Updated March 7, 2022
U.S.-Taiwan Trade Relations
Taiwan is a top U.S. trade partner and a key link in global
goods trade grew by 25% in 2021 (over 2020), as trade
technology and manufacturing supply chains, supporting
recovered from COVID-19 pandemic supply chain
both the U.S. and China markets. Taiwan’s economy is
disruptions. Taiwan’s exports to the United States have
highly dependent on global trade, with exports accounting
been on an upward trend, and grew by 69% between 2018
for almost 70% of gross domestic product (GDP). Taiwan
and 2021. U.S-Taiwan supply chains also involve a
faces economic challenges, such as labor mismatches and
significant amount of production by Taiwan firms in the
energy and water shortages, and is seeking to generate
PRC for export to the United States In 2021, Taiwan firms
growth in emerging technologies (e.g., biotechnology) and
received $200.1 billion in U.S. export orders, a figure that
semiconductor research, design, and fabrication. Taiwan is
includes production in and outside of Taiwan. (Figure 1).
seeking to reduce its economic dependence on the People’s
Republic of China (PRC or China), including through trade
Figure 1. U.S.–Taiwan Goods Trade 2000-2021
diversification and on-shoring of some production. Central
to these efforts are actions by both the U.S. and Taiwan
governments to deepen trade, investment, and technology
ties. Also see CRS In Focus IF10275, Taiwan: Political and
Security Issues, by Susan V. Lawrence.
Taiwan’s Economy
Taiwan (population 23.4 million) is the world’s 21st-largest
economy, with a 2021 nominal GDP of $759.1 billion. The
World Economic Forum ranks Taiwan as the world’s 12th
most competitive economy. Taiwan’s GDP composition by

sector is 2% agricultural, 37% industrial, and 61% services.
Source: CRS with data from the U.S. Bureau of Economic Analysis
Main industries include electronics, information
and Taiwan’s Ministry of Economic Affairs.
communications technology (ICT), semiconductors,
petrochemicals, textiles, steel, machinery, cement, food
U.S. foreign direct investment (FDI) stock in Taiwan
processing, autos, and pharmaceuticals. In 2021, Taiwan’s
through 2020 (on a historical-cost basis) totaled $31.5
total trade in goods reached $792.2 billion (excluding re-
billion, while Taiwan’s FDI stock in the United States
exports and re-imports for processing trade).
totaled $13.7 billion, based on U.S. data. (U.S. data does
not include investments structured through Hong Kong and
Taiwan faces risks of declining competitiveness as it
tax havens, such as the British Virgin Islands.) Taiwan is a
grapples with stagnant wages; an aging population; land,
top global holder of foreign exchange reserves— $548.4
power, and water shortages; and gaps in certain technical
billion as of December 2021—arguably allowing Taiwan to
talent. Unemployment is low at 3.64%, but the rate for
stabilize exchange rates, maintain liquidity, and invest.
those aged 20-24 is 12.8%. Taiwan is seeking to phase out
Nearly half of Taiwan’s reserves consist of U.S. Treasuries
nuclear power, but it has not identified viable alternatives.
($248.4 billion, as of November 2021). In 2020 and 2021,
Taiwan’s “5+2” plan aims to boost targeted industries—
the Department of Treasury placed Taiwan on its
smart and advanced manufacturing, biotechnology,
monitoring list of trading partners that merit attention to
renewable energy, the recycling industry, and defense—
their currency practices and macro-economic policies.
through $58 billion in subsidies; tax incentives and loans
Treasury cited Taiwan’s large trade account surplus and
for innovation and production; and relaxed restrictions for
foreign exchange reserves, and in April 2021, initiated talks
the short-term hiring of foreign nationals to fill talent gaps.
to “develop a plan with specific actions to address the
In March 2021, Taiwan’s leading foundry, Taiwan
underlying causes of Taiwan’s currency undervaluation.”
Semiconductor Manufacturing Corporation (TSMC)
announced plans to invest $100 billion over three years to
Cross-Strait Ties
expand its advanced semiconductor R&D and production.
The PRC is Taiwan’s largest trading partner (42% of
Taiwan’s goods exports went to China and Hong Kong in
U.S.-Taiwan Commercial Ties
2021) and FDI destination. The Taiwan government
Taiwan is the United States’ 8th-largest merchandise trading
estimates that 242,000 of its citizens worked in the PRC in
partner ($114.1 billion in total goods trade), 10th-largest
2020. Since 2016, the Taiwan government has offered
export market ($36.9 billion), and 7th-largest source of
incentives for firms to diversify to other parts of Asia, and,
imports ($77.1 billion), according to 2021 U.S. data when
since 2018, has encouraged some on-shoring in response to
considering the European Union (EU) as one trading
U.S. tariffs on PRC goods and growing risks in China.
partner. U.S. agricultural exports to Taiwan in 2021 were
Growing attention is focused on the potential risks of PRC
$3.9 billion. U.S. service exports to Taiwan between
investments in and cyberattacks on Taiwan’s critical
January and September 2021 totaled $7.4 billion. Two-way
infrastructure (e.g., shipping, finance, media, and social
https://crsreports.congress.gov

