A deal to win friends and influence
With the collapse of the Doha round of trade negotiations, economic liberalisation may depend more on bilateral and regional free-trade agreements. In America's case, such deals also provide geopolitical benefits: they give Washington a means to strengthen bilateral ties with other states at a time of increasing international challenge.
Using creative tactics to strengthen American influence is particularly important in eastern Asia, where China's rise is transforming the region.
At the same time, Beijing is asserting itself diplomatically, and substantially building up its military. As a result, its influence is increasing even in nations long friendly to the United States. Political tensions between Tokyo and Beijing cannot obscure their growing economic relationship. Australia and South Korea enjoy increasing trade with mainland China.
Economic ties are also increasing between the mainland and Taiwan, even as the latter attempts to forge a separate identity. Beijing hopes - and independence-minded Taiwanese fear - that the prospect of economic gain may cause Taipei to compromise on its territorial integrity.
Mainland China's evident rise has caused some Americans to see it as a dangerous military adversary. But the future is not fixed. America risks playing a losing hand if it bets US simplicity against Chinese subtlety. Neither Canberra nor Seoul, for instance, are interested in joining the US to 'contain' mainland China.
A more nationalistic Japan seems more inclined to back America, but such resolve might not survive an actual confrontation. Taiwan, too, prefers smooth relations between Washington and Beijing.
Under these circumstances, the US should look for additional geopolitical cards to play. The most important benefit of American friendship today may be access to the US economy.
Playing the trade card seems most important in cases where Beijing's attraction is strongest, such as South Korea. Not only has China replaced the US as Seoul's leading trading partner, but younger South Koreans have begun to turn away from America. At the same time, Seoul and Washington are negotiating a free-trade deal. It is the one area where South Korean officials seem enthusiastic towards the US.
An accord with Taiwan may be even more important. Taipei is America's eighth biggest trading partner, and two-way trade is worth about US$60 billion annually. Estimates of the likely increase in US exports through a free-trade agreement range from about 15 to 30 per cent. The island, with widespread economic penetration throughout the region, would provide a base for US enterprises to expand their reach. More importantly, Taiwan's proximity to, and increasing economic integration with, the mainland would indirectly strengthen American ties with Beijing.
Other, larger geopolitical considerations also favour a free-trade deal. It would strengthen Taiwan's position in dealing with a mainland that is determined to absorb the island.
Most obviously, a trade pact would help the Taiwanese economy grow, and could further integrate Taiwan into East Asia. Strengthening Taipei's relative economic importance would increase its neighbours' stake in regional stability. The tighter Taiwan's links to surrounding nations, the higher the price everyone would pay in any military conflict.
A US-Taiwan trade deal would further demonstrate America's commitment to the region. Washington should expand this approach to what remains the most important Asian economy - Japan. Unfortunately, opposition to free trade is rising in Washington. But the benefits of a US-Taiwan trade pact are too great to ignore.
Doug Bandow is the Cobden Fellow in International Economics at the Institute for Policy Innovation, Texas
