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Taiwan has experienced a sharp deceleration in economic growth since the late 1980s and early 1990s when it was averaging lofty growth rates in the high single digits. As Chart 1 illustrates, real gross domestic product (GDP) growth not only decelerated rapidly but also increased in volatility (even with a three-year m... |
Some of this decline was inevitable given Taiwan’s affluence. It has one of the highest average annual household incomes in the region and a per capita GDP of almost $39,000 measured in purchasing power parity ($21,000 at current exchange rates). That said, Taiwan’s real GDP growth has fallen below expectations in rece... |
At first glance, the slower economic growth could simply be attributed to a slower post-recession global economy. With exports accounting for approximately 60 to 70 percent of GDP in recent years, Taiwan does remain an export-oriented economy. Closer observation, however, shows that its slower growth cannot be solely a... |
In 2013, the service sector accounted for 69 percent of Taiwan’s GDP while the industry and agricultural sectors accounted for 29 percent and 2 percent, respectively. This is significantly different from the late 1980s when industry accounted for approximately 40 percent of Taiwan’s economy. |
While a transition to a service-based economy is a natural progression as economies mature, in Taiwan’s case, the service sector has become Taiwan’s Achilles’ heel. Plagued by low productivity, the country’s service sectors are largely small in scale and domestically oriented. This is in contrast to Singapore and Hong ... |
Moreover, looking toward the future, because so much manufacturing has moved from Taiwan to China, the service industry that supports manufacturing could also move offshore to China in order to be better able to respond to Chinese domestic demand and local economic conditions. China could become more than a basic-compo... |
Taiwan’s business environment is also facing increased competition from its neighbors in the region. Taiwan ranks a very respectable 16th in the World Bank’s 2014 Doing Business report, but it is scoring below regional competitors, such as Singapore (1st), Hong Kong (2nd), Malaysia (6th), and Korea (7th). During the 19... |
Taiwanese World Trade. As an export-oriented economy, Taiwan has been dependent on external trade to sustain its economic development. The total value of trade increased more than fivefold in the 1960s, nearly tenfold in the 1970s, and then doubled in the 1980s before almost doubling again during the 1990s. In 2013, Ta... |
While many of its neighbors’ shares of world trade have risen in recent years, Taiwan’s has declined, suggesting a possible loss in competitiveness. |
Taiwan’s global share of world trade and global exports peaked in 2000 at 2.1 percent and 2.2 percent, respectively. By 2012, these shares had fallen to 1.45 percent and 1.5 percent. While seemingly small, this represents a 30 percent decline in Taiwan’s share of world trade over the past decade. |
Foreign Direct Investment. The “deindustrialization” of Taiwan is exemplified by the growing disparity between inbound and outbound FDI. With the exception of the semiconductor industry, which continues its investment in R&D and capital equipment for its expansion in high-end production, most of Taiwan’s manufacturing ... |
Since 1997, Taiwan’s inbound investment has been consistently less than outbound investment. Between 2000 and 2012, Taiwan’s outbound investment amounted to $165 billion, more than four times the level of inbound investment ($40 billion). |
In 2012, Taiwan’s stock of inbound FDI was valued at almost $60 billion—not much more than the $50 billion in 2006. In 2012, FDI flows into Taiwan were $4.7 billion, while they were over $16 billion for Korea, its closest competitor. |
Taiwan has also attracted minuscule private equity capital in recent years, depriving the most active channels of investment capital and managerial expertise. |
Demographics—Ever Shrinking. Taiwan’s demographic profile is not advantageous for faster economic growth. By 2025, people over age 65 will make up one-fifth of the total population. Meanwhile, Taiwan has historically low fertility rates. It reached its lowest level in 2010 with 0.90 children per female. In 2012 it was ... |
This trend has made Taiwan one of the fastest-aging countries in the world. The working-age population is set to decline from 2015 after reaching a peak of 17.3 million. The dependence ratio, currently 35 percent, is expected to rise to 53 percent in 2030, and 80 percent by mid-century. |
Due to its aging profile, it is estimated that Taiwan’s total population will fall from the current 23 million to 19 million by mid-century. Taiwan’s demographic deficit will deeply diminish the nation’s economic prospects. A shrinking workforce will most certainly rob Taiwan of the human capital it will need in the co... |
