Updated January 6, 2020
U.S.-Taiwan Trade Relations
Taiwan is a developed, dynamic, and competitive economy
2018. Taiwan’s exports to the United States rose by 21%
that is highly dependent on global trade. Taiwan has fared
over the same timeframe, as some PRC-based production
relatively well during the recent U.S.-People’s Republic of
shifted to Taiwan to avoid U.S. duties on Chinese imports.
China (PRC) trade conflict as a key link in global
Figure 1. U.S.–Taiwan Merchandise Trade 2000-2018
technology supply chains, supplying both U.S. and PRC
markets. Looking ahead, Taiwan faces significant
($ in bil ions)
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
Source: CRS with data from the U.S. Bureau of Economic Analysis
Taiwan (population 23.6 million), boasted a nominal gross
and the Taiwan Ministry of Economic Affairs.
domestic product (GDP) of $603 billion in October 2019,
making it the world’s 2
Note: Data not adjusted for inflation.
2nd-largest economy. The World
Economic Forum ranked Taiwan as the world’s 13th-most
U.S. foreign direct investment (FDI) stock in Taiwan
competitive economy in 2018, and the World Bank ranked
through 2018 (on a historical-cost basis) totaled $17.5
Taiwan the 15th-best economy in ease of doing business.
Taiwan’s GDP composition by sector is 2% agricultural,
billion, while Taiwan’s FDI stock in the United States
totaled $10.6 billion. Taiwan’s FDI stock in the United
36% industrial, and 62% services. Main industries include
States is higher than official figures indicate, because U.S.
electronics, information communications technology (ICT),
data does not include Taiwan investment via free ports that
semiconductors, petrochemicals, textiles, steel, machinery,
are tax and duty free, such as Hong Kong and the British
cement, food processing, autos, and pharmaceuticals.
Taiwan’s
Virgin Islands. Taiwan runs a trade surplus with the United
2018 exports of goods and services totaled $393
States and the PRC, and is a top holder of foreign exchange
billion (equivalent to 67% of GDP), ranking Taiwan as the
reserves ($474.1 billion as of November 2019), a status that
21st-largest trading economy (goods and services). Taiwan’s
allows Taiwan to stabilize exchange rates, maintain
real GDP growth averaged 2.9% from 2009 to 2018; the
liquidity, and invest domestically and overseas.
International Monetary Fund projects that rate to average
2.1% over the next five years.
Taiwan’s government has expressed a strong interest in
starting FTA talks with the United States, but so far the
U.S.-Taiwan Commercial Ties
Trump Administration has been noncommittal. In
The United States and Taiwan share deep economic ties.
December 2019, 161 Members of Congress signed a letter
Taiwan is the United States’ 11th-largest merchandise
asking the U.S. Trade Representative to work toward FTA
trading partner (total trade valued at $77 billion), 15th-
talks with Taiwan. The American Chamber in Taipei has
largest export market (at $31 billion), and 13th-largest
called on the Taiwan government to remove trade policy
source of imports (at $46 billion), according to U.S. 2018
irritants and improve prospects for talks, noting in its 2019
data. In 2018, U.S. agricultural exports to Taiwan totaled
White Paper that U.S.-Taiwan relations appear better than
$3.9 billion and U.S. service exports totaled $10 billion.
in decades. In addition to increasing two-way trade and
U.S. trade data understates the importance of Taiwan to the
investment, a U.S.-Taiwan FTA would likely strengthen
U.S. economy because it does not include production by
Taiwan’s overall U.S. ties and help diversify Taiwan’s
Taiwan firms that manufacture in the PRC for U.S. export.
commerce away from the PRC, giving other countries cover
In 2018, Taiwan firms received $146 billion in U.S. export
to resist pressure from Beijing and pursue similar
orders (a 199% increase over 2000); official U.S. data
agreements with Taiwan. Taiwan has also reportedly sought
showed $46 billion in Taiwan merchandise exports to the
FTAs and investment agreements with Australia, the
United States. The United States is the largest source of
European Union, Japan, and the United Kingdom.
Taiwan’s export orders, accounting for 29% of the total in
https://crsreports.congress.gov
U.S.-Taiwan Trade Relations
U.S.-Taiwan TIFA
without the United States and Taiwan. Since a 1994 U.S.
Taiwan Policy Review, U.S. policy has been to support
The United States and Taiwan concluded a Trade and
Taiwan’s membership in international organizations for
Investment Framework Agreement (TIFA) in 1994. TIFA talks,
which statehood is not a requirement, and to encourage
usually held on an annual basis, serve as a high-level forum to
“meaningful participation” for Taiwan in organizations for
discuss major trade and investment issues and disputes and
which statehood is a requirement. Taiwan is a member of
expanded commercial ties. Topics generally include market
the World Trade Organization, the Asian Development
access, intellectual property rights protection, labor and
Bank, and the Asia-Pacific Economic Cooperation forum,
environmental issues, and trade capacity building. USTR has
all as an economy or a separate customs territory, not a
indicated in the past that TIFA talks could lead to FTA talks.
