Updated March 25, 2019
U.S.-Taiwan Trade Relations
Overview
advantage of opportunities that might arise as China
With a population of 23.6 million people, Taiwan has
pursues new economic reforms and seeks to promote
evolved to become a highly developed, dynamic, and
private consumption as the main driver of its economy.
globally competitive economy. In 2018, Taiwan’s gross
domestic product (GDP) on a purchasing power parity
Economic issues were a major focus of the January 2016
(PPP) basis was $1.25 trillion, making it the world’s 22st-
election in Taiwan, which resulted in a major victory for the
largest economy. Its per capita GDP on a PPP basis (a
DPP and its presidential candidate, Dr. Tsai Ing-wen. She
common measurement of living standards) was 19% greater
proposed a “New Model for Economic Development”
than Japan’s and about 85% of the U.S. level. In 2018,
focused mainly on innovation, job creation, and addressing
Taiwan was the world’s 21st-largest trading economy for
widening income gaps, such as by boosting social safety net
goods and services. The World Economic Forum ranked
policies. In an effort to lessen Taiwan’s reliance on China’s
Taiwan as the world’s 13th-most competitive economy in
economy, Tsai has called for closer economic cooperation
2018, and the World Bank ranked Taiwan the 15th-best
with the United States and has said that “there is an urgent
economy in terms of the ease of doing business. Taiwan is a
need” for Taiwan to participate in the proposed Trans-
major global producer of information and communications
Pacific Partnership (TPP), although the U.S. withdrawal
technology (ICT) products and semiconductors.
from the TPP in January 2017 complicated this strategy.
Taiwan’s Economic Challenges
U.S.-Taiwan Trade Relations
Taiwan’s economy is very dependent on international trade.
U.S. trade data show that in 2018, Taiwan was the United
Taiwan’s exports of goods and services in 2018 totaled
States’ 11th-largest merchandise trading partner (at $76
$393 billion (equivalent to 67% of its nominal GDP), and
billion), 15th-largest export market ($30 billion), and the
were up 5.4% over 2017 levels. Taiwan’s real GDP growth
13th-largest source of imports ($46 billion). From 2000 to
averaged 2.9% from 2009 to 2018, and the International
2018, U.S. exports to Taiwan grew by 24%, while imports
Monetary Fund projects that rate will average 2.1% over the
grew by 13%. In comparison, U.S. global exports and
next five years. Taiwan faces a number of economic
imports rose by 113% and 109%, respectively.
challenges, including declining competitiveness for many
industries, inability to participate in various regional trade
Figure 1. U.S.-Taiwan Merchandise Trade: 2000-2018
agreements, stagnant wages, and a lack of job opportunities
$ in bil ions
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.
Many in Taiwan, especially those in the Democratic

