This should be a good time to be an American Internet company in Taiwan. The new president, Tsai Ing-wen, has pledged to build an Asian Silicon Valley on the island. And the new American president, Donald Trump has threatened a trade war with Taiwan‘s rivals in mainland China. The stars would appear to be aligned.

So it’s surprising that on Feb. 10, one of America‘s most successful digital companies, Uber, had to suspend its operations in Taiwan. At issue was a new law to impose fines up to $800,000 on unlicensed transportation services like Uber Technologies.

“We have never seen anything like this, ever,” Damian Alexander Kassabgi, Uber’s director of public policy for the Asia-Pacific region, told me last week. “We received fines in total of $8 million. We felt we had no other choice but to suspend our service until the government gave us some other options.”

So far that hasn‘t happened. The problem for Uber is that Taiwan’s taxi industry has a lot of influence with the government in Taipei. At least this is Uber‘s perspective.

The company had offered its ride-sharing service for three years in Taiwan, but in August it became a target. At first the government threatened to take away Uber’s business license. Then in January, the legislature passed the new law that imposed the fines. “What we see in Taiwan is a conservative bureaucracy who has not shown willingness to accept or update laws accordingly,” Kassabgi said. “The taxi industry won the day.”

The Taiwanese government tells a different story. A Taiwanese government memo from December on the Uber controversy defends the government scrutiny of Uber. “Most countries regulate public transport businesses because these services affect consumer rights and basic transportation safety,” it said. “An appropriate level of government intervention is thus needed to maintain market order and protect the public interest.”

Right now the fate of Uber in Taiwan is in limbo. Kassabgi said that while the State Department has been helpful in pressing Taiwan‘s government to reconsider the anti-Uber legislation, so far nothing has changed.

There are a few reasons this is important. First, Taiwan is one of America’s closest allies in the Asia-Pacific region. The US is the island‘s main supplier of military equipment and weapons systems. During the transition, Trump broke precedent and took a phone call from Tsai, raising the prospect that Trump could reject the longstanding “One China” policy, under which the US does not recognize Taiwan as an independent nation-state. Trump has since affirmed that he does accept this policy.

“Of all the countries, you’d think they would not target US companies,” said Derek Scissors, an economist who specializes in Asia at the American Enterprise Institute. He added: “If an American friend will do this, why wouldn‘t countries where the US has less of a relationship do this as well?”

The Uber saga in Taiwan is also a reminder that protectionism is a two-way street. Trump himself has threatened tariffs on companies that sell products in the US market produced outside the US. In one of his first acts as president, he withdrew the US from the Trans-Pacific Partnership, a multilateral trade deal with Asian countries that did not include Taiwan. At the same time, Taiwan’s anti-Uber law bolsters Trump‘s arguments that America’s trading partners take advantage of the US in trade deals.

A spokesman for the Taipei Economic and Cultural Representative Office in the US told me that Taiwan was not worried about retaliation. He said Taipei‘s goal is to keep companies compliant with local laws.

In this case though it looks like this argument is a smoke screen to protect Taiwan’s taxi industry. But this is not a zero-sum game. It‘s true that Uber disrupts the taxi business in all the countries where it operates. But at the same time, it’s not taking jobs away from the local economy. Taxi drivers lose jobs, but new jobs are created for drivers who use Uber‘s ride-sharing application.

For now, the controversy has the potential to chill trade between Taiwan and the US. Earlier this month, Michael Beckerman, the president and CEO of the Internet Association, which includes Uber and America’s other largest Internet companies, warned Tsai that the fines against Uber would have wider ramifications.

He wrote in a letter from Feb. 9, “Taiwan’s hard line against innovative new digital services like those in the peer-to-peer sharing economy will have a chilling effect on your goal of establishing Taiwan as the Silicon Valley of Asia, and will likely have negative effects on US investment in Taiwan more broadly.”

That‘s something for Tsai to consider. America now has a president who has threatened to respond in kind to countries that punish US companies to protect their own industries. Is Taiwan’s taxi industry worth protecting, if the cost is a trade war with the island‘s most important ally? Uber would like to know.


By Eli Lake

Eli Lake is a Bloomberg View columnist. –Ed.

(Bloomberg)