Taiwan’s Growing Economic Interdependence with China. Over the course of a relatively short period, there has been a radical shift in Taiwan’s trade and investment destinations. In 2000, total trade with China (including Hong Kong) was only $18.5 billion. By 2013, total trade with China had grown to over $165 billion (... |
Thanks in part to the enormous differences in size between the two countries, Taiwan has run large trade surpluses with China. Although the surpluses have leveled off, they remain sizable. The $77 billion bilateral surplus with China in 2013 was larger than the $37 billion total surplus in the same year. In other words... |
Over the same period, Taiwan’s trade relations with the United States moved just as significantly in the opposite direction. In 2000, two-way trade with the United States totaled 41 percent (23 percent of Taiwan’s exports) of Taiwanese total trade. By 2013, total trade with the United States had dropped by roughly half... |
Another way to examine how two-way trade has changed is to compare the trade shares relative to each other’s total trade. Here, the relationship has become asymmetrical. While China has become increasingly important in Taiwan’s external trade, Taiwan’s importance in China’s overall trade is decreasing. |
From 2000 to 2013, China’s exports to Taiwan remained fairly steady at around 2 percent of total Chinese exports. The lack of growth in Chinese exports to Taiwan as a share of its total indicates that Taiwan’s small market is currently providing only limited potential for China’s products. |
On the other hand, China has become a critical market for Taiwan’s exports, with its share rising fourfold (to 27 percent) over the past decade, although it has leveled off. |
Meanwhile, China’s imports from Taiwan as a percentage of its total imports have declined from 13 percent to 7 percent (for 2012), while Taiwan’s import share from China rose to 16 percent by 2013. |
According to Min-hua Chiang, a researcher at the East Asian Institute, there are three important reasons why Taiwan is experiencing a falling market for Chinese imports. The first is rising labor and land costs in China. Many Taiwanese companies in China are under cost pressures and have reduced their imports of interm... |
Second, in recent years, many of the mainland-based Taiwanese companies have shifted their preferences for purchasing intermediate goods from China instead of importing them from Taiwan. In 2002, only 15 percent of mainland-based Taiwanese companies procured capital equipment and intermediate goods from local firms in ... |
Third, Taiwan’s falling share in China’s total imports may also be a result of China’s changing overall import structure. China’s import share of mineral products increased from 8 percent in 2002 to 25 percent in 2011, while its imports of machinery (from 43 percent to 32 percent) and electrical equipment (from 25 perc... |
This trend in two-way trade is not likely to reverse anytime soon. The Economic Cooperation Framework Agreement (ECFA) of 2010 has the potential to open up the vast Chinese market to Taiwan businesses. The economic accord and its constituent agreements are the most significant between the two sides of the Taiwan Strait... |
Unfortunately, the ECFA also has the potential, over time, to make Taiwan even more dependent on the Chinese market unless Taiwan starts diversifying the destination of its exports by signing FTAs with other nations. |
One of the agreements derivative of the ECFA, the Cross-Strait Services Agreement, is a subject of intense controversy in Taiwan and there are some questions whether and in what time frame it will be ratified. Taiwan’s Sunflower Movement protested the treaty in Taiwan’s Parliament during March 2014, in what was the lar... |
This structural shift in two-way trade obviously has both serious political and economic repercussions. If nothing is done to open up alternative patterns of economic activity for Taiwan, China will potentially have enormous leverage over Taiwan. |
There is an additional equally obvious economic risk to Taiwan becoming so reliant on the Chinese market. While China avoided a recession during the 2008–2009 financial crisis with an enormous stimulus package, a “hard landing” would have a major negative impact on Taiwan’s exports to China and economic growth at a tim... |
Taiwan’s Shifting Investment in China. This increased economic interdependence between China and Taiwan is not limited to two-way trade. When Taiwan lifted its ban on indirect investment in China, the mainland quickly became the most important recipient for Taiwan’s outward FDI. |
China’s total outbound FDI has increased from almost nothing in 2000 to $90 billion in 2013. Despite their close economic ties, however, Taiwan is not getting much from the mainland by way of investment. The trifling inflow of Chinese investments so far is largely because Taiwan’s small market holds no interest for Chi... |
