Updated March 1925, 2019
U.S.-Taiwan Trade Relations
Overview
With a population of 23.6 million people, Taiwan has evolved
evolved to become a highly developed, dynamic, and globally
globally competitive economy. In 2018, Taiwan’s gross domestic
domestic product (GDP) on a purchasing power parity
(PPP) basis
was $1.25 trillion, making it the world’s 22st-largest
22stlargest economy. Its per capita GDP on a PPP basis (a common
common measurement of living standards) was 19% greater than
than Japan’s and about 85% of the U.S. level. In 2018, Taiwan
Taiwan was the world’s 21st-largest trading economy for
goods and
services. The World Economic Forum ranked
Taiwan as the
world’s 13th-most competitive economy in
2018, and the
World Bank ranked Taiwan the 15th-best
economy in terms
of the ease of doing business. Taiwan is a
major global
producer of information and communications technology
(ICT) products (e.g., notebook PCs, tablets, smartphones,
and computer peripherals) and semiconductors.
agreements, will put Taiwan in a good position to take
technology (ICT) products and semiconductors.
advantage of opportunities that might arise as China
pursues new economic reforms and seeks to promote
private consumption as the main driver of its economy.
Taiwan’s Economic Challenges
Taiwan’s economy is very dependent on international trade.
Taiwan’s exports of goods and services in 2018 totaled
$393 billion (equivalent to 67% of its nominal GDP), and
were up 5.4% over 2017 levels. Taiwan’s real GDP growth
averaged 2.9% from 2009 to 2018, and the International
Monetary Fund projects that rate will average 2.1% over the
next five years. Taiwan faces a number of economic
challenges, including declining competitiveness for many
industries, inability to participate in various regional trade
agreements, stagnant wages, and a lack of job opportunities
for some college graduates. A 2018 survey by the Importers
and Exporters Association of Taipei assessed Taiwan to
have the 17th-most competitive trading economy out 54
major countries surveyed, which was down from 9th in its
2011 survey. While unemployment is low at 3.6% (January
2019), the rate for those aged 20-24 is 11.7%. The
Taiwanese government estimates that in 2016, 728,000
Taiwanese citizens were employed overseas, of which
407,000 (56%) worked in China. The Taiwanese
government has raised concerns over China’s attempts to
expand incentives for Taiwanese people to move to China
for work, investment, and study.
U.S.-Taiwan Trade Relations
U.S. trade data show that in 2018, Taiwan was the United
States’ 11th-largest merchandise trading partner (at $76
billion), 15th-largest export market ($30 billion), and the
13th-largest source of imports ($46 billion). From 2000 to
2018, U.S. exports to Taiwan grew by 24%, while imports
grew by 13%. In comparison, U.S. global exports and
imports rose by 113% and 109%, respectively.
Many in Taiwan, especially those in the Democratic
Progressive Party (DPP), view the slowing Taiwanese
economy as a consequence of Taiwan becoming overly
reliant on China for economic growth (In 2018, 41% of
Taiwan’s merchandise exports went to mainland China and
Hong Kong), and because closer cross-strait economic ties
have led to the relocation of many Taiwanese industries to
mainland China, which, many argue, may have contributed
to lost jobs and stagnant wages in Taiwan. Others in
Taiwan, especially those in the Kuomintang (KMT),
contend that closer economic ties with China have benefited
Taiwan’s economy and argue that boosting those ties
further, such as through the implementation of new trade
agreements, will put Taiwan in a good position to take
Economic issues were a major focus of the January 2016
election in Taiwan, which resulted in a major victory for the
DPP and its presidential candidate, Dr. Tsai Ing-wen. She
proposed a “New Model for Economic Development”
focused mainly on innovation, job creation, and addressing
widening income gaps, such as by boosting social safety net
policies. In an effort to lessen Taiwan’s reliance on China’s
economy, Tsai has called for closer economic cooperation
with the United States and has said that “there is an urgent
need” for Taiwan to participate in the proposed TransPacific Partnership (TPP), although the U.S. withdrawal
from the TPP in January 2017 complicated this strategy.
Figure 1. U.S.-Taiwan Merchandise Trade: 2000-2018
$ in billions
Source: U.S. International Trade Commission (USITC).
U.S. data on trade with Taiwan may understate the
importance of Taiwan to the U.S. economy because of the
role of global supply chains. For example, many of the
consumer electronic products developed by Apple Inc.
(such as iPads and iPhones) are assembled in China by
Taiwanese-owned firms. Taiwan has moved a significant
level of its labor-intensive manufacturing overseas,
especially to China. This is reflected in Taiwan’s data on
export orders received by its firms from abroad. That data
indicate that the percentage of export orders produced
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U.S.-Taiwan Trade Relations
abroad rose from 13% in 2000 to 52% in 2018; and for ICT
products, this figure rose from 25% to 94%.
Taiwanese
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U.S.-Taiwan Trade Relations
Taiwan government data indicate that its manufacturing
firms received export orders from the United States worth
$146 billion in 2018, which was more than three times
larger than official U.S. data on its imports from Taiwan in
2018. From 2000 to 2018, U.S. orders to Taiwanese firms
increased by 199%. The United States is the largest source
of Taiwan’s export orders, accounting for 29% of the total
in 2018 (China and Hong Kong together accounted for
25%). This indicates that U.S.-Taiwan commercial ties are
significantly greater (and more complex) than are reflected
in standard bilateral trade data. Cumulative U.S. FDI flows
to and from Taiwan through 2017 (on a historical-cost
basis) totaled $17 billion and $22.4 billion, respectively.
