Updated March 15, 2024

U.S.-Taiwan Trade and Economic Relations

Taiwan is a top U.S. trade partner and a key link in global 2024, it held $569.5 billion in reserves of which it invested
technology and manufacturing supply chains, supporting $252.5 billion in U.S. Treasuries.
the United States, China (PRC or China), and other global
markets. Taiwan’s economy is highly dependent on global Taiwan’s Economy
trade; exports account for about 70% of gross domestic Population: 23.4 million people.
product (GDP). Taiwan’s policies are seeking to generate 2023 nominal GDP: $753.6 billion (1.4% agriculture, 37.6%
growth in emerging technologies and reduce its dependence industry, 61% services); 22nd largest global economy.
on the PRC by diversifying trade and investment and on- Unemployment: 3.5% (12.4% ages 20-24; 6.1% ages 25-29).
shoring production. Central to these efforts are U.S. and
Taiwan government actions to deepen commercial ties. Main industries: electronics, semiconductors, information
Issues facing Congress include identifying and asserting its technology, petrochemicals, textiles, steel, machinery, cement,
prerogatives over the U.S.-Taiwan 21st Century Trade food, autos, and pharmaceuticals.
Initiative negotiations and considering existing legislative Semiconductors: About 90% of global advanced chip
proposals that would prevent double taxation and boost production is based in Taiwan. Taiwan firms are also active in
two-way investment. Also see CRS In Focus IF10275, chip R&D; materials (e.g., silicon wafers); design; and assembly,
Taiwan: Background and U.S. Relations, and CRS In Focus packaging, and testing. Policy debates in Taiwan include to
IF12481, Taiwan: Defense and Military Issues. what extent firms should build capacity in Taiwan, the PRC,
the United States, and other markets.
U.S.-Taiwan Commercial Ties
Taiwan is the United States’ 7th-largest merchandise trading Competitiveness: Switzerland’s International Institute for
partner ($128 billion in total goods trade), 10th-largest Management Development Business School ranks Taiwan as
export market ($40 billion), and 8th-largest source of the world’s sixth most competitive economy. Taiwan is coping
imports ($88 billion), according to 2023 U.S. data. U.S. with stagnant wages; technical talent gaps; an aging population;
agricultural exports to Taiwan in 2023 were $4.4 billion. and land, power, and water shortages. The government has
U.S. service exports to Taiwan in 2022 were $10.3 billion. taken some steps to phase out nuclear power, but alternatives
Taiwan’s goods exports to the United States grew by 100% at this time are limited. The Taiwan government’s “5+2” plan
between 2018 and 2022, and fell by 4.5% in 2023 over is boosting targeted industries—advanced manufacturing,
2022, with a drop in certain electronics, steel, and other biotechnology, renewable energy, recycling, and defense.
items. (Taiwan’s 2023 total exports fell by 9.5% over 2022
mostly due to China’s slowdown.) U.S.-Taiwan supply Efforts to Strengthen Economic Ties
chains involve Taiwan firms’ production in the PRC. In The United States and Taiwan have undertaken several
2023, Taiwan firms received $200.1 billion in U.S. orders, a efforts to address market barriers and bolster economic ties:
figure that includes production in China (Figure 1).
In June 2022, the United States and Taiwan launched a
Figure 1. U.S.–Taiwan Goods Trade 2000-2023 “U.S.-Taiwan Initiative on 21st Century Trade,” in
parallel to the U.S.-led Indo-Pacific Economic Framework,
which does not include Taiwan. The initiative covers trade
facilitation, regulatory practices, anti-corruption, digital
trade, technical standards, labor and environment, state-
owned enterprises, nonmarket practices, and agriculture.
The two sides reached their first agreement in May 2023 on
key terms, services businesses criteria, and items on trade
facilitation, customs, transparency, and anticorruption.
In June 2021, the United States and Taiwan resumed talks
last held in 2016 under a 1994 Trade and Investment
Source: CRS, with data from the U.S. Bureau of Economic Analysis
Framework Agreement (TIFA). Taiwan’s agricultural
(BEA) and Taiwan’s Ministry of Economic Affairs.
barriers (e.g., regulations banning imports of U.S. pork and
In 2022 the U.S. direct investment position in Taiwan was beef that contain a leanness-enhancing food additive
$16.7 billion. Taiwan’s direct investment position in the ractopamine) led the U.S. government to suspend TIFA
United States was $16.1 billion, according to the U.S. talks between 2007 and 2013. U.S. concerns include digital
Bureau of Economic Analysis. (Data do not include services, biotech, medical devices, and energy barriers.
investments made through Hong Kong and offshore tax In 2020, the two sides launched a U.S.-Taiwan Economic
havens, such as the British Virgin Islands.) Taiwan is a top Prosperity Partnership Dialogue. Annual meetings since
global holder of foreign exchange reserves. As of January 2021 have discussed official agenda items including supply
chain resiliency; responding to PRC economic coercion;

