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Taiwan election

Strategy

Elections in Taiwan: good reasons to stay calm 

Published 12 January 2024 in Strategy • 7 min read

Tensions with China may make business leaders nervous ahead of Taiwan’s 13 January elections. But there are more reasons to stay calm than worry now.

Voters in Taiwan head to the polls on 13 January, which has some pundits expressing deep concern. After two four-year terms in office, incumbent President Tsai Ing-wen of the Democratic Progressive Party (DPP) can’t be re-elected for a third term. Who will replace her? Will it be her party’s candidate, William Lai, as most predict? Or will it be Kuomintang candidate, Hou Yu-ih, who is seen to be more China-friendly? Will the election’s wildcard, Ko Wen-je, founder of the new Taiwan People’s Party (TPP), shake things up? Above all else, will tensions with China continue to escalate?

For some predictions and answers, we spoke to the Asia Society’s Simona Grano, TOY Senior Fellow on Taiwan, Center for China Analysis. She helped allay some fears and clear up some misperceptions about what’s at stake in this vote and what’s likely to change.

Fear 1: DPP’s likely victory would increase geopolitical instability in the region (while a Kuomintang victory, a longer shot, would ease tensions).

SG: It’s true that the most likely voting outcome, according to polls taken before 3 January (the beginning of the 10-day blackout period for election news in Taiwan), is that the DPP’s candidate, William Lai, will win. But if this happens, I think that there will be more continuity over his term. In the immediate aftermath of the elections, we may witness more tensions – perhaps something like China’s military exercises after Nancy Pelosi’s visit in 2022. And yet, soon after, I foresee those tensions dissipating as Lai strives to walk a similar line as current president Tsai Ing-wen, who is moderate. I also think Lai will try to maintain similar relationships with allies, such as the United States and other Western countries.

For businesses in the West, a Kuomintang presidency, which is not seen as likely, would be less predictable. The Kuomintang may have to navigate uncharted waters if they work to restart a dialogue with China while striving to keep amicable relations with the United States. That balance could be difficult.

The unprecedented tension in US-China competition and China’s economic recession problems have wide-reaching impacts on the stability of the region
The unprecedented tension in US-China competition and China’s economic recession problems have wide-reaching impacts on the stability of the region

It’s important to remember that this is not 2008 (when the Kuomintang initiated far-reaching reforms that brought China and Taiwan closer together through direct exchanges, flights, and trade agreements). The geopolitical situation with the United States has really changed over the past few years. To me, what’s remarkable is the unprecedented tension in US-China competition and China’s economic recession problems, which have wide-reaching impacts on the stability of the region.

Fear 2: China has a lot riding on Taiwan’s elections, so anything is possible.

Let me elaborate on what I see as the region’s two big structural issues: how China-US competition is evolving and how China’s own economy is faring. I think these two issues will matter more for China and Taiwan’s cross-strait relationship than the election outcome per se.

Regarding the US, I think China will want to wait and see what happens in this year’s presidential elections in November. For the Communist Party of China (CCP), having Trump re-elected would be more convenient; Biden has effectively managed to reinstate transatlantic alliances, involving European countries to present a more united front.

China’s domestic economic situation will shape what will happen in the coming years as it’s facing strong headwinds. China has a very high youth unemployment rate, and we don’t know exactly what the real statistics show in recent months since they stopped sharing this data with the rest of the world after hitting a record high in August. For the past 30 years, anyone who wanted a job in China could find one, especially if they had a college degree. That’s not the case now. China has real problems in its property sector and foreign direct investment is decreasing.

Fear 3: China may invade Taiwan to create a diversion away from its economic woes.

Some analysts think that China’s domestic economic issues might lead Xi Jinping to create a diversion by attacking Taiwan, but that would be a very risky move – especially during a US election year and while social dissatisfaction within China is already on the rise. Starting a war with Taiwan for China means potentially sending millions of young men into mortal danger – and many families in China have only one child because of the old one-child policy. An invasion would likely lead to increased social instability as well as more economic woes because China’s and Taiwan’s economies are closely intertwined and Western countries would almost certainly impose sanctions.

