Taiwan takes on high-tech

The challenge for Taiwan is clear: maintaining an economic growth rate that is fundamentally improving the lives of its 18.5 million people and creating a standard of living that is now the second highest in Asia, behind Japan.

To that end, it is important that the United States, the main trading partner of Taiwan, continue to take all possible steps to foster that growth. The US, for example, needs to lower its interest rates, which tug some investment capital out of Taiwan (although capital flows are strictly regulated) and which also tend to keep US investment dollars at home earning higher returns than possible, say, in Taipei.

Taiwan, for its part, needs to encourage continued US investment, which would require some liberalization of numerous restrictions on foreign capital as well as a curb on requirements that firms locating on the island sell a certain percentage of their products as exports. Moreover, as urged by US Trade Representative William Brock, Taiwan needs to further remove import restrictions that work against US exports. The easing of import levies on some 59 products earlier this week is a step in the right direction.

Taiwan, of course, remains a somewhat sensitive political issue for the United States, which back in 1979 formally switched its diplomatic recognition from the Chinese Nationalists on the island to mainland China. The US now maintains a large government mission on the island, although it is not technically a diplomatic mission; in other words, a sort of peculiar nongovernment-government-mission.

Confused as the legal status between the two countries may be, the economic ties could not appear more certain. Almost 50 percent of Taiwan's exports go to the US. And American private investment in Taiwan has reached $1.3 billion.

Looked at from afar, Taiwan's dizzying economic growth must be reckoned a success story. During the first six months of this year the island's growth expanded at an annual rate of 11.6 percent. Unemployment is around 2 percent to 2.5 percent. But there are several caveats to such good statistics that warrant closer attention.

Taiwan's growth is export driven. Now that the US economy is slowing, it is expected that Taiwan's exports will fall, unless sales can be made up elsewhere.

Many economists still expect strong growth for the island, probably coming in at around 8 percent to 9 percent for the year. Nothing to grumble about there! The trick will be to sustain that growth in the years ahead. That it why it is so important that the two sides ease restraints on trade and capital investment.

A final point: American firms will have to accept the fact that in the years ahead they will face direct competition from Taiwanese firms in the high-technology, electronics, and computer fields. Taiwan is making an all-out effort to shift from heavy industry, although it will retain a strong presence in such labor-intensive industries as steel. But Taiwan's move toward high-tech seems clear. Given the creativity of the Taiwanese people, the competition should prove beneficial to both the United States and Taiwan.