International Trade Taiwan Economic Boom

International Trade: Taiwan Economic BoomAt the conclusion of World War II many nations were struggling to determine their political orientation. In China, a struggle ensued between the Communist Chinese Party and the Nationalists. By 1949 the majority of the Politburo, the main governing counsel of China, consisted of CCP members. To avoid persecution the Nationalists fled to Taiwan. This new nation consisted of 600,000 soldiers, 2.5 million civilians, and 6 million natives to the region (Watkins 3). Upon arriving in these new lands, the Nationalist’s exploited the region to produce products in the light industry. In an attempt to protect this domestic industry, which consisted of textiles, plastics and food processing, the Taiwanese Nationalist’s installed an import substitution policy (Rodrick 88). This policy consisted of stringent government restrictions and high tariffs on imported goods. However, the import substitution method led to a lot of failures, such as: low GDP, low standard of living, high taxes for producers, low quality goods, etc. In 1959, Taiwan’s Nationalist government rescinded its import substitution policy and installed an export­oriented strategy. This export­oriented method abolished the high tariffs, and brought Taiwan’s market into free trade (Rodrick 55). As a result of moving towards free trade, Taiwan’s production and consumption rose drastically. From the intuition gained from the Estimated Gains from Trade onecan infer that the Taiwanese welfare was better off. This is evident with the rise of Taiwan’s export to GDP growth ratio, which was about 10% in 1959 and 40% in 1960 (Rodrick 58­graph below). Taiwan’s booming economy, as a result of opening up to international trade, can also be demonstrated through the use of the Heckscher­Ohlin model. Prior to the 1960’s, Taiwan’s economy was based largely on agriculture, which is a labor­intensive industry. However, when industrialization and the opening up of trade occurred,...