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 U.S.-Taiwan Trade and Economic Relations

digital trade; 5G network security, research, and energy; tax Taiwan in the United States, and encourage other countries
barriers to investment; and clean energy. In February 2024, to pursue similar deals with Taiwan. Some experts caution
the U.S. International Development Finance Corporation that the PRC might retaliate to such efforts with economic
announced an agreement to co-invest with Taiwan in joint countermeasures. Taiwan concluded FTAs with New
projects in the Indo-Pacific and Western Hemisphere. Zealand and Singapore in 2013 and reached an investment
deal with Canada in 2023. Its efforts to seek trade deals
Since 2020, the Treasury Department has listed Taiwan in
with the European Union, Australia, Japan, and the United
its currency monitoring report for currency practices and Kingdom prompted the PRC to exert pressure on those
macro-economic policies of concern, citing Taiwan’s large
countries. In 2021, Beijing imposed a de facto embargo on
trade account surplus and foreign exchange reserves. Since
Lithuania for enhancing Taiwan ties. In 2021, Taiwan and
April 2021, Treasury has been working with Taiwan to the PRC applied to the Comprehensive and Progressive
address the causes of its currency undervaluation. Agreement for Trans-Pacific Partnership (CPTPP); Beijing
has pressured CPTPP countries not to admit Taiwan.
Cross-Strait Economic Ties
The PRC is Taiwan’s largest trading partner and investment
Trade Negotiations. In August 2023, Congress passed P.L.
destination. According to the Taiwan government, 35.2% of
118-13 to address its concerns that the Administration was
Taiwan’s goods exports went to the PRC (including Hong
negotiating trade deals without Congress’s agreement. The
Kong) in 2023, down from 42% in 2021, and an estimated
law asserts congressional ex-post approval of the May 2023
242,000 Taiwan citizens worked in the PRC in 2020.
agreement with Taiwan (referred to above), sets conditions
for its entry into force, and imposes consultative
Since 2016, Taiwan authorities have sought to diversify away requirements for future agreements.
from the PRC and address the risks of PRC investment in
Taiwan’s infrastructure (e.g., shipping, finance, and media). Technology Policy Coordination. Congress is overseeing
This follows the 2008-2016 period when the Kuomintang implementation of the CHIPS and Science Act of 2022
party negotiated direct trade, transportation, and postal links (P.L. 117-167) and efforts to promote investment in the
and an economic cooperation deal with the PRC (2010). In United States, including two U.S. foundries by Taiwan
2014, a services deal prompted protests in Taiwan and Semiconductor Manufacturing Company Ltd. (TSMC). As
suspension of a legislative vote on it. the executive branch has taken steps to align with Taiwan
Taiwan authorities’ efforts to curtail industry’s role in the
on investment restrictions and export controls toward
PRC’s semiconductor sector have been challenging. For
China, some Members have said that compromises with
example, Taiwan’s Hon Hai Precision, an electronics firm,
Taiwan (and South Korea) erode U.S. restrictions on China
partnered with the PRC government in chip equipment,
and have urged stronger controls. Proposed legislation (S.
design, and production. Taiwan industry leader Richard Chang
3110) would help Taiwan counter PRC targeting of its
created China’s leading foundry and is developing two others.
technology and infrastructure.
Beijing has pressured Taiwan’s ruling Democratic Progressive The Commerce Department granted Taiwan firms a one-
Party over its opposition to the PRC’s “one country, two year waiver from CHIPS Act restrictions on recipients of
systems” framework for cross-Strait relations and its efforts U.S. monies from investing in advanced semiconductors in
to diversify. The PRC uses incentives to attract Taiwan China. TSMC says it has applied for Commerce’s Validated
investment and immigration and pressures firms to constrain End User program, which exempts some license
Taiwan’s diversification efforts. In April 2023, the PRC opened requirements to export dual-use items to China.
a review of Taiwan’s “trade barriers” that lasted through In May 2020, Commerce amended export control rules to
Taiwan’s 2024 election cycle. Ahead of the vote, in December restrict the sale to PRC-based Huawei Technologies Co.
2023, Beijing revoked tariff preferences for 12 petrochemical and its affiliates of chips made with U.S. technology or
products. In September 2023, the PRC announced a policy in software, which includes TSMC’s operations. The action
its Fujian province that incentivizes economic integration. restricted Huawei’s ability to make chips in Taiwan. It does
not restrict other PRC firms from making chips in Taiwan.
Issues Facing Congress China has used firms in Taiwan to fabricate chips, recruit
Free Trade and Tax Agreements. Some Members have
engineers, and in some cases to steal technology, according
expressed interest in a possible free trade agreement (FTA)
to some public reports. In 2022, Taiwan amended its
and income tax deal to increase two-way trade and
National Security Act to criminalize economic espionage
investment and diversify Taiwan’s commerce away from
and require approval to use trade secrets and critical
the PRC. Congress has sought to address the complexities
technologies outside of Taiwan.
posed by the unofficial status of U.S. relations with Taiwan.
In January 2024, the House passed H.R. 7024, which Taiwan’s Role in International Organizations. The
includes the U.S.-Taiwan Expedited Double-Tax Relief Act House has passed legislation (H.R. 540) and some Members
and the U.S.-Taiwan Tax Agreement Authorization Act. have pressed U.S. officials to actively counter PRC efforts
The legislation aims to prevent double taxation and to restrict Taiwan’s global role. U.S. policy encourages
encourage Taiwan investment in the United States. It would Taiwan’s “meaningful participation” in organizations for
amend the Internal Revenue Code of 1986 by providing which statehood is not required. Taiwan is a member of the
special rules for the taxation of certain residents of Taiwan World Trade Organization, Asian Development Bank, and
with income from sources in the United States. Asia-Pacific Economic Cooperation forum, which refer to it
as an economy or a separate customs territory, not a state.
Some experts say a U.S.-Taiwan FTA could lower barriers
to U.S. agriculture and services, increase investment by
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 U.S.-Taiwan Trade and Economic Relations

IF10256

Karen M. Sutter, Specialist in Asian Trade and Finance

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This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
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