A closer look at U.S.-Taiwan geopolitical relations

Prosperous, democratic, and strategically located off the Chinese coast, Taiwan has long been an important ally of the United States under the One China policy. However, in the context of the intense rivalry between the U.S. and China, along with several controversial claims U.S. President Joe Biden has recently made about protecting Taiwan in the case of an unprecedented attack by China, concerns start to emerge about whether the U.S. has changed its approach towards Taiwan. So what is the whole picture of the U.S.-Taiwan geopolitical relations?

Historical background of  U.S.-Taiwan relations

The relationship between the U.S. and Taiwan has a turbulent and complicated history. The U.S. had long backed and recognized the Republic of China (i.e. Taiwan) but it ended at the end of 1978 when the U.S. moved to acknowledge the People’s Republic of China (i.e. China) due to the changing geopolitics of the Cold War. Since then, the U.S. has claimed that Taiwan is a part of China and the People’s Republic of China is the only legitimate government of China but has resolutely refused to acknowledge Chinese sovereignty over Taiwan. Thus, today, the U.S. continues to have formal relations with China and unofficial ones with Taiwan under the One China policy.

In particular, the U.S. passed the Taiwan Relations Act (TRA) in 1979 to safeguard its substantial security and commercial interest in Taiwan. Through the American Institute in Taiwan (AIT), the TRA also authorized the maintenance of ties between Americans and Taiwanese in terms of business, culture, and other areas.

The growing geopolitical importance of Taiwan to the U.S.

Taiwan is of great strategic importance to both the U.S. and China due to its geopolitical location. The island of Taiwan is located about 180 kilometers off the southeast coast of mainland China across the Taiwan Strait, with a total area of around 35,000 square kilometers. Undeniably, the island is an important link in the “first island chain”, which includes such pro-American countries as Japan, South Korea, and the Philippines. These islands and peninsulas together form a vital stronghold, helping the U.S. contain China’s influence and safeguard trade routes.

The island of Taiwan is perhaps the most important link in the “first island chain” due to its location central to Japan, with South Korea in the northeast and the Philippines in the southeast. It is also located the closest to China of all four islands and peninsulas mentioned. Goods and the navy that need to travel from South Korea or Japan to the south or vice versa will have to pass through the area of influence of Taiwan. In addition, Taiwan and the Philippines block access to the sea of important southern areas of China such as Guangzhou, Fujian, and Hong Kong. 

According to Bloomberg, the Taiwan Strait is the arterial route for cargo ships from China, Japan, and South Korea to the west, carrying goods from Asian factories to Europe and America. Any action affecting this transport route will further disrupt the global supply chain, which has already been fragile because of the Covid-19 pandemic and the Ukraine conflict. China, as the world’s largest exporter, would be hit hard by any military action taking place along this crucial shipping route. During the past 7 months of 2022, approximately 48% of the total 5,400 container ships passed through the Taiwan Strait, bringing clothes, home appliances, mobile phones, and semiconductors from China and Taiwan to all five continents. 

U.S. General Douglas MacArthur, who played a crucial role in the Pacific during World War II, highly appreciated the island in many battle strategies used by the U.S. to contain China during the Cold War. Specifically, he once referred to the island as the most powerful weapon of the U.S. Navy - an aircraft carrier. Today, with China’s growing military power and influence, the island of Taiwan does not hold much deterrent power but rather has a defensive meaning, preventing Beijing from projecting its influence out to the world.

Taiwan deserves the title of “an unsinkable aircraft carrier” not just because of its location but also its topography. The island is surrounded by water on all four sides and thus any attack on Taiwan will have to be by air or by sea. 

Furthermore, the U.S. government aims to keep its credibility in East Asia by honoring its long-standing commitment to the Taiwanese people. Through its military presence and alliances, the U.S. intends to continue to be the primary guarantor of East Asian security and the balance of power. If the U.S. just left Taiwan for China, its position in Asia would be significantly undermined and China would be able to drive the U.S. out of the region.

Another factor that makes Taiwan important to the U.S. lies in its economic success. Trade ties between the two are substantial. According to the U.S. Congressional Research Service, Taiwan is the eighth-largest trading partner of the U.S., with total goods trade estimated at $114.1 billion in 2021. Taiwan has also risen to the top of the world rankings for computer and telecommunication component technology, playing a crucial role in the growth of this vital sector. 

With the Taiwan Semiconductor Manufacturing Company (TSMC) supplying half of the world's yearly supply of chips, semiconductor chips have grown in importance as a diplomatic asset for Taiwan in recent years. Nearly all key U.S. technology companies now have a presence in Taiwan. The U.S. acquires its most cutting-edge chips for military hardware that cannot be produced domestically from TSMC. Taiwan is also the second-largest market for U.S. semiconductor equipment. The island has proven even more vital to the U.S. as the U.S.-China technological war becomes more intense. With the support of the Biden administration, TSMC bought a site in Arizona in 2021 to construct a chip factory there, which is expected to be completed by 2024.

