An introduction to Taiwanese international trade Hao-Chung Li Department of Economics National Chengchi University

Japanese colonization era (1895～1945) Following the 1894 Sino-Japanese war, Taiwan was ceded to the Japanese. Taiwan became a colony of Japan for 50 years until the end of WWII. During these 50 years, under the Japan’s central government policy, Taiwan was a source of raw materials for Japan’s industries, and a major source of primary goods for the Japanese market. Rice and sugar became the main exports of Taiwan.

Japanese colonization era (1895～1945)

Japanese colonization era (1895～1945)

Republic of China era (1945~) Following the end of WWII in 1945, Taiwan became a part of Republic of China, which was then the central government of China. In 1949, after the Chinese Civil War, the losing Kuomintang retreated to Taiwan, and the entire government was relocated to Taipei.

Republic of China era (1945~) In the 1950s, Taiwan’s government enacted the import-substitution policy to develop the domestic textile industry. After 1958, export expansion policy was put in place and spurred exports of textiles as well as other light manufactures. In the 1970s, Taiwan’s start to export electrical and electronic products, and became the second largest exporter of TVs to the United States. Since mid-1980’s, Taiwan started to export personal computers and peripheral products. After 1995, electrical and electronic products become the main exports of Taiwan.

Republic of China era (1945~)

Trade patterns and competitive advantage In the 1950s, Taiwan lack any industrial competence, and labor productivity, so Taiwan’s competitive advantage lay in agricultural products. Since 1960s, Taiwan became more proficient in textiles, and labor productivity in textile industry improved, so Taiwan’s competitive advantage lay in textile products. Since 1980s, with a more skilled labor force and substantial technology transfer from the U.S., Taiwan’s competitive advantage turned to electrical and electronic products.

Trade patterns and competitive advantage

Contemporaneous Taiwan Trade Pattern

Contemporaneous Taiwan Trade Pattern

Contemporaneous Taiwan Trade Pattern

Contemporaneous Taiwan Trade Pattern

The Evolution of Taiwan’s Trade Policies

Taiwan’s Trade Policies Import Substitution Policy（1945～1958） Advocates replacing foreign imports with domestic production. Mainly on consumer goods, such as textiles. High tariffs, foreign exchange controls. Induce domestic investment, but is the market large enough?

Taiwan’s Trade Policies

Taiwan’s Trade Policies Export Expansion Policy（1958～1969） Depreciation of Taiwanese dollars Tax returns on exports Export processing zones Second Import Substitution Policy 1969～1980） Goal: self-sufficient in raw materials and equipment. Focused on capital-intensive industries.

Taiwan’s Trade Policies Tariff reductions since 1980 Nominal tariff rate and real tariff rate 1982: 31.0% and 7.6%, respectively 1991:9.7% and 5.0%, respectively 2008:5.6% and 0.98%, respectively Opening the service market Lowering non-tariff barriers

Import-Substitution vs. Export-Expansion Based on the infant-industry hypothesis Rent-seeking Successes: Taiwan: textiles, petrochemical industry Japan: steel, automobiles Korea: steel, shipbuilding, textiles

Import-Substitution vs. Export-Expansion Market mechanism still matters!