Vital Partners: How Trade Linkages with Korea, Mexico, and Taiwan Help Power America’s Innovation Economy

Against the backdrop of a heated U.S.-China trade war and recent tariff threats against Mexico, it is important to understand how globalization has given rise to international supply chains that create opportunities for nations to prosper by specializing in economic activities where they are most productive and competitive. Nowhere is this more apparent than in the global value chains that drive the information and communications technology (ICT) sector, where Mexico, Korea, and Taiwan are key trade partners for the United States. Each country has industries and enterprises that have played integral roles supplying components that allow U.S. companies to concentrate on the highest-value-added stages of economic activity. For instance, America’s semiconductor industry has successfully leveraged global supply chains to focus on chip design and next-generation fabrication while remaining globally cost competitive by executing lower-value-added-activates such as assembly, package, and testing elsewhere.

On June 25, 2019, the Information Technology and Innovation Foundation hosted an expert panel discussion on Capitol Hill to mark the release of a new report that examines the deep trade interlinkages and value-added trade flows between the United States, Mexico, Korea, and Taiwan across six high-tech sectors: automobiles, chemicals, computers and electronics, machinery, aerospace and other transportation equipment, and pharmaceuticals. The event addressed policy recommendations to facilitate deeper, mutually beneficial trade flows with these key supplier nations and ensure that global tech-based value chains embrace the highest standards for market- and rules-based trade.

ITIF Vice President of Global Innovation Policy Stephen Ezell opened the event with a brief overview of the report, stressing the importance of global supply chains to the international economy. America has extremely positive trade balances with Mexico, Korea, and Taiwan in high-tech industries. For example, bilateral U.S.-Taiwan trade reached $86 billion in 2017. U.S.-Mexico trade reached $671 billion in 2018, making Mexico America's third largest trading partner and second largest goods importer.

Charles Boustany, Counselor at the National Bureau of Asian Research, noted that it is more important to understand what’s happening at the value-added level rather than focusing on trade imbalances. Participation in global trade enables U.S. advanced tech companies to prolong the nation’s competitiveness in the long-run. He highlighted that there are over 400 trade agreements in existence today, but the United States is only a party to 14 of them. Boustany stressed that the United States needs to increase its involvement in these sorts of agreements to remain competitive.

Boustany also mentioned how China is increasingly trying to cut off Taiwan from global value chains based on mercantilist trade policies. The United States needs to deepen trade linkages with like-minded economies to address this concern. He also noted that the United States needs to maximize aggregate pressure with its allies to push back on Chinese mercantilism.

Tami Overby, Senior Director at McLarty Associates, then argued that it is critical the United States aim to rejoin CPTPP, along with Taiwan and Korea. She noted that if nations are not involved in the free trade agreement, they become outsiders. Overby then highlighted that, according to the WTO 2019 global value chain development report, global value chains have not been a significant cause of decline in manufacturing jobs in advanced economies.

Jimmy Goodrich, Vice President of Global Policy at the Semiconductor Industry Association, then discussed how global market access is critical, as exports play a key role in the semiconductor industry. Without global supply chains, the United States would not be such a competitive player in the semiconductor industry.

The panelists agreed that it is critical that the United States continues to facilitate mutually beneficial trade flows in effort to remain a competitive player in the global value chain race. New policies ensure high standards for these trade markets going forward.

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