Updated March 25, 2019January 6, 2020
U.S.-Taiwan Trade Relations
Overview
With a population of 23.6 million people, Taiwan has
evolved to become a highly Taiwan is a developed, dynamic, and
globally competitive economy. In 2018, Taiwan’s gross
domestic product (GDP) on a purchasing power parity
(PPP) basis was $1.25 trillion, making it the world’s 22stlargest economy. Its per capita GDP on a PPP basis (a
common measurement of living standards) was 19% greater
than Japan’s and about 85% of the U.S. level. In 2018,
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 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
abroad rose from 13% in 2000 to 52% in 2018; and for ICT
products, this figure rose from 25% to 94%.
https://crsreports.congress.gov
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 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 may have
imposed restrictions on mainland tourists visiting 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 of 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
competitive economy
that is highly dependent on global trade. Taiwan has fared
relatively well during the recent U.S.-People’s Republic of
China (PRC) trade conflict as a key link in global
technology supply chains, supplying both U.S. and PRC
markets. Looking ahead, Taiwan faces significant
constraints as it seeks to overcome domestic challenges
(such as labor mismatches and energy shortages), generate
new sources of growth in emerging technologies, and
diversify away from a growing economic dependence on
the PRC. Amidst U.S.-PRC tensions, Taiwan is walking a
fine line in trying to remain central to both U.S. and PRC
technology markets, including supplying PRC companies
like Huawei. Central to Taiwan’s ambitions is the Taiwan
government’s effort to start talks with the United States on
a free trade agreement (FTA) in the hope that an FTA might
not only increase bilateral trade but potentially open the
door to other FTAs and trade diversification for Taiwan.
Also see CRS In Focus IF10275, Taiwan: Select Political
and Security Issues, by Susan V. Lawrence.
Taiwan’s Economy
Taiwan (population 23.6 million), boasted a nominal gross
domestic product (GDP) of $603 billion in October 2019,
making it the world’s 22nd-largest economy. 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 ease of doing business.
Taiwan’s GDP composition by sector is 2% agricultural,
36% industrial, and 62% services. Main industries include
electronics, information communications technology (ICT),
semiconductors, petrochemicals, textiles, steel, machinery,
cement, food processing, autos, and pharmaceuticals.
Taiwan’s 2018 exports of goods and services totaled $393
billion (equivalent to 67% of GDP), ranking Taiwan as the
21st-largest trading economy (goods and services). Taiwan’s
real GDP growth averaged 2.9% from 2009 to 2018; the
International Monetary Fund projects that rate to average
2.1% over the next five years.
U.S.-Taiwan Commercial Ties
The United States and Taiwan share deep economic ties.
Taiwan is the United States’ 11th-largest merchandise
trading partner (total trade valued at $77 billion), 15thlargest export market (at $31 billion), and 13th-largest
source of imports (at $46 billion), according to U.S. 2018
data. In 2018, U.S. agricultural exports to Taiwan totaled
$3.9 billion and U.S. service exports totaled $10 billion.
U.S. trade data understates the importance of Taiwan to the
U.S. economy because it does not include production by
Taiwan firms that manufacture in the PRC for U.S. export.
In 2018, Taiwan firms received $146 billion in U.S. export
orders (a 199% increase over 2000); official U.S. data
showed $46 billion in Taiwan merchandise exports to the
United States. The United States is the largest source of
Taiwan’s export orders, accounting for 29% of the total in
2018. Taiwan’s exports to the United States rose by 21%
over the same timeframe, as some PRC-based production
shifted to Taiwan to avoid U.S. duties on Chinese imports.
Figure 1. U.S.–Taiwan Merchandise Trade 2000-2018
($ in billions)
Source: CRS with data from the U.S. Bureau of Economic Analysis
and the Taiwan Ministry of Economic Affairs.
Note: Data not adjusted for inflation.
U.S. foreign direct investment (FDI) stock in Taiwan
through 2018 (on a historical-cost basis) totaled $17.5
billion, while Taiwan’s FDI stock in the United States
totaled $10.6 billion. Taiwan’s FDI stock in the United
States is higher than official figures indicate, because U.S.
data does not include Taiwan investment via free ports that
are tax and duty free, such as Hong Kong and the British
Virgin Islands. Taiwan runs a trade surplus with the United
States and the PRC, and is a top holder of foreign exchange
reserves ($474.1 billion as of November 2019), a status that
allows Taiwan to stabilize exchange rates, maintain
liquidity, and invest domestically and overseas.
Taiwan’s government has expressed a strong interest in
starting FTA talks with the United States, but so far the
Trump Administration has been noncommittal. In
December 2019, 161 Members of Congress signed a letter
asking the U.S. Trade Representative to work toward FTA
talks with Taiwan. The American Chamber in Taipei has
called on the Taiwan government to remove trade policy
irritants and improve prospects for talks, noting in its 2019
White Paper that U.S.-Taiwan relations appear better than
in decades. In addition to increasing two-way trade and
investment, a U.S.-Taiwan FTA would likely strengthen
Taiwan’s overall U.S. ties and help diversify Taiwan’s
commerce away from the PRC, giving other countries cover
to resist pressure from Beijing and pursue similar
agreements with Taiwan. Taiwan has also reportedly sought
FTAs and investment agreements with Australia, the
European Union, Japan, and the United Kingdom.
https://crsreports.congress.gov
U.S.-Taiwan Trade Relations
U.S.-Taiwan TIFA
The United States and Taiwan concluded a Trade and
Investment Framework Agreement (TIFA) in 1994. TIFA talks,
usually held on an annual basis, serve as a high-level forum to
discuss major trade and investment issues and disputes and
expanded commercial ties. Topics generally include market
access, intellectual property rights protection, labor and
environmental issues, and trade capacity building. USTR has
indicated in the past that TIFA talks could lead to FTA talks.
