Taiwan, the world’s biggest chip-maker, just set up a new trade framework with the US amid tensions with China

• The US and Taiwan have committed to supporting supply chains for chips.
• The framework comes amid heightened tensions between China and Taiwan.
• US defense official Ely Ratner said Taiwan’s free-market economy is “integral” to the world.

The US and Taiwan have set up a new trade and investment framework as the island’s tensions with China escalate.

The Technology Trade and Investment Collaboration (TTIC) framework was announced in a December 6 call between US Commerce Secretary Gina Raimondo and Taiwan’s Minister of Economic Affairs Wang Mei-hua. The TTIC’s goal is to develop commercial programs and to strengthen critical supply chains, according to a press release from the US Department of Commerce.

In the call, Raimondo and Wang “committed to identifying other steps to support semiconductors and other critical supply chains.”

“Working together, we can build business connections and generate further investments which will ultimately create good-paying jobs, strengthen critical supply chains, and deepen our overall economic relationship,” Raimondo said in the call.

The partnership comes amid escalating tensions between China and independently governed Taiwan, which Beijing views as a breakaway province. China’s air force has been entering Taiwanese airspace frequently in recent months and staging military exercises near the island, prompting fears of a military conflict.

On Wednesday, Assistant Secretary of Defense Ely Ratner told the Senate Foreign Relations Committee that “bolstering Taiwan’s self-defenses is an urgent task.” Ratner referred to China’s actions as “destabilizing” and “intentionally provocative,” according to a transcript of his statement.

Taiwan’s free-market economy is “integral” to the world, added Ratner.

“Indeed, our economy — like many others around the world — has come to count on Taiwan as a critical supplier of high-technology, including semiconductors,” said Ratner.

Taiwan is the world’s largest semiconductor producer, with one firm — TSMC — accounting for over half of the global supply of made-to-order chips. In a July earnings call, TSMC chairman Mark Liu addressed fears over a potential invasion of Taiwan.

“Everybody wants to have a peaceful Taiwan Strait. Because it is to every country’s benefit, but also because of the semiconductor supply chain in Taiwan, no one wants to disrupt it,” Liu said, according to a transcript of the earnings call.