Taiwan's International Trade Policy: Seeking Positioning in the Wave of Globalization

30-Second Overview

As an island economy highly dependent on international trade, Taiwan faces dual challenges from "political reality" and "economic needs." By striving to join the CPTPP, promoting the New Southbound policy, and maintaining trade relations with the United States, Taiwan is dedicated to building diversified trade partnerships within limited international space. At the same time, it must balance reliance on cross-Strait trade with economic security to find a path for sustainable development for the Taiwanese economy.

Keywords: CPTPP, New Southbound Policy, ECFA, Free Trade Agreement, Economic Trade Diversification, Supply Chain Restructuring

Why It Matters

Taiwan is an island economy lacking natural resources; its total imports and exports exceed 100% of GDP. Manufacturing industries such as electronics and machinery are the economic pillars, and Taiwan is also a critical node in global high-tech supply chains. This structure means that trade policy is equivalent to national survival policy: without exports, there is no foreign exchange; without foreign exchange, there is no import of energy or raw materials.

Under constraints on diplomatic space, economic and trade cooperation has become the main channel for Taiwan's participation in international society: maintaining discourse power through international organizations like the WTO, enhancing its international image through economic achievements in substantive diplomatic contexts, while balancing geopolitical pressures brought by China's economic rise between risk diversification and maintaining necessary exchanges.

Analysis of Taiwan's Trade Structure

Major Trading Partners

According to Ministry of Finance statistics, Mainland China and Hong Kong accounted for 31.7% of Taiwan's exports in 2024, remaining the largest export market, but this marked a low point in nearly 23 years, down 12.2 percentage points from the high of 43.9% in 2020 ¹. The United States rose to become the second-largest export market at 23.4%, ASEAN was third at 18.5%, followed by Europe at 8.1% and Japan at 5.4%. Although concentration on China continues to decline, it remains a core focus of trade diversification policies. There is also a noteworthy trade relationship characterized by competition between South Korea and Taiwan in areas such as semiconductors and panels.

Export Product Structure

Taiwan's exports are highly concentrated in high-tech products. According to Ministry of Finance statistics, the two major categories—electronic components (37.3%) and information and visual communication products (27.9%)—accounted for 65% of total exports in 2024 ¹, followed by basic metals, machinery, plastics and rubber products, and chemicals, each accounting for 3% to 6%. This concentration makes Taiwan particularly sensitive to the semiconductor market cycle; overall export figures react quickly when chip demand slows.

Import Dependencies

Taiwan's dependence on energy imports is its greatest structural risk: oil, natural gas, and coal are almost entirely imported. The other four major import categories are metal ores and chemical raw materials, food and livestock products, semiconductor equipment, and scientific instruments. The geopolitical vulnerability of energy imports is one aspect that Taiwan's supply security policy finds the hardest to avoid.

Core Trade Policy Framework

Participation within the WTO System

Taiwan operates as a member of the World Trade Organization (WTO) under the designation "Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu" (2002–present), beginning its formal membership in 2002. It adheres to norms and participates in multilateral negotiations within the multilateral trading system. However, this status has brought long-term political friction: interference with Taiwan's voice at WTO meetings by China, and the complexity of its identity in international organizations have compressed the effectiveness of Taiwan's participation in WTO multilateral negotiations. Nevertheless, membership in the WTO remains an important legal basis for Taiwan to maintain multilateral trade protection.

Bilateral Free Trade Agreements (FTAs)

The formal FTAs currently implemented by Taiwan are extremely limited; only Panama and Guatemala remain in Central America ². The agreements signed with Nicaragua, El Salvador, and Honduras were terminated sequentially after the severance of diplomatic ties with Panama in 2017. Taiwan has also signed Economic Cooperation Agreements (ANZTEC) with New Zealand and Partnership Agreements (ASTEP) with Singapore ². Recent progress has focused on bilateral arrangements: a bilateral investment agreement was signed with India in 2018 ³; the first set of agreements under the Taiwan-US 21st Century Trade Initiative was signed with the United States in 2023 ⁴, and a Partnership Agreement (ETP) was signed with the United Kingdom in 2023 ⁵; and another reciprocal trade agreement was signed with the United States in February 2026 ⁶. The fundamental reason for the limited expansion of FTAs is political reality: many countries are unwilling to sign formal agreements with Taiwan due to pressure from Beijing, necessitating advancement through alternative frameworks.

