A Leaf Heralds Autumn

Written by Peter Li-Chang Kuo

(Chinese)

A fallen leaf foretells autumn’s rhyme,
Sixty years of industry’s time.
The Steel Ban severed the iron root,
Yet civil hands broke prison’s route.
In search of steel, hard paths were run,
The “economic miracle” questioned by some.
History’s shadow still leaves its stain,
Industry’s revival hopes for spring again.

Autumn has arrived—just a single fallen leaf can reveal the season’s breath. Bearing witness to sixty years of Taiwan’s industry (1965–2025), it seems I have lived through everything. One event left a deep impression: in 1972, Mr. Ishi told me, “Kakusan, the tool steel you need can no longer be made for you, because the government has banned its production and sale!”

That even someone as shrewd as Chiang Ching-Kuo could issue such a foolish and damaging industrial ban is astonishing — what more could be expected of lesser men? Taiwan’s entire industrial chain nearly collapsed overnight due to this so-called "Steel Ban." Fortunately, through private networks we quickly secured overseas steel supplies; only then could Taiwan later boast of its so-called “economic miracle.”

When young people ask me about 1966, when an American came wanting to buy “eyelets,” I told him to return in two days for a sample. It sounded simple enough—but in those two days, only because Mr. Ishi could forge the exact tool steel I required from the furnace, was I able to complete a long and complex process that created the “miracle” of exporting products from the newly opened Kaohsiung Export Processing Zone (KEPZ).

Later, that American told me they had searched across the U.S., Germany, and Japan for a whole year without finding a single supplier. Yet I, having only heard him mention a size, produced a real sample in two days. With wide hand gestures he exclaimed, “Unbelievable!”

The true key was Mr. Ishi’s ability to forge the required tool steel immediately.

More than fifty years later, CSC (China Steel Corporation) still lacks this capability! Yet in 1972, Prime Minister Chiang Ching-Kuo imposed the "Steel Ban," claiming it was necessary to foster the Republic of China’s “Great Steel Mill”—a decision that completely cut off Taiwan’s private path toward developing specialty steels.

In those days, the global economy was small, and so was turnover. But in 1970, when I developed a new product for Japanese firm Kyowa Electronics, I earned NT$ 1.2 million in development fees within just a few months, enough to buy land when the highest price was only NT$ 100 per ping (today it costs NT$ 500,000 per ping). That land was intended for developing "applied materials," which could generate endless value chains.

Yet the development of "specialty steels" was made entirely impossible. In fact, I once advised Chiang Ching-Kuo directly: “Abolish the Steel Ban!” But from the Executive Yuan up to the Presidential Office, the conclusion was always “No.”

Now in 2025, people speak loftily of developing "drones," yet the simplest parts—bearings and small shafts—cannot be produced locally. The Steel Ban seems to have cast a curse lasting a thousand years, haunting Taiwan’s industries to this day.

Fig 1: Drone (UAV) (Cited from internet)

Background of the Steel Ban

After Taiwan’s withdrawal from the United Nations in 1971, the nation was like a lone boat adrift in the ocean. Fortunately, Chiang Ching-kuo became Premier and launched the “Ten Major Construction Projects”—including the national highway, international airport, railway electrification, the North-Link Railway, Taichung Port, Suao Port, the Great Steel Mill, the Great Shipyard, petrochemical industries, and nuclear power plants.

Among them, the Great Steel Mill became "China Steel Corporation" (CSC). In simple terms, for the sake of a single state-owned enterprise, Chiang destroyed the very foundation of Taiwan’s private metal materials industry. The partnership between me and Mr. Ishi terrified competitors abroad — foreign suppliers could only watch hungrily from outside our customers’ doors. Chiang’s policies instead handed them relief, also weakening Taiwan’s competitive edge.

In the 1970s, Taiwan’s economic policy was to shift from light industry to heavy and chemical industries. Yet at the same time, the government feared that private steelmakers might grow too strong and compete with state-owned enterprises (like CSC). Thus, by decree, it restricted private enterprises from smelting, alloy production, and especially from producing tool steels and specialty steels.

The official rationale was to prevent resource fragmentation, to ensure the monopoly of the state-owned system, and to guard against the “leakage of strategic materials.” The result, however, was blunt and devastating—many private steel mills, like Mr. Ishi’s, were forced to halt production immediately.

The Collapse Effect of the Industrial Chain

“Tool steel” is the very foundation of manufacturing, critical for machine tools, precision parts, automotive components, bearings, propeller shafts — virtually all high-precision parts require it. When the "Steel Ban" was enacted, it was like a flying guillotine striking down, Taiwan’s electronics, machine tool, and mold industries nearly had their supply chains severed. In desperation, manufacturers had to rely on smuggling, finding ways to import steel from Japan and Germany just to keep operations alive. Yet the government loudly proclaimed an “economic miracle,” claiming credit for what was in truth the achievement of private-sector self-rescue.