---

U.S.-Taiwan Trade Relations
media). The PRC government reportedly has pressured
arguably could encourage other countries to pursue similar
Taiwan’s trading partners and restricted tourism in response
deals with Taiwan. Taiwan has sought trade deals with the
to President Tsai Ing-wen’s opposition to China’s “one
EU, Australia, Japan, and the United Kingdom, but its
country, two systems” framework and efforts to diversify
efforts have faced PRC pressure. In 2021, China imposed a
Taiwan’s economic ties. Taiwan arrivals from China fell
de facto trade embargo on Lithuania (and goods with inputs
from 4.2 to 2.7 million between 2016 and 2019, and fell to
from Lithuania) after it deepened ties with Taiwan. In 2021,
111,000 in 2021 during the COVID-19 pandemic. Taiwan’s
Taiwan and the PRC applied to join the Comprehensive and
opposition Kuomintang (KMT) party contends that PRC
Progressive Agreement for Trans-Pacific Partnership.
economic ties benefit Taiwan. Former KMT president, Ma
Semiconductors
Ying-jeou (in office 2008-2016), accelerated direct trade,
Some in Congress are concerned about how to sustain U.S.
transportation, and postal links and negotiated an economic
semiconductor leadership and mitigate supply chain risks.
cooperation agreement with the PRC in 2010. Relations
Almost 90% of global advanced semiconductor production
soured in 2014 when a proposed services deal led to
is concentrated in Taiwan and South Korea. Taiwan firms
protests in Taiwan and suspended a legislative vote on it.
also play key roles in chip design; R&D; materials (e.g.,

silicon wafers); and assembly, packaging, and testing. The
International Organizations
PRC is targeting Taiwan’s capabilities through licit and
The United States supports Taiwan’s membership in
illicit means. In 2021, Taiwan authorities accused Bitmain,
international organizations for which statehood is not
a PRC bitcoin chip developer, of using front companies to
required, and encourages Taiwan’s “meaningful participation”
recruit engineers in Taiwan. In 2018, PRC state firm Fujian
Jinhua Integrated Circuit reportedly worked with Taiwan’s
in organizations for which statehood is required. Taiwan is a
member of the World Trade Organization, Asian
United Microelectronics Company to steal technology from
Development Bank, and Asia-Pacific Economic Cooperation
U.S. firm Micron Technology. Hon Hai Precision, or
forum, all as an economy or a separate customs territory, not
Foxconn, a leading Taiwan contract electronics producer,
a state. China actively works to restrict Taiwan’s participation
has several joint ventures with the PRC government in chip
in these organizations.
design, equipment, and fabrication. Taiwan industry leader
Richard Chang created China’s leading foundry, SMIC
(Semiconductor Manufacturing International Corporation),
Strengthening Economic Cooperation
and is reportedly developing two new PRC foundries.
The Trump Administration saw Taiwan as central to its

U.S. and Taiwan officials are seeking to jointly address
efforts to counter China and sought to deepen bilateral
supply chains, intellectual property theft, and export control
economic ties, an effort the Biden Administration appears
to be continuing. A new U.S.-Taiwan Economic Prosperity
concerns. In May 2020, TSMC announced plans to build a
foundry in Arizona, a deal it negotiated with the Commerce
Partnership dialogue was held in 2020 and 2021 to discuss
Department. Also in May 2020, Commerce amended export
various issues, including 5G networks, supply chain
resiliency, investment review, infrastructure, renewable
control rules to restrict the sale to PRC-based Huawei
Technologies Co. and its affiliates of chips made with U.S.
energy, health, and science and technology. In June 2021,
technology or software, which includes TSMC’s operations.
the two sides resumed talks under a 1994 Trade and
Investment Framework Agreement (TIFA), a high-level
Other PRC firms are not restricted; many design advanced
chips with U.S. software and technology and produce them
forum to discuss market access issues. U.S. trade concerns
include Taiwan’s
in Taiwan. In April 2021, The Washington Post reported
barriers to U.S. agriculture, biotech,
medical devices, digital services, energy, and tourism.
that PRC firm Pythium was using U.S. software tools to
design advanced chips that were produced at TSMC for use
USTR indicated in the past that TIFA talks could lead to
in China’s hypersonic missile program. Commerce added
free trade agreement talks, but Taiwan’s enactment of
regulations in 2007 banning U.S. pork and beef that contain
Pythium to its Entity List; Taiwan’s Alchip Technologies
Ltd. said that it would halt sales to Pythium. Taiwan is
the feed additive ractopamine led USTR to suspend the
considering amending its National Security Act to
talks. TIFA talks resumed from 2013 to 2016, after Taiwan
allowed some beef imports, and, in June 2021, after Taiwan
criminalize economic espionage and require government
approval for the use of critical national technologies and
enacted new measures to ease pork and beef restrictions.
Efforts in Taiwan’s legislature and a December 2021
trade secrets (and related PRC travel) outside of Taiwan.
referendum failed to reverse the measures, with 49% of
Issues for Congress
votes in favor of the ban and 51% opposed.
Congress might consider whether and how to pursue U.S.
Prospects for a Free Trade Agreement
FTA talks with Taiwan, given sustained congressional
Taiwan’s government has expressed strong intere
emphasis of this issue. Congress also might seek to ensure
st in a free
trade agreement (FTA) with the United States. Many
that collaboration and any FTA deal address key U.S.
economic interests, such as lowering Taiwan’s market
Members have called on the USTR to prioritize such an
barriers and increasing Taiwan's investment in the United
effort, including a letter to USTR in July 2021 from 42
senators. Given the unofficial status of U.S. diplomatic
States. Another issue before Congress is whether to more
closely align U.S. and Taiwan technology policies,
relations with Taiwan, a comprehensive trade deal would
practices, and cooperation, in supply chains, R&D,
require the White House to work with Congress to address
standards, infrastructure, and finance.
potential complexities, but some experts assess that such a
process is feasible. Taiwan concluded FTAs with New
Zealand and Singapore in 2013. A U.S. trade agreement
Karen M. Sutter, Specialist in Asian Trade and Finance
https://crsreports.congress.gov

---

U.S.-Taiwan Trade Relations

IF10256


Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF10256 · VERSION 17 · UPDATED

---