Taiwan And International Trade

an island, is separated from the mainland of South China by the 100-mile-wide
Taiwan Strait in the Pacific Ocean and is the seat of the Republic of China
government (ROC). The capital of Taiwan is Taipei and other major cities include
Kaohsiung, Tainan, Taichong, and Chilung. The languages spoken are the Mandarin,
Fujianese (Amoy), and Hakka dialects. Religions on the island include
Confucianism, Taoism, Buddhism, and Christianity. THE ECONOMY OF TAIWAN The
1990s have been a time of change and achievement for Taiwan. Politically, Taiwan
has undergone a dramatic transition from an authoritarian government to a true
democracy and on the economic front, Taiwan has continued to prosper. For the
past 20 years, Taiwan has had one of the fastest growing and most dynamic
economies in the world. With over $80 billion US in foreign capital reserves, an
average growth rate of 7.8 percent between 1986 and 1996, and a per capita gross
domestic product (GDP) of $15,000, Taiwan has become a powerhouse in the global
economy.1 Its remarkable success comes after five decades of hard work and sound
economic management that have transformed Taiwan from an underdeveloped
agricultural island to a leading producer of high-technology goods. Helping to
spur this extraordinary growth during the last two decades were supportive U.S.

policies that began with the 1979 Taiwan Relations Act (TRA). It maintained
Taiwans preferential trade status when formal diplomatic relations were
severed in favor of the Peoples Republic of China (PRC). In 1979, Taiwans
economy was rapidly expanding and was beginning to fully integrate into the new
global economy. It exported $5.6 billion to the United States and had $7 billion
in foreign exchange reserves.2 Taiwan produced a variety of products,
specializing in textiles, consumer goods, and petrochemicals. U.S. corporations
were beginning to invest heavily in Taiwan when the U.S. government severed the
official diplomatic relations it had maintained with the Republic of China for
three decades. This abrupt loss of recognition created consternation among
foreign investors and Taiwans trading partners. International contracts,
which had once been secure through treaties and formal diplomatic ties, suddenly
came into question. The Taiwan Relations Act, however, calmed the fears of
investors by creating a framework that allowed trade and finance to continue
unhindered. The TRA sent the clear message that the U.S. intended to maintain a
close relationship with Taiwan and encouraged business ties with the island.

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Specifically, the act mandated that all treaties and agreements remain in
effect, ensuring that contracts could still be enforced. In addition, it
authorized funding for Taiwan from the Overseas Private Investment Corporation (OPIC),
which provides insurance, loans and guarantees to businesses investing abroad.

Thanks in large measure to OPICs continued programs, trade and investment
tripled over the next decade between the U.S. and the ROC, helping to maintain
Taiwans economic boom. In the 1980s, Taiwans economy shifted dramatically
toward sophisticated, capital and technology-intensive products for export and
toward developing the service sector. A generation ago, farming accounted for 30
percent of GDP and basic manufacturing represented half of the economy. Today,
farming comprises only 3.3 percent of GDP while services are almost two-thirds
of GDP.3 Taiwan now boasts one of the fastest growing high-tech sectors in the
world and has been called “Silicon East” by Forbes Magazine. Today, Taiwan
is the fourth-largest maker of computer chips, producing 69 percent of the
worlds scanners and over half of the worlds computer monitors.4 Through
the 1990s, Taiwans economic growth rate ranked ninth in the world according
to the World Bank, and for the last decade, Taiwan posted an average growth rate
of 6.2 percent each year compared with the average growth rate worldwide of just
2.4 percent.5 During that period, the U.S. achieved growth of 3.1 percent per
year, while Japan grew by only 1.2 percent, as it experienced its worst
recession since World War II.6 Inflation, too, has largely been tamed; World
Bank statistics show that Taiwans average annual inflation rate in the first
nine years of the last decade stood at just 3.2 percent, and this figure has
declined since.7 Throughout the Asian Economic Crisis, which began in late 1997,
Taiwans economy showed great resilience. Nothing, it seemed, could derail
Taiwans powerful economy. When the Asian economic crisis was at its worst,
Taiwan posted annual GDP growth of 4.83 percent, while most of its Asian
neighbors plunged into recession.8 Western press reports painted a glowing
picture of the islands economic strength. The Economist noted that “one of
Asias so-called Tigers . . . has fared better than the rest. While Korea and
Southeast Asia are struggling,


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