Amounting to only $174 million in 1991, this figure peaked at $14 billion in both 2010 and 2011. (It has fallen in recent years as Chinese labor costs have increased significantly, making the mainland less appealing for Taiwanese manufacturers.) Over the same period, the weight of China in Taiwan’s total outward invest... |
These investment levels have made China central to the supply chains of Taiwanese manufacturers. They have also generated a high volume of trade between Taiwanese businesses located in China and Taiwan. As a consequence, the lion’s share of Taiwan–China trade falls within the same sectors as Taiwanese outbound investme... |
Since the ECFA came into effect, approved Chinese investment in Taiwan has increased from $94 million in 2010 to $328 million in 2012. Supporters of the ECFA hope that the trade agreement will serve as a gateway for investment from China. |
While Taiwan has its own currency, there is early evidence of increased acceptability of the Chinese renminbi. In 2012, Taiwan’s Central Bank signed a memorandum of understanding (MOU) on cross-Strait currency settlement with its Chinese counterpart. The MOU allows the direct settlement of the Chinese renminbi and the ... |
A regional common market provides a much larger market than that offered by the domestic market of a single country, so economies of scale become possible. |
The larger market created would permit a higher degree of specialization. This would encourage the flow of investment into industries that have a comparative cost advantage, producing greater gains from trade. |
The increased possibilities of competition in a regional common market would ensure that many of the benefits accruing to the producers from the existence of a large market would be passed on to the consumer. |
Asia’s movement toward FTAs began taking off last decade as the World Trade Organization’s (WTO) Doha round of trade negotiations unraveled and as the U.S. began negotiating FTAs. As a result, according to the Asian Development Bank, as of April 2014, ratified FTAs involving an Asian country numbered 113, up from 36 in... |
Taiwan has been almost completely absent from this proliferation of Asian FTAs. Initially, Taiwan only managed to negotiate FTAs with its “diplomatic allies” in El Salvador, Guatemala, Honduras, and Nicaragua. In 2013, these four Central American nations combined represented 0.001 percent of Taiwan’s exports. Only in 2... |
Left out, Taiwan will be harmed by the FTAs’ trade-diversion effect as Taiwan’s exports lose out in FTA markets due to increased competition from imports from other FTA partners. The successful completion by Korea—a competitor with Taiwan across a wide range of products—of FTAs with the European Union and United States... |
This pattern of moving toward China-centric regionalization could have debilitating effects on Taiwan. The inability of Taiwan to participate in FTAs is creating an incentive for Taiwanese businesses to invest in other Asian countries and therefore take advantage of the tariff preference for exports from these countrie... |
Economically, since 2000, times have not been good for Taiwan. This is for two primary reasons. First, lackluster economic growth has set in and is beginning to look increasingly permanent in nature. Second, in a relatively short period of time, Taiwan has become deeply dependent on the Chinese market for its exports a... |
What Taiwan Needs to Do. The economic reforms required by entry into the WTO in early 2002 boosted Taiwan’s productivity and economic growth. Under the terms of its WTO accession, Taiwan agreed to cut tariffs and non-tariff barriers on a wide range of goods, completely open a number of service sectors, and increase pro... |
Production mix of software and software services. Taiwan is one of the global leaders in information technology (IT) supply chains that cover everything from microchips to mobile phones. IT products account for approximately 40 percent of Taiwan’s exports. Of Taiwan’s IT production, approximately 70 percent is hardware... |
Low-cost energy. Cheap energy is a critical input for stronger economic growth. Taiwan’s ability to meet future demand looks uncertain. Strong opposition to its fourth nuclear power plant has raised doubt that it will ever be used, removing a significant source of power capacity from future supply—nuclear power provide... |
Improved competitiveness. As discussed, Taiwan does not rank well compared to its regional neighbors as a competitive place to do business. In The Heritage Foundation’s 2014 Index of Economic Freedom, co-published with The Wall Street Journal, it scores a very respectable 17th of 186 countries. It scores poorly in labo... |
Investor protection. Taiwan must do a better job of protecting investors. In the Index of Economic Freedom’s “financial freedom” rankings, Taiwan is only ranked 41[st]. (Hong Kong is ranked first and Singapore fourth.) According to the World Bank’s 2013 Index of Investor Protection, Taiwan is ranked 34th in the world f... |