Had we in the private sector failed to save ourselves, Taiwan’s industries would have collapsed! Every electronic component requires molds, and without tool steel, mold factories die — which is like killing the hen to stop it from laying eggs. If all private companies had perished, how could there have been export products to earn foreign exchange? There would have been no “economic miracle.” As a direct victim of the time, I still ponder how Chiang Ching-Kuo could have been so foolish as to implement the Steel Ban.

Historical and Policy Deviations

The Russia–Ukraine war has popularized drones as tools of combat, sparking a frenzy of drone investment in Taiwan. Research institutes rushed in, and the government formed alliances to help firms secure international orders and foster industrial clusters, with the goal of producing 180,000 drones annually by 2028 — against an estimated market demand of one million. Yet the harsh reality is that Taiwan lacks the capacity to produce even the basics: "batteries, motors, bearings, propeller shafts, and the specialty steels" required to make them.

This predicament stems not only from the excuse of prioritizing semiconductors, but from a deeper neglect of “critical components,” whose production depends on specialty steels — all of which must be imported.

Since the 1980s, Taiwan’s industrial policy has concentrated on semiconductors and IT, building the “Silicon Shield” narrative. By contrast, the seemingly mundane field of "materials science" never received comparable resources or long-term investment. The result: Taiwan cannot even manufacture a bearing. The causes are as follows:

1. Short-sighted political decision-making: The government focused on export-oriented, short-term performance, ignoring long-cycle, high-investment industries such as materials and components.

2. Official historical narrative distortion: Academia and textbooks emphasize “success stories” like the Ten Major Projects and CSC, while avoiding mention of policy failures.

3. Industry silence: Under authoritarian rule, many firms survived through “gray channels” to import steel; they remained silent, unwilling to recall or disclose.

4. Generational gap: The industrial actors of the 1970s–1980s have largely retired; today’s policymakers have no knowledge of this history.

5. Defense and strategic pretext: Specialty steels were tied to military industry; the government cited “national defense control” to suppress production, making the subject taboo.

6. Problems extending to today: This legacy left Taiwan chronically behind in advanced metals. Specialty steels remain heavily dependent on imports (Japan, Germany, China). Consequently, critical parts like bearings, shafts, and propeller steels cannot be self-supplied. Calls to produce drones and aerospace components are blocked by the most basic issue: steel and materials science.

In short, the "Steel Ban" was a buried policy failure whose consequences persist today, leaving Taiwan without foundations in aerospace, defense, and precision machinery. This is why, even in 2025, Taiwan still talks of “indigenous drones,” yet must import bearings and tool steel.

Long-Term Structural Impact

In the 1990s–2000s, globalization and cross-strait trade liberalization led many Taiwanese firms to invest in China, driving their industries to rapid growth. Demand fueled major advances in steelmaking there. By contrast, Taiwan’s weak foundation in specialty steels left it reliant on imports; industries such as “bearings and aerospace components” failed to establish complete supply chains, steadily losing competitiveness.

Fig 2: Bearing for the machinery

In the 2010s, Germany and Japan promoted Industry 4.0, emphasizing "materials science." Taiwan echoed with “smart machinery,” but its lack of capability in metal materials made true implementation difficult.

In the 2020s, the Russia–Ukraine war boosted drone demand. Taiwan announced a “National Drone Team,” but in practice still cannot produce bearings or propeller shafts, nor aerospace-grade specialty steels. The Steel Ban’s aftereffects fully surfaced, yet few addressed the historical cause.

By 2025, the situation worsens: the U.S. president has announced tariffs of 67.8% on Taiwanese steel. Taiwan’s industries now have no allies — only competitors worldwide (U.S., China, Japan, Germany, Korea). Worst of all, while the government loudly calls for industrial upgrading, the foundation of "materials science" remains hollow.

Looking back, the 1972 "Steel Ban" suppressed private initiative and delayed industrial upgrading for fifty years. Unless this history is exposed and examined, the slogan of “indigenous manufacturing” will remain an empty promise.

The accumulated structural issues are threefold

1. Hollowing of materials science – chronic backwardness in metal R&D and smelting, heavy import dependence for specialty steels, and upstream supply chain gaps.

2. Distorted industrial development – overconcentration of resources on semiconductors, neglect of traditional manufacturing foundations, leaving aerospace, defense, and machinery without autonomy.

3. Silenced historical memory – government and academia deliberately downplayed the Steel Ban’s damage, leaving new generations of industrialists and policymakers unaware it ever existed.

