The ECFA, Its Impact on Cross-Strait Relations, and Implications for the United States

Abstract

Trade and investment between two rival political regimes involves not only on economic interests but also on political relations. This chapter utilizes political economy to analyze the paradox that a trade pact with China could simultaneously provide economic benefits incurring politi- cal costs for Taiwan. It also analyzes the contradiction that reducing political tensions through economic integration across the Taiwan Strait could limit the ultimate political choices for Taiwan. Given the overlapping claims on Taiwan’s sovereignty, there is a trade-off between Taiwan’s economic interests and its political sovereignty, and there is a dilemma that economic integra- tion could result in less political autonomy. This chapter assesses the possible impacts of a fully fledged Free Trade Agreement (FTA) between it and China on its economy based on the simulation results from a computed general equi- librium (CGE) model. It especially focuses on the sociopolitical consequences, such as changes in the “status quo” in the Taiwan Strait, of economic integra- tion between these two economies. Finally, it looks at the implications of such shifts for American interests in the region.