Rebalanced growth. Taiwanese authorities should also actively seek to reduce Taiwan’s reliance on trade as an engine of growth by increasing domestic consumption and encouraging greater private-sector investment in Taiwan. This includes encouraging Taiwanese firms to invest in Taiwan instead of overseas (mostly China) ... |
Consumer-protection laws. Well-intentioned but impractical initiatives in consumer protections are damaging Taiwan’s attractiveness to business without much actual benefit to consumers. These laws need to be scaled back or eliminated. |
More transparent investment process. The level of private-equity engagement in Taiwan has been among the lowest in Asia in recent years. The foreign-investment approval process needs to be made more transparent, predictable, and efficient. |
More inward FDI. Participation in FTAs would also further Taiwan’s goal of increasing inward FDI. As discussed, comprehensive FTAs include commitments to liberalize investment restrictions and include rules on investment protection. Such action should lead to increased FDI into Taiwan. In 2014, Taiwan was only ranked 4... |
Regional FTAs. Taiwan has explored FTAs with India, Indonesia, and the Philippines. Taiwan should attempt to hammer out separate agreements before the national election in 2016. |
End ban on U.S. pork and beef imports. Taiwan should eliminate its ban on U.S. pork and some beef imports which contain the leanness-enhancing drug ractopamine. The ban has been a major source of contention with the United States for some time now and jeopardizes a future FTA with the U.S. It also casts doubt on Taiwan... |
More Taiwanese. Taiwan’s government needs to make an effort to boost its dangerously low birth rate; otherwise, Taiwan’s economy in the region will likely be marginalized by its shrinking population. Beijing will soon have a larger population than the entirety of Taiwan. |
What the U.S. Needs to Do. The U.S. can do the following to help guide Taiwan through the trade liberalization process, including its entry into the Trans-Pacific Partnership (TPP). |
In addition to guiding trade negotiators toward genuine trade liberalization, any Trade Promotion Authority approved by Congress should be applicable to a bilateral free trade agreement with Taiwan. |
The U.S. should launch negotiations on a Bilateral Investment Agreement with Taiwan. An agreement would position the U.S. to support Taiwan’s eventual membership in the proposed Trans-Pacific Partnership. |
The United States should assist Taiwan in making the necessary structural adjustments so it can progress toward TPP standards. The 12 member nations of the TPP, which currently account for 38 percent of global GDP and 25 percent of world trade, offer Taiwan the opportunity to diversify and rebalance its external econom... |
Taiwan is at a crossroad. During much of the Cold War, Taiwan depended on the United States to export its way toward economic development and prosperity. Within a relatively short period of time, that relationship has been supplanted by China. |
This has put Taiwan in a precarious position. Being overly dependent on the Chinese economy means that Taiwan’s fate could largely be determined by economic conditions in China and political decisions made in Beijing. |
While much of Asia has been rapidly integrating in recent years through FTAs, Taiwan has been left out in the cold. The political isolationism that Taiwan has endured has eventually produced a similar degree of economic isolationism. |
The result has been deterioration of Taiwan’s economic fundamentals—such as slower economic and productivity growth, over-reliance on one trading partner, and stagnating wages. While Taiwan remains a wealthy high-tech exporting giant, large cracks are appearing in its gleaming exterior. |
Taiwan’s economic status quo is not sustainable; it can be changed with the right combination of policies. The United States should publically encourage Taiwan’s bilateral and multilateral ambitions. Signing a bilateral investment agreement with the U.S. would be a good step toward Taiwan eventually joining the TPP. Th... |
—William T. Wilson, PhD, is a senior research fellow in the Asian Studies Center, of the Kathryn and Shelby Cullom Davis Institute for National Security and Foreign Policy, at The Heritage Foundation. |
Taiwan Relations Act, Public Law 96-8, April 10, 1979, http://www.gpo.gov/fdsys/pkg/STATUTE-93/pdf/STATUTE-93-Pg14.pdf (accessed July 29, 2014). |
In 1992, China (excluding Hong Kong) was Taiwan’s 26th-largest trading partner, with $748 million in total trade. |
Min-hua Chiang and Bernard Gerbier, “Cross-Strait Economic Relations: Recent Development and Implications for Taiwan,” Revue de la régulation, Vol. 13, No. 1 (Spring 2013), p. 15, http://regulation.revues.org/10177 (accessed June 27, 2014). |
Walter Lohman, John Fleming, and Olivia Enos, “A New View of Asia: 24 Charts that Show What’s at Stake for America,” The Heritage Foundation, October 7, 2013, http://www.heritage.org/research/reports/2013/10/a-new-view-of-asia. |
