September 18, 2002

MEMORANDUM TO: OPINION LEADERS

FROM: GARY SCHMITT

SUBJECT: Taiwan

In a speech to the U.S. Chamber of Commerce in Taiwan today, America’s “ambassador” to Taiwan, Douglas Paal, criticized the government there for viewing “the mainland through the prism of economic threat.” Paal, the director of the American Institute in Taiwan, brushed aside concerns on Taipei’s part that opening the economic doors to even greater trade with China might make the island more susceptible to political pressure from the mainland. He then went on to suggest that Taiwan take a number of steps to reform its economy to make it more competitive in the global and Asian markets.

Paal is right of course to suggest that there are reform measures that Taiwan can and should take to improve its economic prospects. However, he is dead wrong to argue that Taiwan should not be worried about the security implications of complete and open trade with the mainland. As investments from Taiwan increase on the mainland, Beijing will subtly and not so subtly remind those doing business in China that prospects for successful return on investments will be dependent on their support for Beijing’s “one China” policy. Nor can Taipei be blind to how the mainland used this same strategy in its dealings with Hong Kong’s elite prior to Britain’s transfer of the territory back to China. As one Chinese foreign policy official was quoted this year: “We don’t need to threaten Taiwan anymore….Our economy is our best weapon. We won’t attack them. We will buy them. It’s very Chinese.”

Given the structure of today’s world economy, it is inevitable that Taiwan’s business community will seek to do business in China. And, within reason, there are sound grounds for supporting those ties. However, it is strategically myopic to pretend that China does not see the prospect of growing economic interdependence between the two countries as a point of leverage. In response, U.S. policy must take account of these facts and work to counterbalance the pull of the mainland on Taiwan’s economy. And perhaps the most important step Washington and Taipei could take in the near term is to begin discussions on a free-trade agreement between the United States and Taiwan. An agreement would not only be economically advantageous to both countries but it would also have the salutary effect of reaffirming that Taiwan’s future lies with the democratic nations of the Pacific and not the autocrats in Beijing.