. First, they can follow Taiwanese manufacturers around Southeast Asia, as they have been doing under the New Southbound policy.Second, Shroff also mentioned that Taiwan’s improving trade secrets and IP protection will allow for increased M&A activity, which can create business for the financial sector.

A third area of possible involvement from the financial sector is overseas infrastructure investment.As Shroff noted, “Supply chains don’t just shift out of nowhere. There is funding and resources that go into that, whether that’s port development, whether that’s new shipping lanes. As we talk about the environment, that’s a significant factor, and that requires a lot of upgrades.” The US is thinking several steps ahead on this matter.

On November 21, 2020, during the final days of the administration of outgoing former President Donald Trump, the US and Taiwan signed an MOU to enhance cooperation in a number of areas under the Economic Prosperity Partnership Dialogue (EPPD).The infrastructure portion of that plan aimed to let Taiwanese excess capital reserves support overseas infrastructure development. The long-term nature of infrastructure projects means that institutional investors around the world, such as pension funds, are often unwilling to commit funds. Combined with some further issues specific to Taiwan, such lending often requires third-party guarantees.

Some commentary at the time had wondered whether the Trump administration was hoping through this program to force the hand of the new administration, questioning whether they would pursue it with the same vigor. At the same time, the Biden administration is taking a slightly different approach.In June, the G7 announced the Build Back a Better World (B3W) initiative, which similarly aims to answer China’s Belt and Road Initiative, except through a multilateral rather than bilateral approach.

In response to this flurry of initiatives, Shroff told the Taiwan Banker, “The actual nuts and bolts continue to be worked out.” Moreover, “it’s not one or the other, with the US talking to Taiwan or with the G7 and a multilateral approach. I think they can actually all fit together quite nicely.” She acknowledged that special arrangements may be necessary given Taiwan’s international isolation.

Finance drives changes in other sectors

Regarding specific provisions in a potential agreement related to the financial sector, little information is available for the time being. Coming out of the TIFA meeting, several working groups will meet on follow-up issues, including a Technical Barriers to Trade Working Group and Investment Working Group. The United States and Taiwan will continue to work closely to address outstanding trade concerns, including concerns raised by the U.S. in areas of financial services, investment and regulatory transparency.

Shroff did however point to two issues receiving renewed emphasis. The first is the environment. US Trade Representative Katherine Tai highlighted the issue in her first speech, entitled “Greening US Trade Policy.” “For too long,” she said, “the traditional trade community has resisted the view that trade policy is a legitimate tool in helping to solve the climate crisis.” The Financial Supervisory Commission (FSC) launched its Green Finance Action Plan 2.0 last year, including preparations for a new taxonomy of climate activities, so it should be relatively prepared for this new focus.

A second area, however, which has so far received less attention, is labor protection. Biden has been emphatic on this issue in his domestic policy.“When it comes to the economy we’re building, rising wages aren’t a bug, they’re a feature,” he said in a May speech. This vision, corresponding to the S part of the ESG framework, will require further implementation in Taiwan.

Shroff emphasized that the finance industry is in a pivotal position to make these sorts of changes. “Whether it’s the electric vehicle industry, whether it’s net zero emissions, whether it’s commitments Taiwan wants to make, commitments the US is making, or others in the region are going to make, that all requires money to fund the technologies and the R&D.”

Putting Taiwan on the map

The improvement in relations between Taiwan and the US–as well as the Western world as a whole–does not appear to be a short-term trend, according to Shroff. “That moment has arrived where Taiwan has shown itself on a global scale to be a force for good.Whether it’s technical expertise…or Taiwan being a strong democracy, holding those values, whether it’s from press, or rule of law, or having hardworking and talented people.”

Global recognition of Taiwan is rising, she observed. “When I go places and talk about Taiwan, they’re not going to mistake it with Thailand.”

Finally, Shroff emphasized the importance of people-to-people ties to help Taiwan modernize and internationalize its business sector. “Taiwan has a lot to offer, and the US has a lot to offer. How can we continue to combine them? As we all know, TSMC, a Fortune 20 company, has made a major investment in the US, but it’s not just about investing, it’s also about the employment ties that are going to be created, the synergies when TSMC hires Americans and others in the US, and when they bring those folks to Taiwan to train them. That really creates those linkages and shows what Taiwan has to offer.”

These ties will help deepen trust and cooperation with the US, creating a virtuous cycle to help Taiwan advance towards the next stage of its development.