Taiwan’s agricultural trade barriers, particularly a decision in
2007 to ban U.S. pork and beef that contain ractopamine (a
feed additive that promotes leanness), have long been a
source of friction in U.S.-Taiwan economic relations. The
issue prompted the United States to suspend TIFA talks
between 2007 and 2013. Talks resumed in March 2013, after
Taiwan agreed to allow some beef imports containing
ractopamine, based on a maximum residue limit (MRL),
although it continued to bar U.S. pork. Major U.S. pork
producers, however, recently announced a halt in the use of
ractopamine in their supply chains to facilitate exports to the
PRC, which also bans ractopamine, potentially removing a key
disagreement. Other U.S. concerns include:
tariff-rate quotas on 16 agricultural products;
motorcycle and soda ash tariffs;
country-specific quota regime for rice;
restrictions on biotechnology, genetically-modified
agricultural goods, and medical devices; and
rules on digital trade, energy, and tourism.
Taiwan’s Economic Challenges
Taiwan faces risks of declining competitiveness and
growing economic dependence on the PRC. Taiwan’s share
of global merchandise exports fell from a peak of 2.5% in
1993 to 1.6% in 2018. Domestically, the Taiwan
government is facing stagnant wages; an aging population;
and land, power, and water shortages. Taiwan also faces a
talent mismatch. While some university graduates have
trouble finding jobs, industry complains that Taiwan lacks
particular technical talent. Overall unemployment is low at
3.8% (September 2019), but the rate for those aged 20-24 is
more than three times higher (11.7%). Taiwan’s current
government has vowed to phase out the use of nuclear
power, but does not appear to have identified alternative
power sources to meet projected demand, including the
needs of a “5+2” plan to boost innovation and
manufacturing in a range of emerging industries, including
advanced manufacturing, biotech, green energy, and
defense. The program involves at least $58 billion in
government outlays for research, companies, and
infrastructure. The Taiwan government has also introduced
tax policies and loans to incentivize semiconductor and ICT
production in Taiwan and liberalized rules to allow shortterm hiring of foreign nationals to address talent gaps.
Cross-Strait Issues
Taiwan officials assess that declining competitiveness is
due in part to new FTAs that exclude Taiwan (in large part
because of pressure from Beijing) and obstacles Taiwan
faces in joining and participating in international
organizations. U.S. withdrawal from the Trans-Pacific
Partnership (TPP) in 2017 hurt Taiwan’s ability to join the
TPP and an amended agreement, TPP-11, that was signed
without the United States and Taiwan. Since a 1994 U.S.
Taiwan Policy Review, U.S. policy has been to support
Taiwan’s membership in international organizations for
which statehood is not a requirement, and to encourage
“meaningful participation” for Taiwan in organizations for
which statehood is a requirement. Taiwan is a member of
the World Trade Organization, the Asian Development
Bank, and the Asia-Pacific Economic Cooperation forum,
all as an economy or a separate customs territory, not a
state. The PRC actively works to restrict Taiwan’s
participation; recently, it has reportedly tried to prevent the
World Bank from hiring Taiwan passport holders.
Taiwan is dependent on commerce with the PRC, even as
some of those ties support U.S. trade because of Taiwan
manufacturing in the PRC that supports U.S. exports. In
2018, 41% of Taiwan’s goods exports went to mainland
China and Hong Kong. The PRC is also Taiwan’s largest
destination for FDI. The Taiwan government estimates that
405,000 citizens—2.4% of Taiwan’s working population of
17.1 million citizens—were working in the PRC as of 2017.
Current Democratic Progressive Party President Tsai Ingwen has sought to deepen ties in Southeast and South Asia,
while keeping PRC ties stable. Tsai has publicly opposed
Beijing’s proposed “one country, two systems” framework
for Taiwan and publicly supported protestors in Hong
Kong. The PRC has sought to pressure Tsai economically
by restricting tourism. (Between 2015 and 2018, Taiwan
arrivals from the PRC fell by 36% from 4.2 to 2.7 million.)
The opposition Kuomintang (KMT) party contends that
closer economic ties have benefited Taiwan economically
and reduced political tensions with Beijing. Taiwan’s
former KMT president, Ma Ying-jeou (in office 2008-16),
accelerated liberalization of direct trade, transportation, and
postal links and negotiated an Economic Cooperation
Framework Agreement in 2010. Taiwan capitalized on
favorable PRC ties in 2013 to conclude trade agreements
with New Zealand and Singapore but relations with Beijing
soured in 2014 when a proposed services trade deal with the
PRC led to widespread protests in Taiwan, forcing
Taiwan’s Legislative Yuan to suspend a vote.
National Security Issues
U.S. actions to address national security concerns regarding
PRC technology policies and espionage are spotlighting the
potential risks of U.S. technology transferring to the PRC
via Taiwan. In November 2018, the U.S. Department of
Justice charged a Taiwan semiconductor foundry company,
UMC, and three affiliated individuals for an alleged scheme
to steal trade secrets related to dynamic random access
memory (DRAM) from Micron, an Idaho-based
semiconductor company on behalf of a PRC state firm,
Fujian Jinhua Integrated Circuit Co., Ltd. The theft
involved knowhow licensed by Micron to an affiliate in
Taiwan that was then transferred to UMC and Fujian Jinhua
in the PRC. The U.S. administration has also reportedly
asked the Taiwan government to restrain Taiwan
Semiconductor Manufacturing Company (TSMC), the
world’s largest contract chipmaker, from selling
semiconductor chips to Huawei.
Karen M. Sutter, Specialist in Asian Trade and Finance
https://crsreports.congress.gov
IF10256
U.S.-Taiwan Trade Relations
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