Through nearly five decades of hard work and sound economic management, Taiwan has transformed itself from an underdeveloped, agricultural island to an economic power that is a leading producer of high-technology goods. Taiwan is now a creditor economy, holding one of the world's largest foreign exchange reserves of more than $100 billion in 1999. Despite the Asian financial crisis, the economy continues to expand at about 5% per year, with virtually full employment and low inflation. The population also enjoys an annual average income equal to U.S. $13,152 (1999).
First, two million Kuomintang supporters fled to the island in 1949, establishing the small island of less than 20 million as the sea of the Republic of China. Interestingly enough, the Ming dynasty survived for a brief period of time in exile in Taiwan. Taiwan thus benefited from the flight of many well-educated, bourgeois Chinese.
Second, Taiwan, and for that matter all four of the Tigers befitted economically from previous foreign rule or influence, whether it was British commerce in Hong Kong and Singapore, or Japanese industrialization and American land reform in Taiwan. In a sense, Taiwan benefited from Marx’s export of the dialectic through imperialism. Furthermore, each of the tigers was an artificial polity severed from larger neighbors—Communist China in the case of Taiwan and Hong Kong, Malaysia for Singapore. Likewise, South Korea was a produce to postwar division and bloody civil war. Each therefore felt acute insecurity, which was translated into political structures that restricted civil liberties and subordinated short-term social well-being for economic growth
Third and moreover, nor could its economy, wrenched in quick succession from Japan’s orbit and then China’s, have developed without direct American aid, which constituted more than 30 percent of domestic investment from 1951 to 1962. Land reform, government planning, US aid and investment, and free universal education brought huge advancement in industry and agriculture, and living standards. The Americans deserve credit for reforming landownership in Taiwan, a crucial step in modernizing the economy. It extremely unlikely that Chiang Kai-shek would have revolutionized Mainland Chinese society to that extent if he had defeated the Communist Revolution.
In the 1960s, foreign investment in Taiwan helped introduce modern, labor-intensive technology to the island, and Taiwan became a major exporter of labor-intensive products. In the 1980s, focus shifted toward increasingly sophisticated, capital-intensive and technology-intensive products for export and toward developing the service sector. At the same time, the appreciation of the New Taiwan dollar (NT$), rising labor costs, and increasing environmental consciousness in Taiwan caused many labor-intensive industries, such as shoe manufacturing, to move to the Chinese mainland and Southeast Asia.
Taiwan has transformed itself from a recipient of U.S. aid in the 1950s and early 1960s to an aid donor and major foreign investor, especially in Asia. Private Taiwan investment in the P.R.C. is estimated to total more than $30 billion, and Taiwan has invested a comparable amount in Southeast Asia.
One again, the transformation of Taiwan cannot be understood without reference to the larger geopolitical framework. Although aid was cut back in the 1970s, it was crucial in the formative years, spurring industrialization and security and economic links were maintained. Uncertainty about the US commitment accelerated the country’s shift from subsidized import-substitution in the 1950s to export-led growth. Like Korea, Taiwan moved from cheap, labor-intensive manufactures, such as textiles and toys, into an expansion of heavy industry and infrastructure in the 1970s, and then to advanced electronics in the subsequent decade.
Foreign trade has been the engine of Taiwan's rapid growth during the past 40 years. Taiwan's economy remains export-oriented, so it depends on an open world trade regime and remains vulnerable to downturns in the world economy. The total value of trade increased more than five-fold in the 1960s, nearly 10-fold in the 1970s, and doubled again in the 1980s. The 1990s has seen a more modest, slightly less than two-fold, growth. Export composition has changed from predominantly agricultural commodities to industrial goods (now 98%). The electronics sector is Taiwan's most important industrial export sector and is the largest recipient of U.S. investment.
Taiwan is the world's largest supplier of computer monitors and is a leading PC manufacturer. Textile production, though of declining importance as Taiwan loses its competitive advantage in labor-intensive markets, is another major industrial export sector. Imports are dominated by raw materials and capital goods, which account for more than 90% of the total. Taiwan imports most of its energy needs.
The United States is Taiwan's largest trading partner, taking 25% of Taiwan's exports and supplying 17% of its imports. Taiwan is the U.S.'s seventh-largest trading partner and eighth-largest export market. In 1999, Taiwan's two-way trade with the U.S. amounted to about U.S. $54.3 billion. Imports from the U.S. consist mostly of agricultural and industrial raw materials. Exports to the U.S. are mainly electronics and consumer goods.
The United States, Hong Kong (including indirect trade with the P.R.C.), and Japan account for two-thirds of Taiwan's exports, and the U.S. and Japan provide 45% of Taiwan's imports. As Taiwan's per capita income level has risen, demand for imported, high-quality consumer goods has increased. This trend has driven imports to rise faster than exports and has cut into Taiwan's global trade surplus. Another important factor in the substantial increase in Taiwan's imports has been industrial upgrading, which has pushed up imports of capital goods, raw materials, parts, and components. Taiwan's l999 trade surplus with the United States was $16.1 billion, a significant amount, but a decline from a high of $17 billion in 1987.
The lack of formal diplomatic relations with all but 29 of its trading partners appears not to have seriously hindered Taiwan's rapidly expanding commerce, and Taiwan is currently the world's 14th-largest trading economy. Taiwan maintains trade offices in more than 60 countries with which it does not have official relations. Taiwan is a member of the Asian Development Bank, and it is engaged in negotiations to join the World Trade Organization (WTO) as a special customs territory. In 1991 Taiwan, under the name "Chinese Taipei," became a member of the Asia-Pacific Economic Cooperation (APEC) forum. These developments reflect Taiwan's economic importance and its desire to become further integrated into the global economy. Economic Development
Foreign Trade