The ‘economic miracle’ of the 1960s led the United States to re-evaluate Taiwan’s need for continued economic and military assistance. Reassessment was logical because, in reality, multinational corporations, the World Bank, and the IMF had replaced US missions as Taiwan’s conduit to the world economy, and the island had become a supplier of labor “to an increasingly far-flung division of production.”
By mid-decade it was determined that Taiwan was the first country in the developing world to have gained self-sufficiency.
New commitments of United States economic aid ended by 1965, although resources in the pipeline continued to be disbursed through 1967.
Military assistance came to an end in 1971 when the United Nations decided to recognize Mainland China as the representative of all Chinese people. The US subsequently refused to engage in further direct sales of advanced military equipment. Instead, American security support focused on helping Taipei upgrade its own defense industries.
From the mid 1970s on, domestic production of jet fighters, helicopters, guided missiles, artillery, and other weaponry increased, often under contract with US manufacturers.
On January 1, 1979, the United States ended its formal relationship with Taipei. 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. Although militarism in Taipei remained pervasive, the military became less visible in the state apparatus.
In the absence of superpower military investment, the government increased its own defense spending: the 1980 budgetary allowance was 25% above that of 1979. This included $880 million for the purchase of US arms.
The last stages of the US assistance program to Taiwan provided the impetus for continued economic growth through an emphasis on private enterprise and export promotion.
American support had been substantial, averaging about $100 million a year from 1951-1965. Military aid during the same period amounted to roughly $165 million per year. Four-fifths of the input went to the public sector, allowing private investment to support the industrial sector.
Allocations to infrastructure included monies to expand electrical power generation as well as distribution to build highways, bridges, and railways, to develop harbors, and to provide telephone and telegraph facilities. These were all dual use projects which supported the military but also served the civilian community.
Agricultural appropriations consisted of technical assistance and training.
All of the assistance energized industry by defraying military support costs and allowing Taiwan’s own resources to be used for economic development.
When the US ended its mission, Taiwan was second in Asia (after Japan) in per capita income. The country had one of the highest rates of increase of gross national product and industrial production in the world, and was a leading agricultural producer in terms of efficiency.
In other words, Taiwan — especially its capital city Taipei — had become a showcase for capitalist development among the emerging nations.
Photograph by DBKing