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Taiwan - Economy (Notes)

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. 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. Taiwan is now a creditor economy, holding the world's third largest stock of foreign exchange reserves ($267 billion as of March 2007). Although Taiwan enjoyed sustained economic growth, full employment, and low inflation for many years, in 2001, the combination of the slowing global economy, weaknesses in parts of the financial sector, and sagging consumer and business confidence in the government's economic policymaking resulted in the first recession since 1952. The economy began to recover in 2002, but the outbreak of severe acute respiratory syndrome (SARS) slowed growth to 3.4% in 2003. The world economic upturn drove growth in 2004 to 6.1%. However, slower world growth in 2005, higher energy prices and interest rates, and excess inventory dragged 2005 growth to 4%. Continued expansion of exports sustained Taiwan's economic growth at 4.6% in 2006, and the growth in 2007 will be well above 4%.

Foreign Trade
Foreign trade has been the engine of Taiwan's rapid growth during the past 50 years. Taiwan's economy remains export-oriented, so it depends on an open world trade regime and remains vulnerable to fluctuations in the world economy. The total value of trade increased more than five-fold in the 1960s, nearly ten-fold in the 1970s, and doubled again in the 1980s. The 1990s saw a more modest, slightly less than two-fold, growth. In the first half of the 2000's, exports grew 60%. Export composition 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 became a member of the World Trade Organization (WTO) as a special customs territory in January 2002.

Taiwan firms are the world's largest supplier of computer monitors and leaders in PC manufacturing. 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 coal, oil and gas to meet most of its energy needs. Reflecting the large Taiwan investment in the mainland, China supplanted the United States as Taiwan's largest trade partner in 2003. In 2006, China (including Hong Kong) accounted for over 27% of Taiwan's total trade and almost 40% of Taiwan's exports. Japan was Taiwan's second-largest trading partner with 15% of total trade, including 23% of Taiwan's imports. The U.S. is now Taiwan's third-largest trade partner, taking 14% of Taiwan's exports and supplying 11% of its imports. Taiwan is the United States' ninth-largest trading partner; Taiwan's two-way trade with the United States amounted to $57 billion in 2005 and rose 7.6% to $62 billion in 2006. Imports from the United States consist mostly of agricultural and industrial raw materials as well as machinery and equipment. Exports to the United States are mainly electronics and consumer goods. The United States, Hong Kong, the P.R.C., and Japan account for 61.5% of Taiwan's exports, and the United States, Japan, and the P.R.C. provide almost 50% of Taiwan's imports. As Taiwan's per capita income level has risen, demand for imported, high-quality consumer goods has increased. The U.S. trade deficit with Taiwan in 2006 was $15.2, up 19% from $12.8 billion in 2005. The lack of formal diplomatic relations with all but a score of its trading partners appears not to have seriously hindered Taiwan's rapidly expanding commerce, but has made free trade agreements extremely difficult to pursue. Taiwan maintains trade offices in nearly 100 countries with which it does not have official relations. Taiwan is a member of the Asian Development Bank, the WTO, and the Asia-Pacific Economic Cooperation (APEC) forum. Taiwan is also an observer at the OECD. These developments reflect Taiwan's economic importance and its desire to become further integrated into the global economy.

Although only about one-quarter of Taiwan's land area is arable, virtually all farmland is intensely cultivated, with some areas suitable for two and even three crops a year. However, increases in agricultural production have been much slower than industrial growth. Agriculture only comprises about 1.7% of Taiwan's GDP. Taiwan's main crops are rice, sugarcane, fruit, and vegetables. While largely self-sufficient in rice production, Taiwan imports large amounts of wheat, corn, and soybeans, mostly from the United States. Poultry and pork production are mainstays of the livestock sector and the major demand drivers for imported corn and soybeans. Rising standards of living have led to increased demand for a wide variety of high-quality food products, much of it imported. Overall, U.S. agricultural and food products account for more than 30% of Taiwan's agricultural import demand. U.S. food and agricultural exports total about $2.5 billion annually, making Taiwan the United States' sixth-largest agricultural export destination. Taiwan's agricultural exports include frozen fish, aquaculture and sea products, canned and frozen vegetables, and grain products. Taiwan's imports of agricultural products have increased since its WTO accession in 2002, and it is slowly liberalizing previously protected agricultural markets.

Economic Outlook
Taiwan now faces many of the same economic issues as other developed economies. With the prospect of continued relocation of labor-intensive industries to countries with cheaper work forces, Taiwan's future development will have to rely on further transformation to a high technology and service-oriented economy. In recent years, Taiwan has successfully diversified its trade markets, cutting its share of exports to the United States from 49% in 1984 to 15% in 2005 and 14% in 2006. However, a significant proportion of Taiwan's rapidly growing exports to the P.R.C. are ultimately dependent on consumer demand in the U.S. Taiwan firms are increasingly acting as management centers that take in orders, produce them in Taiwan, the Mainland or South East Asia and then ship the final products to the U.S. Taiwan's accession to the WTO and its desire to become an Asia-Pacific 'regional operations center' are spurring further economic liberalization.

Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions - Taiwan Dollar Exchange Rates
Notes and Commentary: People - Economy - Government and Political Conditions - Historical Highlights - Foreign Relations - Relations with U.S.

Facts at a Glance
Current Time
Ranking Positions
Taiwan Dollar Exchange Rates

Notes and Commentary
Government and Political Conditions
Historical Highlights
Foreign Relations
Relations with U.S.

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