The United States and Taiwan’s Role in Digital Trade in the Indo-Pacific

Audio Brief

A short, spoken-word summary from CSIS’s Erin L. Murphy on her commentary, “The United States and Taiwan’s Role in Digital Trade in the Indo-Pacific.”

Audio file

The United States and its partners and allies are striving to build frameworks for current and emerging technologies, especially on digital trade. With the United States increasingly on the outside of regional trade agreements—but actively seeking ways to connect economically with the Indo-Pacific region—finding ways to engage and identify areas of common ground on digital trade issues will be critical in maintaining relevancy and connectivity on core national security and foreign policy issues. In a joint CSIS-Chung-Hua Institution for Economic Research conference on “Digital Trade, Supply Chains, and Economic Security: Perspectives from Taipei and Washington,” scholars and participants analyzed this issue and identified solutions to find a way forward. Thankfully, the United States does not have to look far to find those common pathways or partners. It has the advantage of pulling from its own trade agreements and Asia-related trade agreements with digital trade components and its partnership with a leading economy in this field: Taiwan.

The United States and Taiwan enjoy a strong economic relationship, with the United States as Taiwan’s second-largest trading partner and Taiwan as the eighth-largest for the United States. Taiwan’s direct investment in the United States exceeded $8 billion in 2018–2022, up from $2.2 billion between 2013 and 2017, mostly from investment in the semiconductor sector, and its investment in China has plateaued and has shown signs of decreasing. Economic ties have strengthened with the advent of bilateral dialogues,development finance collaboration, the 2021 launching of the U.S.-Taiwan Technology Trade and Investment Collaboration supporting cooperation on critical supplies chains, and most recently, the signing into law of the U.S.-Taiwan Initiative on 21st-Century Trade. On the manufacturing side, Taiwanese companies manufacture close to 70 percent of the world’s semiconductors and approximately 90 percent of the most advanced chips. Furthermore, Taiwanese companies, including Taiwan Semiconductor Manufacturing Company Limited (TSMC) also invest in the United States, including semiconductor giant TSMC.

The recent negotiations on the Indo-Pacific Economic Framework (IPEF)—the Biden administration’s effort to replace the Trans-Pacific Partnership trade deal and provide a counterweight to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) through building a framework of standards on fair trade, supply chains, decarbonization, and anti-corruption—floundered on the first pillar around digital trade issues. This was mainly due to concerns around large tech company influence, such as Google or Meta, over cross-border data flows, data localization, and source code. Regardless of the first pillar of IPEF faltering, digital trade will continue to move ahead in the Indo-Pacific; the United States can use agreements of which it is a part and work with Taiwan in discussions and implementation of norms and standards in the region.

The United States is already working through incorporating digital trade elements in the United States-Mexico-Canada Agreement (USMCA). The Digital Trade chapter of the USMCA covers a range of items that recognize the economic growth and opportunities provided by digital trade and the importance of frameworks that promote consumer confidence, avoid unnecessary barriers to its use and development, and protect the consumer and information. The chapter includes articles on customs duties, nondiscriminatory treatment of digital products, paperless trading, principles on access to and use of the internet for e-commerce, e-authentication and e-signatures, online consumer and personal information protection, cross-border transfer of information, source code, and cybersecurity. Many of these elements also appear in the CPTPP’s chapter on e-commerce and include addressing localization barriers and dispute settlements.

Even more recently, the United States and Taiwan signed onto the U.S.-Taiwan Initiative on 21st-Century Trade which was signed into law in August 2023. This is the first major trade agreement approved by Congress and the Biden administration that has actual trade facilitation parameters included, with the support for small and medium-sized enterprises (SMEs) in both the United States and Taiwan. (SMEs employ over 80 percent of Taiwan’s workforce.) A key part of the agreement includes core principles on digital trade, including consumer trust in the digital economy, promoting access to information, facilitating use of digital technologies, promoting resilient and secure digital infrastructure, and addressing discriminatory and trade-distortive practices in the digital economy.

It is clear that the United States and Taiwan, through their work on the U.S.-Taiwan Initiative on 21st-Century Trade, ongoing bilateral discussions on digital trade, and work through other regional economic frameworks and agreements, share mutual interests in establishing high standards and core principles for digital trade. And it is clear that this is something that is shared in the Indo-Pacific region as well. Throughout these agreements in which many Indo-Pacific countries are members or seeking to be members, there are common threads around economic development and prosperity, consumer and business trust, protection of information, and reducing trade barriers. Though the IPEF pillar faltered, there are still avenues to continue the discussions, whether through ongoing IPEF negotiations, the Asia-Pacific Economic Cooperation (APEC) forum, in which the United States and Taiwan are a part, or as a looser framework of willing partners. It is important that the work continues on this issue, renewing trust and building on the foundations already in place.

Erin Murphy is a senior fellow with the Asia Program at the Center for Strategic and International Studies in Washington, D.C.