As more developing countries engaging in international free trade, the income gap between developing and developed countries isn’t shrink. A basic phenomenon is that the terms of trade of the developing countries worsen continuously. As a newly industrialized country, does this phenomenon also prevail in Taiwan? The statistics announced by the Ministry of Finance, indicated that the terms of trade of Taiwan became wavering since 2003, and had fallen to 92.62 gradually. Based on the previous studies in the literature, the deterioration of the terms of trade along cannot fully explain, whether a country is in the unfavorable position in the distribution of international trade, or expresses the absolute deterioration of a country’s trade status. So what’s the real reason that drives the fluctuation of terms of trade of Taiwan? Is that fluctuation only a short-term phenomenon? Or really unfavorable Taiwan’s long-term trade benefits. It is worth to investigate the fluctuation of terms of trade deeply.
Both Japan and South Korea are our competitor and cooperator in terms of international market, their trade policy and the factor about deterioration of their terms of trade will be a quite good reference. Hence, this project will probe into the change of Taiwan’s terms of trade, on whole or in specific industry, and examine the main factor that drives the fluctuation of terms of trade of Taiwan. Based on the price of raw materials, industry value chain, technological advances, brands, and the new operation model, this project will explore further reasons for changes in the terms of trade. Findings:
1. The terms of trade in Japan, S. Korea and Taiwan
(1) The terms of trade (eight major industries) are worsening in Taiwan since 2003, while Japan and S. Korea are rising. The exchange rate fluctuation is an influential factor for Taiwan’s terms of trade.
(2) Based on 6-digit HS codes, the fluctuation of terms of trade for most of the goods has the same pattern in Japan, S. Korea and Taiwan. Due to the rapid change in global economy, there is a need to investigate the change in the terms of trade regularly. There are five items in all, chemical raw materials, polyvinyl chloride, aluminum, blank tape and the CD and power supplying device, their terms of trade have glided continuously in the past ten years, and their imports or exports are over 1% of the related industry. Hence, the development policy of those items should be adjusted to improve the terms of trade.
2. Improving the terms of trade for important industries in Taiwan
(1) The relevant midstream and downstream industry of crude oil Energy fuel industry products are the main source for gliding of the terms of trade in Taiwan, namely, the upsurge of crude oil price. Therefore, reducing the reliance on the petroleum by economizing the energy, strengthening solar energy and wind-power electricity generation are all feasible methods to improve the terms of trade.
(2) Regarding textile ready-made clothes industry, the operational performance of Japan, S. Korea and Taiwan is in good shape. And Taiwan specializes in the high value-added portion, the terms of trade of industry progress year by year.
(3) The terms of trade of metal industries The terms of trade of Taiwan’s metal manufacturing industry and machinery industry are inferior to those of Japan and S. Korea. There is a need to seek other nonmetallic materials to relax the surge of international metal price. Moreover, the machinery sub-industries should accelerate their step to improve the technological content.
(4) The terms of trade of other electrical and machinery industries have affected the whole terms of trade for a long time in Taiwan. While the operational performance of other electromechanical industries in Japan and S. Korea is superior to that of Taiwan.
Other electromechanical industries in Japan and S. Korea display edge in R&D and the tactics of the brand, Policy recommendations:
(1) The fuel industry, metal manufacturing industry and machinery industry are driving force for the fluctuation of the terms of trade. For machinery industry, in addition to strengthening enterprise’s own research and developments, talents’ cultivation and development of the key spare part are essential to improve its terms of trade.
(2) As to other electrical and machinery industries, though its terms of trade still lag behind two countries of Japan and S. Korea, these industries may need to focus on researched and developed efforts, and building brand image might be taken in final products.