Boiling Point: Sino-U.S. Relations at Risk of Further Deterioration as the United States Announces Formal Trade Talks with Taiwan

4 min

When U.S. House of Representatives Speaker Nancy Pelosi made a historic visit to the Republic of China (Taiwan) on August 2, 2022, the world watched with bated breath. The visit, which was the first time in over two decades since a U.S. House speaker has visited the island, was intended to show support for Taiwan and democracy. However, the visit prompted outrage and heightened tensions between the United States and the People's Republic of China (China), which has long viewed Taiwan as a part of China's territories. Tensions continue to build as China initiated a series of large-scale military exercises around Taiwan following Speaker Pelosi's visit.

On August 17, 2022, the United States Trade Representative announced that formal trade negotiations with Taiwan are expected to begin in "early fall" to cover a variety of topics in which the United States and Taiwan seek to undertake the following:

  • Trade facilitation. To incorporate best practices with respect to facilitating trade (e.g., transparency requirements, digitalization, paperless trade, customs cooperation, etc.).
  • Goods regulatory practice. To adopt provisions "supporting sound, transparent regulatory practices" (e.g., timely online accessibility to information about regulations and processes, meaningful opportunities for public consultations, etc.).
  • Anticorruption. To adopt strong anticorruption standards to combat bribery and other forms of corruption.
  • SMEs. To support and enhance small and medium-sized enterprise (SMEs) trade through various provisions, including addressing barriers to trade, enhanced information sharing, promoting best practices, and collaborations to promote and support SMEs.
  • Agriculture. To adopt provisions to facilitate agricultural trade and address issues such as food security, new technologies, climate adaption, and resiliency.
  • Standards. Collaborate on standards, technical regulations, conformity assessment processes, and trade barriers.
  • Digital trade. To advance beneficial outcomes with respect to digital trade for workers, consumers, businesses, and SMEs (e.g., strengthening consumer trust in the digital economy, increase information access, create a resilient and secure digital infrastructure, etc.).
  • Labor. To support internationally recognized labor rights, increase opportunities for workers to collaborate on trade policy, ensure corporate accountability, and create durable and inclusive trade policies.
  • Environment. To enhance their cooperation on trade and the environment (e.g., promote green businesses, promote environmental protections, establish information exchanges, etc.).
  • State-owned enterprises. To address "the significant distortions […] from the non-market practices of state-owned and state-controlled enterprises and government designated monopolies [….]"
  • Non-market policies and practices. To address harmful non-market policies and practices.

The negotiations, dubbed the "U.S.-Taiwan Initiative on 21st-Century Trade," further intensify the tensions between the nations and raise questions on the dynamics among the United States, Taiwan, and China. Historically, the United States has recognized the "One China Policy," which is the position that there is only one sovereign state under the name of China, that China serves as the sole legitimate government of that China, and that Taiwan is a part of China. Although Taiwan maintains its own democratic government and asserts its independence from China, the United States and many other countries have declined to recognize Taiwan's sovereignty. Rather, the United States maintains informal relationships with Taiwan and maintains its diplomatic relations with China. However, Taiwan is an important trading partner for the United States and is a key market for U.S. agricultural exports and a notable supplier of technological materials such as semiconductors.

While the formal trade talks will deepen the United States' relationship with Taiwan, the United States still asserts that its foreign policy toward China and Taiwan remains unchanged. In a reportedly tense and lengthy phone call between President Biden and Chinese President Xi Jinping on July 28, 2022, the administration reaffirmed the unchanged foreign policy position. Despite these assurances, Chinese Foreign Ministry spokesman Wang Wenbin condemned the announcement of trade talks. He warned the United States against negotiating agreements with "sovereign implication or official nature with China's Taiwan region" or risk sending the wrong signal of "Taiwan independence." He emphasized that any indications of Taiwan sovereignty would be met with prompt and resolute actions by China to "defend its sovereign and territorial integrity."

We continue to monitor developments impacting Sino-U.S. trade relations and broader U.S. trade relations in the Indo-Pacific. If you have any questions on how U.S. trade policies may impact your business, please reach out to Venable's International Trade and Logistics Group for guidance.