Emerging Structural Dilemmas

1. Drones and the defense industry: The government proclaims “indigenous drone production,” yet those tool steel of bearings, propeller shafts, and motor remain impossible to produce domestically. Critical materials are still dependent on Japan, Germany, and China. In wartime, supply could be cut off, leaving a wide gap between the slogan of defense self-reliance and actual capability.

2. Lagging behind in Industry 4.0 and aerospace: Leading industrial nations (Germany, Japan, the U.S., and China) heavily invest in materials science. Taiwan has been promoting “smart machinery” and aerospace for twenty years, but with weak materials foundations, it has never been able to build a complete ecosystem.

3. Economic security and industrial upgrading obstructed: Emerging industries — AI, electric vehicles, green energy, robotic arms — all require high-grade steels and alloys. Taiwan’s reliance on imports means any disruption in the international supply chain could severely damage its industries.

4. Policy blind spots: Taiwan still clings to the “semiconductor first” mindset of the 1980s, never seriously reviewing past mistakes, and even refusing to acknowledge the existence of the "Steel Ban." This “historical amnesia” causes industrial problems to repeat in cycles.

Recommendations

First, publicly acknowledge that Chiang Ching-Kuo’s "Steel Ban" was a policy mistake, and review its consequences.

Second, establish an autonomous system for "materials science and specialty steels" to rebuild the foundations of industry and avoid perpetual reliance on foreign suppliers.

Third, balance resource allocation — support not only semiconductors but also materials, precision manufacturing, and related industries to prevent development imbalance.

Fourth, treat the specialty steel sector as a matter of “national security.” Without independent production of specialty steels and precision components, Taiwan would face extreme vulnerability in the event of war.

Looking at Japan’s industrial model, it possesses an excellent upstream materials supply chain. This is why I focused resources on a new tech-economic framework — "The eStore System" (TES) — from APEC 1997 to 2009, helping shape the global e-commerce and cashless transaction system, with the hope of channeling gains (Account Receivable, AR) into developing materials science. Unfortunately, it turned into a battle between good and evil.

Conclusion

Statistically, Japan’s specialty steel exports amount to only around USD 30 billion annually, yet this relatively small figure generates boundless industrial energy. If Taiwan could master domestic production of specialty steels, achieving a "GDP of USD 3.8 trillion" would not be a dream.

In 1972, Chiang Ching-kuo, under the banner of “strategic materials control,” issued the Steel Ban, forbidding private production and sale of tool steels. Ostensibly intended to concentrate resources, strengthen state enterprises such as CSC, and prevent technology leakage, in reality it severed Taiwan’s most vital upstream capability. For small and mid-sized steelmakers like Mr. Ishi’s, the Steel Ban was a death sentence. Manufacturers of precision molds for electronic components suddenly faced shortages and had to hastily import costly steels from Japan and Germany. The private sector survived through gray-market imports, yet the government claimed credit, loudly singing of the “economic miracle” and appropriating the achievements of private-sector self-rescue.

The "Steel Ban" was a mistaken policy long buried, but its curse has not disappeared — indeed, it has grown more severe after 2025. Taiwan’s quest for defense autonomy and industrial upgrading remains trapped in the most basic deficiency: "materials." Unless Taiwan faces this history honestly, the road forward will only grow more treacherous.

Trump’s recent threat to impose a 67.8% tariff on Taiwanese steel has torn away the veil, exposing a brutal reality:

1) The U.S. has no dependency on Taiwanese steel;

2) Taiwan has no allies in the international steel market;

3) Taiwan lacks both technological and production capacity advantages, leaving it without bargaining power in global negotiations.

This is not merely a trade dispute, but the internationalized projection of the "Steel Ban’s aftereffects." Half a century of hollowed-out foundations in Taiwan are now laid bare in global steel politics.

In summary, the "Steel Ban" is a policy shadow stretching from 1972 to well beyond 2025. Trump’s tariffs, the drone production dilemma, Taiwan’s international isolation — all are projections of this industrial curse. The only way forward is to repudiate the Steel Ban and rebuild basic industry — especially through investment in materials science and specialty steel production. Only by achieving balanced development across the industrial chain can Taiwan stand firm in the future.

Peter Li-Chang Kuo, the author created Taiwan's Precision Industry in his early years. Peter was a representative of the APEC CEO Summit and an expert in the third sector. He advocated "anti-corruption (AC)/cashless/e-commerce (E-Com)/ICT/IPR/IIA-TES / Micro-Business (MB)…and etc." to win the international bills and regulations.

【Copyrights reserved by Li-Chang Kuo & K-Horn Science Inc.】

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