Taiwan in the High-income Trap and Its Implications for Cross-Strait Relations
From the 1960s to the 1980s, Taiwan experienced an economic miracle that laid the foundation for the democratic high-income society it enjoys today. During that successful transition out of middle-income status – a status that many other middle-income economies have been unable permanently to escape – Taiwan relied primarily on the production and export of more highly valued products. But today Taiwan can no longer compete with other advanced economies that have adopted the same strategy of high-value, export-oriented growth but enjoy lower labour costs. As a result, Taiwan’s growth has slowed and, more importantly, wages have stagnated for years for average workers. Having successfully eluded the middle-income trap, Taiwan’s political leaders face increasing popular demands to escape a comparable phenomenon at a higher level of development: a high-income trap. Expanding economic ties with China is an option that is economically compelling, but politically untenable. This is because the island’s citizens want to safeguard their Taiwanese identity against growing pressure from Beijing for unification. This ‘double bind’ between fearing China yet being compelled to integrate with it economically has had important political implications in Taiwan’s highly democratic environment. This dilemma is more acute for Tsai Ing-wen than for any previous leader because of the difficulty in finding other ways of restructuring Taiwan’s economy and coping with the challenges created by the U.S.-China trade war.