state. The PRC actively works to restrict Taiwan’s
Taiwan’s agricultural trade barriers, particularly a decision in
participation; recently, it has reportedly tried to prevent the
2007 to ban U.S. pork and beef that contain ractopamine (a
World Bank from hiring Taiwan passport holders.
feed additive that promotes leanness), have long been a
Taiwan is dependent on commerce with the PRC, even as
source of friction in U.S.-Taiwan economic relations. The
some of those ties support U.S. trade because of Taiwan
issue prompted the United States to suspend TIFA talks
manufacturing in the PRC that supports U.S. exports. In
between 2007 and 2013. Talks resumed in March 2013, after
2018, 41% of Taiwan’s goods exports went to mainland
Taiwan agreed to allow some beef imports containing
China and Hong Kong. The PRC is also Taiwan’s largest
ractopamine, based on a maximum residue limit (MRL),
destination for FDI. The Taiwan government estimates that
although it continued to bar U.S. pork. Major U.S. pork
405,000 citizens—2.4% of Taiwan’s working population of
producers, however, recently announced a halt in the use of
17.1 million citizens—were working in the PRC as of 2017.
ractopamine in their supply chains to facilitate exports to the
Current Democratic Progressive Party President Tsai Ing-
PRC, which also bans ractopamine, potentially removing a key
wen has sought to deepen ties in Southeast and South Asia,
disagreement. Other U.S. concerns include:
while keeping PRC ties stable. Tsai has publicly opposed
tariff-rate quotas on 16 agricultural products;
Beijing’s proposed “one country, two systems” framework
motorcycle and soda ash tariffs;
for Taiwan and publicly supported protestors in Hong
country-specific quota regime for rice;
Kong. The PRC has sought to pressure Tsai economically
restrictions on biotechnology, genetically-modified
by restricting tourism. (Between 2015 and 2018, Taiwan
agricultural goods, and medical devices; and
arrivals from the PRC fell by 36% from 4.2 to 2.7 million.)
rules on digital trade, energy, and tourism.
The opposition Kuomintang (KMT) party contends that
closer economic ties have benefited Taiwan economically
Taiwan’s Economic Challenges
and reduced political tensions with Beijing. Taiwan’s
Taiwan faces risks of declining competitiveness and
former KMT president, Ma Ying-jeou (in office 2008-16),
growing economic dependence on the PRC. Taiwan’s share
accelerated liberalization of direct trade, transportation, and
of global merchandise exports fell from a peak of 2.5% in
postal links and negotiated an Economic Cooperation
1993 to 1.6% in 2018. Domestically, the Taiwan
Framework Agreement in 2010. Taiwan capitalized on
government is facing stagnant wages; an aging population;
favorable PRC ties in 2013 to conclude trade agreements
and land, power, and water shortages. Taiwan also faces a
with New Zealand and Singapore but relations with Beijing
talent mismatch. While some university graduates have
soured in 2014 when a proposed services trade deal with the
trouble finding jobs, industry complains that Taiwan lacks
PRC led to widespread protests in Taiwan, forcing
Taiwan’s Legislative Yuan to suspend a vote.
particular technical talent. Overall unemployment is low at
3.8% (September 2019), but the rate for those aged 20-24 is
National Security Issues
more than three times higher (11.7%). Taiwan’s current
U.S. actions to address national security concerns regarding
government has vowed to phase out the use of nuclear
PRC technology policies and espionage are spotlighting the
power, but does not appear to have identified alternative
potential risks of U.S. technology transferring to the PRC
power sources to meet projected demand, including the
via Taiwan. In November 2018, the U.S. Department of
needs of a “5+2” plan to boost innovation and
Justice charged a Taiwan semiconductor foundry company,
manufacturing in a range of emerging industries, including
UMC, and three affiliated individuals for an alleged scheme
advanced manufacturing, biotech, green energy, and
to steal trade secrets related to dynamic random access
defense. The program involves at least $58 billion in
memory (DRAM) from Micron, an Idaho-based
government outlays for research, companies, and
semiconductor company on behalf of a PRC state firm,
infrastructure. The Taiwan government has also introduced
Fujian Jinhua Integrated Circuit Co., Ltd. The theft
tax policies and loans to incentivize semiconductor and ICT
involved knowhow licensed by Micron to an affiliate in
production in Taiwan and liberalized rules to allow short-
Taiwan that was then transferred to UMC and Fujian Jinhua
term hiring of foreign nationals to address talent gaps.
in the PRC. The U.S. administration has also reportedly
Cross-Strait Issues
asked the Taiwan government to restrain Taiwan
Taiwan officials assess that declining competitiveness is
Semiconductor Manufacturing Company (TSMC), the
world’s largest contract chipmaker, from selling
due in part to new FTAs that exclude Taiwan (in large part
because of pressure from Beijing) and obstacles Taiwan
semiconductor chips to Huawei.
faces in joining and participating in international
Karen M. Sutter, Specialist in Asian Trade and Finance
organizations. U.S. withdrawal from the Trans-Pacific
Partnership (TPP) in 2017 hurt Taiwan’s ability to join the
IF10256
TPP and an amended agreement, TPP-11, that was signed
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U.S.-Taiwan Trade Relations
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https://crsreports.congress.gov | IF10256 · VERSION 14 · UPDATED