A new deal signed by the US and Taiwan to cooperate on infrastructure development in Southeast Asia and Latin America will help them to reshape the global supply chain and reduce their dependence on mainland China, analysts say.
The American Institute in Taiwan (AIT) – the United States’ de facto embassy on the island – and the Taipei Economic and Cultural Representative Office in the US, signed the “Framework to Strengthen Infrastructure Finance and Market Building Cooperation” on Wednesday.
The AIT said areas of cooperation would include “infrastructure finance and market building, and joint collaboration to facilitate infrastructure investment in third countries, which will also help secure supply chains of the future”.
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Observers said the deal would also help to increase Taiwan’s investment opportunities and expand its ties with countries that diplomatically recognise Beijing rather than Taipei.
“The framework is part of the US scheme to work with Taiwan and other like-minded countries to re-establish a new global supply chain so that they don’t need to rely on China,” said Wang Kung-yi, chairman of the Taiwan International Strategic Study Society.
“By working with other countries, the US also aims to cut China off the supply chain, particularly in the semiconductor and hi-tech sectors, prompting Beijing to open more new pilot free-trade zones in a bid to counter the US plan,” he said.
Politicians said it would also benefit Taiwanese President Tsai Ing-wen’s “New Southbound Policy”, which is designed to ease the island’s heavy reliance on China.
Mainland China accounts for 40-45 per cent of Taiwan’s exports, according to official figures from the island’s government.
“This definitely is advantageous to our New Southbound Policy,” Wang Ting-yu, a Taiwanese politician with the ruling Democratic Progressive Party, said on Thursday.
The cooperation with the United States would “allow Taiwan to extend its reach to a number of countries that do not maintain formal ties with Taiwan through investments in their infrastructure facilities”, he said.
Since Tsai was elected president in 2016 and refused to accept Beijing’s one-China principle, she has encouraged local businesspeople, especially those based on the Chinese mainland, to make more investments in Southeast and South Asia.
Wednesday’s deal was one of several signed by the US and Taiwan to boost collaboration in the areas of investment, digital economy, security, disinformation, and cyber defence.
Last month, the AIT and the Taiwan External Trade Development Council agreed to work together to restructure the global supply chain and make it more resilient.
The AIT said the new partnership would focus on encouraging partners to bring supply chains – for the hi-tech and medical sectors in particular – closer to home, or place them in like-minded economies, and ensure they were free from political coercion from Beijing.
Fan Liang-tung, secretary general of Taipei-based Chinese National Association of Industry and Commerce, said that while the agreement was a “great opportunity for local investors … the Tsai government needs to consider the huge financial implications involved”.
“After the US and Taiwan establish the framework, it remains to be seen whether it will be able to link it with the US-Japan and US-Australia frameworks to become an even bigger partnership framework,” he said.
But the Taiwanese government should be more concerned with helping local businesses to explore business opportunities via the New Southbound Policy than cooperating with the US on countering Beijing, he said.
Charles Chong-han Wu, an associate professor of diplomacy at National Chengchi University in Taipei, said the infrastructure initiative was the latest in a series of pro-Taiwan policies from the US, including after high-profile visits of US senior officials to the island.
“This is basically aimed at countering Beijing’s Belt and Road [Initiative],” he said. “It’s the US version of a belt and road, by bringing friendly partners like Taiwan to sign economic and trade agreements with other countries.”
The framework was also another move by the Tsai government to more closely align with the US, after moving to ease US beef and pork exports, and the New Southbound Policy, he said.
“For Taiwan’s Southbound Policy, they have been discussing this since 2015, but the actual effect has not been as effective since our trade with China is still increasing, no matter if it’s imports or exports,” he said.
“Diversifying our supply chain is not something that can be resolved in the short term … since the Chinese labour force is so strong, it is inevitable that your supply chain will be connected to them, but the overall environment now is moving towards Southeast Asia.”
Additional reporting by Sarah Zheng
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This article US-Taiwan infrastructure investment deal aims to reduce dependence on China, experts say first appeared on South China Morning Post