US-Taiwan-G7 Leaders: Building trade partnerships and mitigating risk from China

As the US and Taiwan foster closer trading partnerships and increased bilateral trade flows, China has retaliated with sanctions on US and Taiwanese companies and has conducted military drills near the island, as growing trade tensions threaten to spill over into military tensions, increasing the risk of sea and air miscalculations.

Virginia Governor Glenn Youngkin met with Taiwan’s President Tsai and the two parties agree to increase bilateral trade flow. Meanwhile, the first agreement is made under the US-Taiwan Initiative on 21st Century Trade, and the G7 leaders met in Japan as they seek to “de-risk” but not “de-couple” from China.

On 24-25 April, Virginia Governor Glenn Youngkin visited Taiwan on a trade mission, confirming his support for President Biden’s commitment to Taiwan’s security and signing the bill banning Chinese nationals and enterprises from buying real estate in Virginia. Youngkin met with Taiwan President Tsai Ing-wen, and signed an executive order to set up a Virginia commercial office in Taiwan to boost trade relations.

Last year Virginia exported about $730 million in goods and services to Taiwan and imported more than $1 billion from Taiwan. Youngkin was co-CEO of the private entity Carlyle Group, which had extensive business relations with China. Around 40 to 50 percent of Carlyle’s Asia fund ($8.5 billion) was ringfenced for Chinese ventures. China is still one of Virginia’s largest trading partners.

On 24 April Taiwan’s Defense Ministry said China’s aircraft carrier, Shandong, and its battle group were operating 120 nautical miles southeast of Taiwan — its military closely watched battle group movements. Earlier that month, the Shandong battle group operated to the east of Taiwan in a PLA exercise that followed the meeting between US House Speaker Kevin McCarthy and President Tsai in California.

First agreement under US-Taiwan Initiative on 21st Century Trade

On 18 May, US Trade Representative Katherine Tai announced that the US and Taiwan – under the auspices of the American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office in the United States (TECRO) – concluded negotiations on the US-Taiwan Initiative on 21st Century Trade.  

The first agreement under the initiative – which includes customs administration and trade facilitation, good regulatory practices, services domestic regulation, and anticorruption – enhances US-Taiwan trade flows and facilitates investment and economic opportunities in both markets, particularly for small and medium-sized enterprises.

The move deepens the growing rift between the US with its allies and China, with Taiwan caught in the crossfire. As the trade and geopolitical environment worsens, it raises military stakes in the Taiwan Strait.

G7 Leaders looking to “de-risk” but not “de-couple” from China

The G7 leaders met for the G7 Summit held in Hiroshima, Japan, 19-21 May and released the following statement: “We are not decoupling or turning inwards. At the same time, we recognize that economic resilience requires de-risking and diversifying. We will seek to address the challenges posed by China’s non-market policies and practices, which distort the global economy. We will counter malign practices, such as illegitimate technology transfer or data disclosure.”

A few days after the statement, President Joe Biden reiterated their stance: “We’re not looking to decouple from China, we’re looking to de-risk and diversify our relationship with China.” He explained that means taking steps to diversify supply chains “so we’re not dependent on any one country for necessary product. It means resisting economic coercion together and countering harmful practices that hurt our workers. It means protecting a narrow set of advanced technologies critical for our national security.”

To find out more about this story and gain insight into how US companies can limit their risk, contact us today. Pamir Consulting offers strategic consulting and advisory services centered on market risk assessment to companies that are seeking to invest or have already invested in China. We help you identify and understand threats to your business, and provide strategic mitigation services that eliminate negative impact, saving costs and protecting your reputation.