- Taiwan has an opportunity to pursue expanded, speedier economic liberalization.
- Having signed the ECFA with China in 2010, Taiwan is attempting to expand its external trade.
- Taiwan enjoys an improved relationship with China, but faces a largely inert American policy toward itself.
Download PDF With the signing of its economic cooperation framework agreement (ECFA) with China in the rearview mirror, Taiwan now has an opportunity to pursue expanded, speedier economic liberalization. First and foremost, this will enrich Taiwan and benefit its people. Second, a more open economy will naturally draw increased investment from American and other multinational companies that, in turn, will lead their respective governments to take a greater interest in Taiwan’s security and prosperity.
Taiwan should undertake a set of local economic reforms to reduce government interference with business and to strengthen the island’s comparative advantages. In other words, Taiwan’s general policy should be to make itself more attractive as a commercial hub.
Based on interviews with executives at multinational companies operating in Taiwan, as well as with a few key policy advisers, this paper suggests measures designed to make Taiwan a commercial hub. We identify Taiwan’s critical strengths and weaknesses and indicate the improvements that will make the island a commercial center. Our interviews and investigations point to six often connected areas where improvement is critical and where purely domestic actions are most valuable:
1. Traditional government policy involving regulation and taxes;
2. Financial policies (both monetary and regarding financial market reform);
3. Education and the labor force;
4. Targeting areas of comparative advantage;
5. Leveraging ECFA; and
6. Marketing Taiwan internationally.
In pursuing our outlined course, Taiwan could improve the welfare of its people. It could also increase its international space without long and uncertain multilateral diplomatic negotiations. With Taiwan as a commercial hub, more people would recognize the island’s importance, more expatriates would live there, and more people in the United States and around the world would have a stake in its success. This would help enhance Taiwan’s security, make it less likely that China would underestimate the international community’s interest in the island’s future, and, in turn, Taiwan could become an even more attractive destination for international business.
Dan Blumenthal is the director of Asian Studies at AEI where Gary J. Schmitt is codirector of the Marilyn Ware Center for Security Studies and Michael Mazza is a research fellow in Foreign and Defense Policy Studies. Derek Scissors is a senior research fellow for economics at The Heritage Foundation’s Asian Studies Center, and Rupert Hammond-Chambers is the managing director for Taiwan at Bower Group Asia.