U.S.–Taiwan Free Trade Agreement: The Economic Case - Tori K. Smith, Gabriella Beaumont-Smith, and Rachael Wolpert

and confidence increase, the United States needs to find additional ways to continue to deter Chinese adventur- The next step in the relationship should be ism” and that an FTA with Taiwan “would also send a a formal trade agreement, and the Biden strong signal to China on the importance the United Administration should make an FTA with States places in its relationship with Taiwan.”2 The Her- Tai. [...] The last major analysis of the potential economic effects of a trade agreement between the United States and Taiwan was conducted in 2002 by the U. [...] In a 1972 joint communique between the United States and the PRC, referred to as the Shanghai Communique, the United States acknowledged “that there is but one China and Taiwan is part of China.”5 In the 1979 Nor- malization Communique, the United States established formal diplomatic relations with the PRC, thereby recognizing the PRC as the official govern- ment of China. [...] 3703 April 28, 2022 | 4 heritage.org Trade and Investment Framework Agreement In 1994, the United States and Taiwan signed a Trade and Investment Framework Agreement (TIFA) to “review trade and investment flows, to identify opportunities for expanding trade and investment [and] to identify and work toward the removal of measures that distort bilateral trade and investment flows.”13 The first three. [...] In the CGE model, tariffs are removed in all sectors reciprocally between the United States and Taiwan.30 The shock of removing tariffs creates a dis- equilibrium that changes the global economy in the model.