Taiwan’s economy flourished after the Nationalists fled to the island and the United States provided economic and political support. The United States was the largest trading partner of Taiwan until 2003, when that status went to mainland China.

Until it became a part of the Japanese empire in 1895, the island of Taiwan played an insignificant role in the economic history of Asia. As a limited source of natural resources but, more important, as a way station for Japanese troops en route to other parts of Asia, Taiwan experienced little economic development under Japanese hegemony. It was only after Generalissimo Chiang Kai-shekChiang Kai-shek fled the CommunismCommunist takeover of the mainland in 1945, bringing with him some 600,000 Nationalist troops, that Taiwan suddenly assumed enormous significance, both politically and economically. Although constituting only 15 percent of the population of the island, the rest being native Taiwanese, Chiang and his mainland followers quickly took control of both the Taiwanese government and the island’s industrial complex. Chiang declared that Taiwan would be the new seat of the “Republic of China” in exile and awaited the day when what he regarded as the only legitimate government of China could return to the mainland. Almost overnight, United States aid poured into the Taiwanese treasury, and Chiang received an unconditional political and military guarantee that the United States would not allow the mainland to conquer the island under any circumstances. This guarantee remains in effect in the twenty-first century, and has served as one of the primary sources of Taiwanese economic success.Trade;U.S. with TaiwanTaiwan;U.S. trade with

American bombing during World War II destroyed most of the island’s industrial base, and it was not until the mid-1950’s that Taiwan’s economy showed signs of reviving its prewar production output. Since 1950, the United States has been one of Taiwan’s principal trading partners. As a result of the Korean War, the presence of the American Seventh Fleet became common in the Taiwan Straits, and, as of the first decade of the twenty-first century, still represented the military commitment of the United States not only to the Republic of China but also to all American allies in Asia. Security and economic prosperity have always been linked in post-1950 Taiwan. Throughout the 1950’s, the Republic of China received massive amounts of American aid, which was increased during the 1960’s. Some 80 percent of this aid was in the form of grants. Slowly, but steadily, trade between the United States and Taiwan grew: The percentage of Taiwan’s market exported to the United States increased from 6 percent in 1958 to 37 percent in 1973, and to 49 percent in 1984.

During the 1970’s and 1980’s, the Republic of China’s economy grew on an average of 10 percent annually. The United States had maintained full diplomatic ties with Chiang’s Kuomintang government from 1950 to 1978. In 1978, Congress passed the Taiwan Relations Act of 1978Taiwan Relations Act, which formally recognized the People’s Republic of China as the only legitimate government of China. Despite the change of official recognition, American trade with Taiwan remained robust. From 1979 to 1987, trade between the two nations almost tripled, with Taiwan becoming the United States’ fifth-largest trading partner.

Having been transformed from being primarily agricultural during the 1950’s, by the 1970’s, Taiwan’s economy was overwhelmingly based on foreign exports. This so-called Taiwan miracle led to conflict between the United States and the Republic of China, in that, by the mid-1980’s, the U.S. market accounted for 85 percent of Taiwan’s foreign trade. American protests caused a strain in relations, forcing Taiwan to diversify its markets and ultimately bringing the nation even greater economic stability. Home to industries such as information and technology equipment, textiles, footwear, toys, and electronic products, Taiwan has become both a major trading power and an important creditor nation.

As a result of U.S. protests, the percentage of Taiwan’s exports that were sold to the United States fell from 49 percent in 1984 to 15 percent in 2005 and 14 percent in 2006. In 2002, U.S.-Taiwan trade exceeded $50 billion, and the United States was Taiwan’s largest trading partner. That same year, Taiwan joined the World Trade Organization. In 2003, the People’s Republic of China replaced the United States as Taiwan’s major trading partner.

• Aspalter, Christian, ed. Understanding Modern Taiwan: Essays in Economics, Politics, and Social Policy. Burlington, Vt.: Ashgate, 2001.
• Yap, O. Fiona. Citizen Power, Politics, and the “Asian Miracle”: Reassessing the Dynamics. Boulder, Colo.: Rienner Publishers, 2005.
• Yu, Fu Lai Tony, ed. Taiwan’s Economic Transformation in Evolutionary Perspective: Entrepreneurship, Innovation Systems, and Government. New York: Nova Science, 2007.

Asian financial crisis of 1997

Chinese trade with the United States

International economics and trade

Japanese trade with the United States

Nixon’s China visit