A Translation entry in an abbreviation dictionary always changes the matched word or phrase to the new value. But you can have another abbreviation dictionary entry for the translated word. So in this case you might have a Translation entry that changes TAIWAN to Taiwan, and another Keyword dictionary entry that changes Taiwan to Tai. if there isn't enough space.
In the screenshot below you can see an abbreviation dictionary that has 1 Keyword entry for AFGHANISTAN that will change it to AFG only if needed. Then BERMUDA and TAIWAN each have 2 entries - one Translation and one Keyword. The translation entry will always kick in, and if there is not enough space for the translated word then the Keyword translation will be used. (Pardon the geographic impossibilities of this map.)
Here you can see from the attribute table that the data contains all upper case names. TAIWAN is translated to Taiwan because there is room, and AFGHANISTAN is abbreviated to AFG because there isn't enough room for the full word.
Zooming out more and shifting the coverage area shows that TAIWAN now uses the Keyword translation and AFGHANISTAN doesn't use any translation.
Regarding your comment about AFGHANISTAN being changed to Afghanistan - setting Text case to Normal wouldn't change data that's stored in upper case to Mixed/Title case - rather the Normal setting doesn't make any adjustment to the source text. A few things to investigate are:
- Is the source text in the attribute table stored in upper case or title case?
- Does the label expression use the field containing the upper case name?
- Do you have an abbreviation dictionary Translation entry for AFGHANISTAN that would be converting the label to Afghanistan?