Figure 2. Comparison of U.S. Export Orders Placed
with Taiwanese Firms and U.S. Data on Merchandise
Imports from Taiwan: 2000-2018 ($billions)
Source: Taiwan export order data are from the Taiwan Ministry of
Economic Affairs. Data on U.S. imports are from the USITC.
Taiwan’s Dilemma on Trade
Taiwan’s economy is heavily dependent on trade. Yet, its
share of global merchandise exports fell from a peak of
2.5% in 1993 to 1.6% in 2018. Taiwanese officials attribute
this trend in part to the proliferation of bilateral and
regional free trade agreements (FTAs), especially among
other major Asia-Pacific economies. Taiwan is currently
not a party to these FTAs, in large part, it is believed,
because China often pressures other countries to avoid
signing trade deals with Taiwan. Taiwanese officials have
expressed concern that its exclusion from FTAs could hurt
the long-term competitiveness of many Taiwanese
industries, which could reduce trade flows and diminish
economic growth. To illustrate, countries with FTAs often
reduce most or all of their tariff levels to zero. If Taiwan is
not an FTA member, its products will be assessed the nonFTA (and thus higher) tariffs.
Taiwan has sought to boost commercial ties with China in
order to help its firms take advantage of the opportunities
arising from China’s large and rapidly growing economy
and to help reduce political tensions with China (including
the hope that by expanding economic ties, China will lessen
its opposition to Taiwan’s attempts to negotiate FTAs).
After coming into office in 2008, Taiwanese President Ma
Ying-jeou sought to expand cross-strait commercial ties by
lifting restrictions on direct trade, transportation, and postal
links. He further proposed an Economic Cooperation
Framework Agreement (ECFA) with China, described as a
plan to significantly liberalize trade and investment barriers
over time. ECFA negotiations began in January 2010 and
concluded in June 2010. The ECFA identified four main
agreements that would be negotiated: trade in goods, trade
in services, investment, and dispute settlement.
Following the signing of the ECFA, press reports indicated
that China appeared to be less opposed to Taiwan seeking
trade agreements with other countries, which Taiwan often
refers to as “economic cooperation agreements.” Taiwan
concluded such agreements with New Zealand and
Singapore in 2013. China-Taiwan trade relations soured
somewhat in in
the spring of 2014 when consideration of a
cross-straits
Trade in Services Agreement (TiSA) by
Taiwan’s
Legislative Yuan led to widespread protests (the
“Sunflower Movement”) and forced the government to
suspend a vote on TiSA. Since then, cross-strait initiatives
to boost commercial ties appear to have been put on hold.
The DPP has sought to maintain stable economic relations
with China, but has not indicated whether it plans to
reconsider the TISA agreement or purse a new goods
agreement under ECFA. President Tsai has not explicitly
reaffirmed Taiwan’s acceptance of the “1992 consensus”
(where the two sides essentially agreed that there was one
China but two interpretations), and this appears to have
angered Chinese authorities, enough so that they appear to
have may have
imposed restrictions on mainland tourists visiting
Taiwan (the number of such visitors fell by 28% in 2017).
Recent U.S. Trade action Taiwan
(Arrivals from the mainland fell from 4.2 million in 2015 to
2.7 million in 2018, a 36% drop).
Recent U.S. Trade Action and Taiwan
The Trump Administration has pursued a number of trade
policies that could hurt Taiwan’s economy. In March 2018,
President imposed increased tariffs on U.S. imports of steel
(by 25%) and aluminum (10%) under Section 232. In
August 2017, the Trump Administration initiated a Section
301 investigation of China’s policies on intellectual
property, forced technology transfer, and innovation that
may harm the U.S. economy, and it has subsequently
increased tariffs on $250 billion worth of products from
China. China has raised tariffs on $110 billion worth of
imports from the United States. These tit-for-tat retaliation
measures could disrupt global supply chains where
Taiwanese firms play a significant role, especially for
products assembled in China and exported to the United
States. A January 2019 business survey by the American
Chamber in Taipei found that 45.8% of those surveyed said
they were very or somewhat confident about the economic
prospects in Taiwan for 2019, a 10 percentage point drop
from last year, caused in part by the ongoing U.S.-China
trade conflict.
Several Members support boosting economic ties with
Taiwan. In March 2018, legislation was enacted (P.L. 115135) to encourage visits between U.S. and Taiwan officials
at all levels. H.Res. 271 included a provision encouraging
the U.S. Trade Representative to begin negotiations for a
U.S.-Taiwan FTA. Taiwan’s trade barriers on U.S. beef and
pork products are a major source of bilateral tensions, in
particular Taiwan’s zero tolerance policy on pork imports
containing ractopamineof Congress have expressed support for
boosting commercial relations with Taiwan, including a
U.S.-Taiwan FTA. Taiwan’s trade barriers on U.S.
agricultural products (in particular on U.S. beef and pork
products containing ractopamine) are a major source of
bilateral trade tensions.
Wayne M. Morrison, Specialist in Asian Trade and
Finance
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IF10256
U.S.-Taiwan Trade Relations
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