I think that your question is more properly put as: “The U.S. and other developed nations initially recognized the ROC as the juridical person of China. Why did they stop doing so?”
When formulated in this manner the question, from the standpoint of international law, is much clearer. The answer is also much easier to contemplate, and has been pointed out (or hinted at) by many of the knowledgeable people who have posted on this thread.
For a further summary, I quote from an email which I handled today, and which is composed as follows:
[i] . . . . Because the ROC is no longer recognized on the basis of being the legitimate government of the mainland. The ROC became a gov’t-in-exile on Taiwan from the late 1940’s.
If you remember your history, the PRC was not recognized as the lawful government on the mainland for a very long time despite their own claims and effective control of China mainland territory. But, might makes right in the end. The ROC were the USA’s anti-communist puppet regime for China during the Cold War. During detente, the ROC was then widely derecognized by the United Nations membership on this basis of not being the lawful mainland government. The United Nations did not get around to resolving the Taiwan Question before they had irreversibly resolved the mainland question in 1972. And by then, the Shanghai Communiques had been signed by the USA and PRC.
(If the ROC government is still thinking of itself as a lawful government of China, then the three Shanghai Communiques are indeed grounded in wisdom and validate reality. This is the paper trail for a legitimate Chinese government of the mainland. If the ROC is not a Chinese government in any present form, then their name and their political status should be revisited.) Unlike China, the Taiwan Area has no equal juridical person standing under the Montevideo Convention, but it does actually enjoy a very widely recognized internationally standing as a separate territorial unit from the PRC and USA in the WTO and also by their own unofficial trade offices.
If the ROC is Chinese by intent and practice, the Chinese on both sides of the Straits should quickly determine the political fate of Taiwan without the necessity of any self-determination. The PRC Chinese government’s legitimacy is recognized by the USA in the Shanghai Communiques and they are thus obligated to fulfill their promises to the recognized lawful government of Taiwan upon finalization of its status. The ROC is not a sovereign government at present under the Laws of Occupation and their presence on Taiwan has been both legally and financially secured by the historical patronage of the USA under the administrative authority of the SFPT.
As the legitimate military government of Taiwan, if the ROC cannot resolve the SFPT status of Taiwan within the national interests of the USA, then it is not in the national interest of the USA to ever officially recognize a separate and sovereign Taiwan government. The prevailing statusquo is preferred in the face of contentious disagreement.
The USA is not opposed to an independent Taiwan nor is it opposed to a reunified Taiwan. Under TRA, it is very legally opposed to any unilateral actions by either Chinese party which would jeopardize the peaceful resolution of the Taiwan status under SFPT. The USA is not neutral but it is not going to advocate any promises to a foreign people above the superior promises made to their own people under the supreme law of their Constitution, ratified treaties, and their controlling legislation of administrative authority. The US Federal Government is the democratic government of the American citizens of the Union, and it will impose the will of their citizens upon these Taiwanese island citizens as a foreign people coming under their dominion by conquest, if it is in the American national interest to do so. [/i]
Footnote: October 25, 1945, began the “Occupation of Taiwan” by the Allied Forces. There was never any “transfer of sovereignty” of the Taiwan island, and other nearby islands, to the ROC government. The ROC claim of a “retrocession” on October 25, 1945, is a convenient fiction to attempt to legitimatize their claims to national sovereignty or “supreme authority.”
The Taiwanese are legally bound to respect the fairly neutral but expressed will of US citizens until finalization of their status. If they do not do so, their fate is cast upon the rocks of the Laws of Occupation. This is the ultimate authority on paper.