Key Policy Initiatives

CPTPP Joining Strategy

Taiwan formally applied to join the CPTPP on September 22, 2021, establishing an inter-ministerial working group and engaging in policy dialogue with member countries. The benefits assessment includes access to member markets (11 countries at the time of application, 12 after the UK joined in 2024), gradual zeroing of tariffs on most products, enhanced transparency in the investment environment, and new opportunities in service industries such as finance and telecommunications.

However, the path to joining faces dual internal and external obstacles. Domestically, there is strong opposition from agricultural protectionists, long-standing disputes over pharmaceutical patents, and sensitive interests involved in adjustments to foreign labor policies; externally, political obstruction from China remains the hardest variable to overcome. The CPTPP Ministerial Meeting in November 2025 did not approve the establishment of a working group for Taiwan; the same meeting decided to initiate Uruguay's accession process first ⁷. The political sensitivity surrounding simultaneous applications by Taiwan and China has kept Taiwan's accession process at the threshold.

In response, the government continues to conduct industry impact assessments and guidance, regulatory adjustments and institutional reforms, parliamentary communication and social dialogue, and deepening bilateral relations with each member country, reserving space for issue advancement when the timing is right.

New Southbound Policy (2016–Present)

The New Southbound policy was proposed in 2016 with the goal of diversifying market reliance from China and deepening economic and trade ties with ASEAN and South Asia, promoting regional industrial chain cooperation and talent exchange. The policy covers 18 target countries: 10 ASEAN nations, 6 South Asian nations, New Zealand, and Australia, driven by four main axes: economic and trade cooperation, talent exchange, resource sharing, and regional connectivity.

Specific achievements include investment growth in New Southbound countries, increases in bilateral trade volume, industrial park cooperation cases, and the export of vocational education. The practical challenges of the policy lie in linguistic and cultural differences, unfamiliarity with local regulatory environments, political risks, and infrastructure gaps—these barriers indicate that Southern expansion requires a longer time horizon than just shifting trade routes.

Taiwan-US 21st Century Trade Initiative and Reciprocal Trade Agreement

On June 1, 2023, the first set of agreements under the Taiwan-US 21st Century Trade Initiative was signed. The initial batch covered five issues: customs administration and trade facilitation, good governance, domestic regulations for services, anti-corruption, and SMEs. Seven items—labor, environment, agriculture, digital trade, standards, state-owned enterprises, and non-market policies and practices—are reserved for subsequent negotiations ⁴. On February 12, 2026 (EST), both sides signed the "Taiwan-US Reciprocal Trade Agreement" (ART), establishing a reciprocal tariff of 15% without stacking; Taiwan exempted 2,072 products exported to the US from this reciprocal tariff ⁶. The strategic significance lies in deepening Taiwan-US economic and trade relations, laying the foundation for broader future agreements, and demonstrating Taiwan's reform capacity, thereby strengthening the basis of mutual trust between Taiwan and the US within the Indo-Pacific regional cooperation framework.

Cross-Strait Economic and Trade Relations

Signing and Impact of ECFA

Taiwan signed the Economic Cooperation Framework Agreement (ECFA) with cross-Strait partners in 2010, reducing tariffs on some goods through an early harvest list mechanism and establishing a subsequent negotiation mechanism. The agreement boosted bilateral trade growth, facilitated greater investment by Taiwanese businesses in China, and expanded financial business exchanges. Critics, however, point out that the agreement deepened economic dependence, accelerated industrial relocation, worsened income distribution, and carries inherent national security risks.

ECFA Status (2023–2024): On December 21, 2023, the State Council's Customs Tariff Commission announced the suspension of ECFA tariff concessions for 12 items, including propylene and xylene, starting January 1, 2024 ⁸. On May 31, 2024, it was announced again that the agreement tariffs for 134 products, such as lubricating base oils and racing bicycles, would be suspended starting June 15 ⁹. Related export industries in Taiwan face pressure from tariff increases, and the benefits of the early harvest list continue to diminish.

Current Cross-Strait Trade Challenges

The structural problems are mainly four: Taiwan's high reliance on trade with China, increased overlap in industrial competitiveness, rising risks of technology leakage, and supply chain security considerations. The direction of policy adjustment is to strengthen control over key technologies, promote supply chain diversification, establish economic security mechanisms, while maintaining necessary economic and trade exchanges—the latter has become increasingly difficult to manage precisely amid escalating cross-Strait political tensions.

