Taiwan is making a significant shift in its relationships and trade practices. Historically, Taiwan has had close ties with China, but recent developments show that Taiwan is increasingly aligning itself with the United States. This change is driven by political, economic, and strategic reasons. Here, we will explore the various aspects of this shift and what it means for Taiwan, China, and the global economy.
Taiwan, a leader in technology and the world’s biggest maker of computer chips, is moving closer to the U.S. and away from China. This change is happening as China, the world’s second-largest economy, poses a threat to Taiwan, even suggesting it might take the island by force if necessary.
Recently, Taiwan’s largest chip manufacturer, TSMC, announced a major investment in the U.S., thanks to support from the Biden administration. At the same time, another Taiwanese semiconductor company decided to end its operations in China. These moves are part of a broader strategy by Taiwan to reduce its dependency on China and strengthen its ties with the U.S., especially amid the growing rivalry between China and the U.S.
For the first time since 2016, the U.S. has become the top destination for Taiwan’s exports, surpassing mainland China. In the first quarter of the year, Taiwan exported $24.6 billion worth of goods to the U.S., compared to $22.4 billion to China. This shift highlights Taiwan’s effort to diversify its economic partnerships and reduce its reliance on China.
Taiwan’s investments in China have significantly decreased, dropping nearly 40% to $3 billion last year. In contrast, Taiwanese investments in the U.S. surged to $9.6 billion in 2023, a ninefold increase. This trend indicates Taiwan’s strategic move to strengthen its economic ties with the U.S.
In 2022, Washington and Taipei signed a trade agreement, and they are now negotiating further phases. U.S. lawmakers have also introduced a bill to eliminate double taxation for Taiwanese businesses and workers in the U.S. This legal change would make it easier and more attractive for Taiwanese companies to operate in the U.S.
Assistant Secretary of State Daniel Kritenbrink explained that Taiwan’s efforts are aimed at building its deterrent capability and resilience to maintain the status quo and deter China from taking aggressive actions against Taiwan. Strengthening economic and trade ties with the U.S. is part of this broader strategy.
TSMC, the world’s largest computer chip maker, announced it would expand its investments in the U.S. to $65 billion. This announcement came after the Biden administration pledged significant incentives to boost the company’s facilities in Arizona. By 2030, these facilities are expected to produce about one-fifth of the world’s most advanced chips.
Apart from its U.S. investments, TSMC is also investing in Japan, another strong U.S. ally in the region. Other Taiwanese companies, like Foxconn and Pegatron, are expanding their manufacturing capacities in India and Vietnam, respectively. These moves are part of Taiwan’s strategy to diversify its manufacturing bases and reduce reliance on China.
King Yuan Electronics Corp., another Taiwanese semiconductor company, announced it would sell its $670 million stake in a venture in Suzhou, China. The company cited geopolitical reasons, the U.S. export ban on advanced chips to China, and China’s policy of seeking self-sufficiency in technology as the main factors for this decision.
Exports of semiconductors, electronic components, and computer equipment from Taiwan to the U.S. have more than tripled since 2018, reaching nearly $37 billion last year. This trend is not limited to technology; Taiwan has also significantly increased its exports of tapioca, fruits, tree nuts, and farmed fish to the U.S.
Hung Tran, a senior fellow with the Atlantic Council’s GeoEconomics Center, explained that the recent trade data reflect a strategy by both Taiwan and the U.S. to reorient trade and reduce risks associated with China. The share of Taiwan’s exports to mainland China and Hong Kong has dropped from about 44% in 2020 to less than one-third in the first quarter of 2024. Tran believes this share will continue to decline.
Since the 1990s, China has tried to balance its claim over Taiwan with favorable economic and trade policies, aiming to foster closer ties that would make it harder for Taiwan to break away. However, when the independent-leaning Democratic Progressive Party gained power in Taiwan in 2016, the new government introduced policies to distance the island from the mainland and boost economic ties with other countries, especially in Southeast Asia.
China, unhappy with this shift, has used its economic leverage to pressure Taiwan. It has restricted travel by mainland tourists to Taiwan and suspended imports of Taiwanese seafood, fruits, and snacks. In 2021, China banned Taiwan-grown pineapples over biosecurity concerns, severely affecting Taiwanese farmers.
Ralph Cossa, president emeritus of the Honolulu-based foreign policy research institute Pacific Forum, noted that Beijing’s heavy-handed tactics have pushed Taiwan further away. Chinese President Xi Jinping’s strict policies have contributed to the success of Taiwan’s strategy to distance itself from China.
Lai Ching-te, the new president of Taiwan, is expected to continue the policy of distancing Taiwan from China and strengthening ties with the U.S. This approach is aimed at ensuring Taiwan’s economic stability and security while reducing its vulnerability to Chinese pressure.
Taiwan’s shift from China to the U.S. represents a significant strategic and economic change. By investing more in the U.S. and other regions, Taiwan aims to reduce its reliance on China and build stronger ties with its key ally, the United States. This move is not only a response to the intensifying U.S.-China rivalry but also a strategic effort to ensure Taiwan’s long-term stability and security. As Taiwan continues to navigate its complex relationship with China, its efforts to strengthen ties with the U.S. and diversify its economic partnerships will play a crucial role in shaping its future.