Fear 4: With the DPP in power, Taiwan has been moving away from China, and vice versa.

I don’t think many realize that, after eight years of the DPP being in power, trade relations between China and Taiwan have continued undisturbed.

No one in their right mind would declare independence for Taiwan now
“Bloomberg recently estimated that a conflict over Taiwan would cost the world economy over $10tn.”
- Simona Alba Grano, Senior Lecturer at the University of Zurich

We hear about China imposing trade barriers, restricting the import of certain Taiwanese products, but most of these barriers are against agricultural products. These acts are more symbolic, signaling discontent, than economically meaningful. Xi hasn’t really touched the high-tech sector. China relies heavily upon Taiwan’s semiconductors.

Fear 5: The Communist Party of China is eager to undermine Taiwan’s democracy.

Polls should be taken with a grain of salt, but the ones I saw recently predicted the DPP would win by a small margin of possibly 5-7%. This may cause the DPP to lose its parliamentary majority, making the country difficult to rule. In such a scenario, the ruling party may be unable to pass new laws or budgets. This could play into China’s depiction of Taiwan’s democracy as a failing system and the DPP as unfit to lead the country. China could find ways to spin this situation in its favor, and we should watch out for this scenario.

Fear 6: A decisive DPP win might lead Taiwan to declare its independence from China.

No one in their right mind would declare independence for Taiwan now. The DPP’s William Lai has toned down his position compared to what he said in the past when he was mayor of Tainan. To declare independence would mean losing support from the European Union, the United States, and other Western powers because Taiwan would be seen as the provocateur.

Fear 7: Taiwan is becoming increasingly isolated diplomatically.

We’ve seen a great increase in international ties to Taiwan in the past five or so years. So, while it’s true that Taiwan, formally as the Republic of China (ROC), has lost a number of official diplomatic allies since 2016 (under Tsai’s two terms) and is now down to 13, Taiwan has definitely gained more clout with unofficial allies and contacts. No one talked about Taiwan in 2016 or 2017 in the way we do now. Today, Taiwan is now a top foreign policy issue for many, including the United States and European countries (which is why we are following this election so closely).

A large Kuomintang party flag is seen at a campaign rally on Jan 8, 2012 in Taipei.—AFP
A large Kuomintang party flag is seen at a campaign rally on Jan 8, 2012 in Taipei (Copyright @ AFP)

We now know that Taiwan plays a large role in world economic stability for its semiconductor industry, and because of the island’s position at the center of global supply chains. Studies of the potential economic damage caused by a mere blockade of the island, not even a war, estimate losses of about $2.5tn per year.

A recent report by Bloomberg estimates that a war over Taiwan would cost the world economy over $10tn. During COVID, when the CCP decided to close everything up, we learned more about what China’s authoritarian system can do to international supply chains, and we’ve come to see Taiwan, with the way it managed its pandemic, as a credible alternative for more stable supply chains. And let us not forget how much the world needs Taiwan’s semiconductors.

Fear 8: These elections might mark an inflection point. Business leaders should brace themselves.

Overall, I don’t think much will change. The three main parties leading this election in Taiwan – including the Kuomintang, which is perceived as ‘pro-China’, and the DPP, which is seen as more interested in independence, as well as the upstart Taiwan People’s Party (TPP) — have all toned down their positions and converged in the middle of the political spectrum. All three know there’s an existential threat coming from the other side of the Taiwan Strait. And they know they won’t be elected making the case for either independence or unification (with China). The status quo is most likely.

Authors

Simona Alba Grano

Simona Alba Grano

TOY Senior Fellow on Taiwan, Center for China Analysis

Simona Alba Grano is Senior Lecturer in Chinese Studies and associate professor at the University of Zurich. She is also Senior Fellow at Asia Society’s Center for China Analysis.

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