Central Intelligence Agency, The World Factbook, June 19, 2014, https://www.cia.gov/library/publications/the-world-factbook/geos/tw.html (accessed June 30, 2014). |
The World Bank, Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises, 11th ed., http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-reports/English/DB14-Full-Report.pdf (accessed June 30, 2014). |
Central Intelligence Agency, The World Factbook. |
Min-hua Chiang, “Taiwan’s Economy at Crucial Crossroads,” East Asian Policy (2013), pp. 74–86, http://www.worldscientific.com/doi/pdf/10.1142/S179393051300007X (accessed June 30, 2014). |
National Statistics–Republic of China, “Table 14. Fertility Rates for Women of Childbearing Age,” http://eng.stat.gov.tw/public/data/dgbas03/bs2/yearbook_eng/y014.pdf (accessed July 1, 2014). |
The dependence ratio is the number of young (ages 0 to 14) plus the number of old (ages 65 and above) divided by the working-age population (ages 16 to 64). |
Over this same period, Taiwan’s two-way trade share with Japan fell from 39 percent to 22 percent, and from 30 percent to 20 percent with Europe. Only the Association of Southeast Asian Nations (ASEAN) 6 witnesses an increase in market with Taiwan (26 percent to 31 percent). |
Min-hua Chiang, “Taiwan’s Economy at Crucial Crossroads,” p. 80. |
S. Nirav, “What Are the Advantages of Regional Economic Integration?” Preserve Articles, undated, http://www.preservearticles.com/2012020222419/what-are-the-advantages-of-regional-economic-integration.html (accessed June 30, 2014). |
Asia Regional Integration Center, “Free Trade Agreements,” http://aric.adb.org/fta-all (accessed June 30, 2014). |
Joshua Meltzer, “Taiwan’s Economic Opportunities and Challenges and the Importance of the Trans-Pacific Partnership,” Brookings Institution East Asia Policy Paper, January 2014, p. 4, http://www.brookings.edu/research/papers/2013/09/30-taiwan-trans-pacific-partnership-meltzer (accessed July 7, 2014). |
China is also the largest trade partner for ASEAN, Japan, South Korea, Australia, and India, and the second-largest trade partner for New Zealand. |
World Trade Organization, “Tariff Profiles: Chinese Taipei,” http://stat.wto.org/TariffProfiles/TW_e.htm (accessed June 30, 2014). |
News release, “Taiwan Commits to Trade Liberalization,” American Chamber of Commerce Taipei, June 5, 2014. |
The World Bank, Doing Business. |
KNOXVILLE - The University of Tennessee football program knew there would be some eyebrows raised when it hired Ashley Smith in July as the executive assistant to coach Butch Jones. |
Smith is the older sister of Trey Smith, a five-star offensive tackle from Jackson, Tenn., who verbally committed to Tennessee on Tuesday. |
Smith announced his commitment live on ESPNU from the University School of Jackson auditorium with his sister and father flanking him. |
Tennessee spokesman Ryan Robinson said Thursday that Ashley Smith, a Tennessee graduate, went through the normal university hiring process before she was hired with a salary of $50,000. |
Robinson said Tennessee posted the job online, and Smith was one of three final candidates to be interviewed. |
Tennessee was the second school to offer Smith a scholarship behind Ole Miss in 2014. The Vols held a lineman camp at University School of Jackson in June and hosted Smith on his official visit last weekend. |
Ashley Smith received a bachelor’s degree in marketing at Tennessee in 2013 and worked as a team manager for the women’s basketball program for four years (2009-13) under Pat Summitt and Holly Warlick. As a senior, Smith was named the head student manager. |
According to her LinkedIn account, Smith worked for the NCAA from June 2013 until she was hired by Tennessee. |
Among her duties at the NCAA was assisting in the planning and managing of national championships for Division I, II and III men’s and women’s sports, serving as a project manager for outreach initiatives and developing a social media plan for the Division III women’s volleyball championships. |
Smith replaced Keith Pantling at Tennessee. Pantling’s title was the associate director of football operations. He is now the athletic director at La Salle High School in Cincinnati. Pantling made $55,000 at UT in 2015, according to a database of salaries for UT employees. |
Heather Ervin held a similar position at Tennessee from 2009-14 as the assistant director of football operations, the only female in the SEC to hold that position at the time. Ervin, who is now the director of recruiting operations and player personnel for women’s basketball, made $32,802 working for football in 2013, ... |
The hiring of a recruit's family member is not unprecedented, although it's more common in college basketball. |
At the University of Memphis, John Calipari hired the father of Dajuan Wagner to his staff in 2000, and Josh Pastner, now coaching at Georgia Tech, hired Keelon Lawson to his coaching staff in 2014. Lawson is now in a support role under new Memphis coach Tubby Smith and his sons remain on the team. |
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