Notable fields of cooperation in U.S.-Taiwan geopolitical relations

Trade and investment

The economy of Taiwan is well developed with an estimate of about $786 billion in goods and services in 2021. Commercial, financial, and trade ties between the U.S. and Taiwan are robust and ever-growing. The American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office in the United States (TECRO) have hosted the Economic Prosperity Partnership Dialogue between the U.S. and Taiwan since 2020 in an effort to strengthen their economic and commercial ties in areas such as supply chain security and resilience, investment screening, health, science and technology, and the digital economy. To provide a forum to create business initiatives and find potential measures to reinforce vital supply chains, the U.S. Department of Commerce introduced the Technology, Trade, and Investment Collaboration framework with Taiwan in 2021.

The U.S. is Taiwan’s second-largest trading partner, while Taiwan’s trade with the U.S. ranks eighth overall. The  U.S. exports of goods and services to Taiwan fueled an estimate of 188,000 American jobs in 2019.

In 2020, total investments made by Taiwanese companies in the U.S. were close to $137 billion. Manufacturing, wholesale trade, and depository institutions make up the majority of Taiwan's direct investment in the U.S.. These investments directly create an estimate of 21,000 jobs in the U.S. and $1.5 billion in U.S. exports.

Science and technology 

Taiwan and the United States collaborate in fundamental and cutting-edge research in a variety of fields, including physics, atmospheric science, meteorology, nuclear energy, environmental conservation, space science, bio-medical and life sciences, etc. As of December 2021, the two signed over 270 bilateral collaborative agreements in an attempt to advance research and technology.

Military

Under the Trump administration, the U.S. strengthened its relations with Taiwan over China’s rising military concerns, particularly by selling more than $18 billion worth of weaponry to the Taiwanese military, which is the highest sum ever seen in any U.S. presidency. 

The Biden administration has adopted a similar strategy, maintaining arms sales and endorsing the Trump administration’s decision to facilitate more informal meetings between the U.S. and Taiwanese officials. Additionally, the U.S. engages Taiwan in military training and dialogues, frequently deploys ships across the Taiwan Strait to show its military presence in the region, and has encouraged Taiwan to raise its defense budget.

A promising picture of economic cooperation between U.S.-Vietnam and Taiwan-Vietnam

Taiwan-Vietnam economic cooperation opportunities

Taiwan has long been among Vietnam’s major economic partners. It ranked fourth among investing nations in 2021 with 2,845 projects totaling more than $35.3 billion in registered cumulative capital. With roughly $25.3 billion in two-way trade, Taiwan emerged as Vietnam’s fifth-largest trading partner, with $20.7 billion in exports to Vietnam and $4.5 billion in imports from Vietnam. Notably, Taiwan was the fourth-largest market for tourism in 2021 and was the top importer of Vietnamese labor, with over 205,000 Vietnamese workers there.

Taiwan’s new government of Tsai Ing-wen has unveiled its New Southward policy to promote trade and investment ties with ASEAN nations. Vietnam is potentially regarded as a key economic partner of Taiwan in its new strategy due to Vietnam’s implementation of the economic liberalization policy and efforts to lift trade barriers through free trade agreements (FTAs, TPP, RECP, etc.). More Taiwanese businesses have recently invested in Vietnam, and multinational corporations have also moved production plants there, expanding Vietnam's potential for economic cooperation and elevating its status in the global supply chain.

U.S.-Vietnam economic cooperation opportunities

Ever since diplomatic relations between the U.S. and Vietnam were normalized, the trade between the two countries has significantly increased. Noticeably, according to the General Department of Customs, bilateral trade between Vietnam and the U.S. reached a record-high $111.56 billion in 2021, an increase of about $21 billion from the year before. This figure makes the U.S. Vietnam’s second-largest trading partner now.

Vietnam has also benefited in various ways from the U.S.-China trade war. Vietnamese exporters have noticed a rise in demand for their goods, particularly clothing and textiles. For U.S. investors taking advantage of the China plus one strategy, which entails moving or expanding operations to other countries to enhance market access, Vietnam has emerged as a viable alternative to China.

Major U.S. companies have already moved production lines to Vietnam, including Apple, Intel, Qualcomm, Universal Alloy Corporation (UAC), Nike, and KeyTronicEMS. U.S.-based  Universal Alloy Corporation (UAC) has invested $170 million in the Da Nang Hi-Tech Park to produce electronics for Boeing and Airbus aircraft. Another U.S. investor, Vector Fabrication Inc., has also invested $59 million in Vietnam at the Da Nang Hi-Tech Park.

For foreign investors, Vietnam offers a number of advantages over other Asian countries, including a fairly efficient and stable governmental structure, regulatory and cultural familiarity for businesses accustomed to operating in China, highly competitive labor costs, and close proximity to existing Asian supply chains. Although the Covid-19 pandemic and U.S.-China trade war have generated great opportunities to entice manufacturing companies to migrate, Vietnam’s greatest challenge now is how to manage its expansion sustainably.

Conclusion

While Taiwan’s public and political parties are inclined to retain the status quo and the Biden administration is expected to continue pursuing its one-China policy, China’s more assertive measures towards Taiwan suggest that further crises in the Taiwan Straits are still likely to occur. However, the geopolitical ties between the U.S. and Taiwan have been greatly strengthened over time, particularly in the economy. Therefore, there are ample prospects for U.S. and Taiwanese investors to establish lucrative businesses in politically stable nations like Vietnam.

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