Industry-Specific Trade Policies

Semiconductor Industry

Taiwan holds a critical position in the global semiconductor supply chain, with core competitive advantages stemming from leading advanced process technology, a complete industrial ecosystem, and high-quality human resources. The trade policy direction is to participate in the US Chip Alliance, build reliable supply chains, and strengthen export control mechanisms. TSMC's plans to establish factories in the United States and Japan are a typical example of Taiwan proactively managing diplomatic risks amidst the politicization of the chip supply chain.

Agricultural Sector

Agriculture plays a sensitive bargaining chip role in trade negotiations. High production costs, insufficient economies of scale, and intense international competition constitute the triple barriers to agricultural trade liberalization. The response strategy is to develop sophisticated agriculture, strengthen traceability of agricultural products, and promote agricultural technological advancement, substituting low-price competition with differentiation.

Service Industry

Financial services, information and communication services, healthcare, and cultural industries are advantageous areas for the internationalization of Taiwan's service sector. The direction of opening policies is to gradually relax foreign investment restrictions, improve service quality, and build international brands. The relatively low proportion of services in exports is a clear area of development compared to manufacturing in Taiwan.

Digital Trade and New Economy

In response to the development of the digital economy, Taiwan faces institutional construction pressures regarding cross-border data flow regulations, personal data protection standards, e-commerce norms, and digital tax coordination for digital trade rules. Emerging issues include AI governance, cryptocurrency regulation, platform economy norms, and intellectual property protection; Taiwan must balance participating in international standard setting with protecting its own digital sovereignty.

In line with global net-zero carbon goals, the impact assessment of the European Union's Carbon Border Adjustment Mechanism (CBAM) on Taiwanese exporters is urgent. Taiwan's response directions include certifying industrial carbon footprints and building green supply chains, as well as developing circular economy trade opportunities such as waste resource utilization, recycled raw material trade, and environmental protection technology exports.

Trade Policy Formulation Mechanisms

Taiwan's trade policy is promoted through the division of labor among multiple departments. The International Trade Administration of the Ministry of Economic Affairs is responsible for trade policy planning and execution, coordination of bilateral and multilateral negotiations, and handling trade barriers; the Executive Yuan's Economic and Trade Negotiation Office coordinates major economic and trade negotiations, inter-ministerial policy coordination, and international economic trade policy planning. The Ministry of Foreign Affairs cooperates with foreign policy, the Ministry of Agriculture is responsible for agricultural negotiations, and the Ministry of Digital Affairs handles digital trade norms, forming a multi-ministerial collaborative policymaking structure.

Private sector participation is realized through two channels: industry associations provide negotiation positions and impact assessment assistance via policy consultation committees; the Legislative Yuan reviews major agreements, conducts policy questioning and oversight, and audits budgets. The intensity of private sector supervision varies significantly depending on the sensitivity of the issue—the large-scale social controversy triggered by ECFA in 2010 remains a reference point for transparency issues in major trade agreement negotiations.

Future Challenges and Opportunities

Supply chain restructuring brings concrete opportunities: friendshoring trends, the need to build resilient supply chains, and the status as a reliable partner. Although Taiwan was not invited to join the Indo-Pacific Economic Framework (IPEF) launched in 2022, it has gained more negotiation leverage in bilateral cooperation through the Taiwan-US 21st Century Trade Initiative and Reciprocal Trade Agreement. The path of deepening bilateral cooperation has thus become clearer.

However, limitations are equally clear. Political reality constrains the expansion of formal FTAs; discourse power within international organizations remains structurally limited; and the diversity of negotiating partners is lower than that of similarly sized trade-oriented economies. Internal adjustments include enhancing industrial competitiveness, expanding domestic demand markets, strengthening innovation capabilities, and improving trade laws and negotiation capacity. Whether Taiwan's diversification strategy can achieve a breakthrough ultimately depends on the pace of geopolitical landscape evolution and whether Taiwan can secure a position in the next round of agreement negotiations.

Further Reading:

• Taiwan Customs Declaration and EZ WAY — How trade policy reaches personal online shopping packages: The defense and offense of the NT$2,000 duty-free threshold and customs clearance appointment system
• Semiconductor Industry — Where do the electronic components that account for over one-third of exports come from? How did chips become Taiwan's biggest trade bargaining chip
• Kaohsiung Export Processing Zone — The duty-free zone and single window in 1966: The starting point of Taiwan's export-oriented economy

References