Although Taipei is situated in close proximity to mainland China, Korea, and Japan, the US did not consider the city to be of geostrategic importance in the immediate post World War II period.
Not until the communist invasion of South Korea in 1950 was the area thought to be an essential link in America’s effort to forestall Soviet aggression and protect Japanese markets.
Still, the city’s Cold War urban transformation began with its retrocession to the Republic of China at the conclusion of World War II.
At this time, the city’s colonial relationship with Japan was abruptly severed, and mainland China became the major market for Taiwan’s exports which consisted chiefly of rice and sugar.
The Chinese civil war soon expanded and, in 1949, despite US financial assistance and limited troop support, Chiang Kai-shek’s Nationalist government (KMT) and its backers were forced to flee their homeland.
Taipei became the ‘temporary’ capital of the Republic of China, and more than a million and a half government and army personnel poured into the city.
After the North Korean invasion of South Korea in June 1950, a large infusion of US economic and military aid flowed into Taipei lessening internal competition for domestic assets. Over the period 1950-1979, total US military assistance to Taiwan amounted to $4.9 billion.
In fact, it is argued that virtually every idea and implementation formula devised for the distribution of US military assistance was applied in the Taiwan case, and that the level of aid ($425 for each civilian from 1950 -1967 ) is unique by international standards. Taiwan was also the largest recipient of major arms in the Far East from 1950 – 1969.
A substantial amount of this capital was allocated to Taipei where it was concentrated on dual-use infrastructural improvements such as highways and factories as well as on national-capital-level building construction. In addition, US monetary disbursements provided needed foreign exchange.
Since most assistance was earmarked for military purposes, domestic expenditures to support the country’s heavy military burden were greatly reduced. This allowed the government to concentrate its domestic resources on achieving economic objectives.
By the 1960s, strong opportunity for economic growth was unfolding, consistent with the prevailing defense orientation of the capital.
In Taipei, military run production facilities, subsidized by the United States and supplied with basic inputs by state enterprises, manufactured much of the equipment, less sophisticated weaponry, and ammunition needed by the armed forces.
US pressure stimulated internal economic and financial reform which was rewarded by a 1969 loan to build a factory to co-produce military helicopters with Bell Helicopter Company; subsequently, an agreement was finalized with the Northrop Aircraft Company to co-produce F-5E fighter planes.
From the mid 1970s on, domestic production of jet fighters, helicopters, guided missiles, artillery, and other weaponry increased, often under contract to US manufacturers.
Taipei also gained during this time period from the American presence in Vietnam. The US purchased agricultural and industrial commodities, used military facilities and depots for the repair of equipment, designated Taipei as a destination for rest and recreation, and used the area as a provider of contract work for and in Vietnam.
On January 1, 1979, America’s formal relationship with the Taipei government came to an end when diplomatic relations were institutionalized with the People’s Republic of China. The American Embassy in Taipei was closed, the Mutual Defense Treaty was allowed to expire, and the country was expelled from the World Bank and the International Monetary Fund.