Progressive Party (DPP), view the slowing Taiwanese
Source: U.S. International Trade Commission (USITC).
economy as a consequence of Taiwan becoming overly
U.S. data on trade with Taiwan may understate the
reliant on China for economic growth (In 2018, 41% of
Taiwan’s
importance of Taiwan to the U.S. economy because of the
merchandise exports went to mainland China and
role of global supply chains. For example, many of the
Hong Kong), and because closer cross-strait economic ties
consumer electronic products developed by Apple Inc.
have led to the relocation of many Taiwanese industries to
(such as iPads and iPhones) are assembled in China by
mainland China, which, many argue, may have contributed
Taiwanese-owned firms. Taiwan has moved a significant
to lost jobs and stagnant wages in Taiwan. Others in
level of its labor-intensive manufacturing overseas,
Taiwan, especially those in the Kuomintang (KMT),
especially to China. This is reflected in Taiwan’s data on
contend that closer economic ties with China have benefited
export orders received by its firms from abroad. That data
Taiwan’s economy and argue that boosting those ties
indicate that the percentage of export orders produced
further, such as through the implementation of new trade
abroad rose from 13% in 2000 to 52% in 2018; and for ICT
agreements, will put Taiwan in a good position to take
products, this figure rose from 25% to 94%.
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U.S.-Taiwan Trade Relations
Taiwan government data indicate that its manufacturing
over time. ECFA negotiations began in January 2010 and
firms received export orders from the United States worth
concluded in June 2010. The ECFA identified four main
$146 billion in 2018, which was more than three times
agreements that would be negotiated: trade in goods, trade
larger than official U.S. data on its imports from Taiwan in
in services, investment, and dispute settlement.
2018. From 2000 to 2018, U.S. orders to Taiwanese firms
Following the signing of the ECFA, press reports indicated
increased by 199%. The United States is the largest source
that China appeared to be less opposed to Taiwan seeking
of Taiwan’s export orders, accounting for 29% of the total
trade agreements with other countries, which Taiwan often
in 2018 (China and Hong Kong together accounted for
refers to as “economic cooperation agreements.” Taiwan
25%). This indicates that U.S.-Taiwan commercial ties are
concluded such agreements with New Zealand and
significantly greater (and more complex) than are reflected
Singapore in 2013. China-Taiwan trade relations soured in
in standard bilateral trade data. Cumulative U.S. FDI flows
the spring of 2014 when consideration of a cross-straits
to and from Taiwan through 2017 (on a historical-cost
Trade in Services Agreement (TiSA) by Taiwan’s
basis) totaled $17 billion and $22.4 billion, respectively.
Legislative Yuan led to widespread protests (the
“Sunflower Movement”)
Figure 2. Comparison of U.S. Export Orders Placed
and forced the government to
with Taiwanese Firms and U.S. Data on Merchandise
suspend a vote on TiSA. Since then, cross-strait initiatives
Imports from Taiwan: 2000-2018 ($billions)
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
Source: Taiwan export order data are from the Taiwan Ministry of
policies that could hurt Taiwan’s economy. In March 2018,
Economic Affairs. Data on U.S. imports are from the USITC.
President imposed increased tariffs on U.S. imports of steel
Taiwan’s Dilemma on Trade
(by 25%) and aluminum (10%) under Section 232. In
Taiwan’s economy is heavily dependent on trade
August 2017, the Trump Administration initiated a Section
. Yet, its
301 investigation of China’s policies on intellectual
share of global merchandise exports fell from a peak of
property, forced technology transfer, and innovation that
2.5% in 1993 to 1.6% in 2018. Taiwanese officials attribute
may harm the U.S. economy, and it has subsequently
this trend in part to the proliferation of bilateral and
increased tariffs on $250 billion worth of products from
regional free trade agreements (FTAs), especially among
China. China has raised tariffs on $110 billion worth of
other major Asia-Pacific economies. Taiwan is currently
imports from the United States. These tit-for-tat retaliation
not a party to these FTAs, in large part, it is believed,
measures could disrupt global supply chains where
because China often pressures other countries to avoid
Taiwanese firms play a significant role, especially for
signing trade deals with Taiwan. Taiwanese officials have
products assembled in China and exported to the United
expressed concern that its exclusion from FTAs could hurt
States. A January 2019 business survey by the American
the long-term competitiveness of many Taiwanese
Chamber in Taipei found that 45.8% of those surveyed said
industries, which could reduce trade flows and diminish
they were very or somewhat confident about the economic
economic growth. To illustrate, countries with FTAs often
prospects in Taiwan for 2019, a 10 percentage point drop
reduce most or all of their tariff levels to zero. If Taiwan is
from last year, caused in part by the ongoing U.S.-China
not an FTA member, its products will be assessed the non-
trade conflict.
FTA (and thus higher) tariffs.
Taiwan has sought to boost commercial ties with China in
Several Members of Congress have expressed support for
order to help its firms take advantage of the opportunities
boosting commercial relations with Taiwan, including a
arising from China’s large and rapidly growing economy
U.S.-Taiwan FTA. Taiwan’s trade barriers on U.S.
and to help reduce political tensions with China (including
agricultural products (in particular on U.S. beef and pork
the hope that by expanding economic ties, China will lessen
products containing ractopamine) are a major source of
its opposition to Taiwan’s attempts to negotiate FTAs).
bilateral trade tensions.
After coming into office in 2008, Taiwanese President Ma
Ying-jeou sought to expand cross-strait commercial ties by
Wayne M. Morrison, Specialist in Asian Trade and
lifting restrictions on direct trade, transportation, and postal
Finance
links. He further proposed an Economic Cooperation
Framework Agreement (ECFA) with China, described as a
IF10256
plan to significantly liberalize trade and investment barriers

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U.S.-Taiwan Trade Relations



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https://crsreports.congress.gov | IF10256 · VERSION 11 · UPDATED

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