Taiwan’s election offers few answers to unresolved geopolitical questions

On Jan. 13, 2024, Taiwan held its presidential and parliamentary election with mixed results for the independence-leaning Taiwanese nationalist Democratic Progressive Party (DPP). Lai Ching-de, the DPP presidential candidate, was elected with 40.05% of the vote, taking over from another DPP president, Tsai Ing-wen. But the DPP lost its majority in the 113-seat parliament, giving up ground to the mainland-leaning Kuomintang (KMT) and the Taiwan People’s Party (TPP), which was only established in 2019 and positions itself as a middle ground between the DPP and the KMT. This may place TPP, with just 8 seats, in a king-maker role to get legislation through.

What does all of this mean for relations between Taiwan and mainland China and for US-China ties? China’s muted reaction so far could lead to the conclusion that little has changed. However, Lai’s election is a disappointment to China and does increase the likelihood of tensions in the Taiwan Strait in the coming months and years. China may initially take a wait-and-see approach, but its options, especially if provoked, include escalating military activity around Taiwan and imposing new restrictions on cross-strait trade. This would further complicate US-China ties and increase the pressure on the Biden administration to respond forcefully, particularly in an election year. Taiwan remains one of the world’s great unresolved geopolitical questions, and the uneasy status quo is set to come under increasing strain.

The view from Taiwan

For many Taiwanese voters, economic issues were just as important as the issue of China in determining which candidate to support. While global commentary focuses on Taiwan’s relations with mainland China, domestic issues such as low wages, the rising cost of living, and corruption in the ruling DPP party also influenced voters.

Nevertheless, the KMT’s China-friendly position is increasingly at odds with many Taiwanese voters. In particular, younger voters who have a weaker sense of belonging towards China were concerned that the KMT would make concessions that could ultimately undermine Taiwanese sovereignty and democracy. In polling, a clear majority of Taiwanese aged 44 and under express support for independence.

Election results paint a complex picture

As president, Lai has pledged that he will maintain the status quo on China. This includes continuing the approach of his predecessor, Tsai Ing-wen, by avoiding provoking China with a formal declaration of independence.

But the results demonstrate a more complex picture than the headline Lai win. Although this is the first time in Taiwan’s democratic history that a party has won a third consecutive term, Lai’s share of votes (40%) is significantly lower than his predecessors. Furthermore, the DPP lost its majority by taking 51 seats in the 113-seat parliament. KMT won 52 seats, leaving the critically important 8 seats to TPP and the remaining 2 seats to independent legislators. The balance of power established in the parliament means DPP will need the support of opposition parties to pass legislation. The TPP favors trade liberalization/diversification, an increase in defense spending and a focus on the cost of housing for young people, all of which the DPP may need to pay more attention to going forward in order to get TPP votes.

All eyes on China

Policymakers and analysts are closely monitoring how China responds. For now, China has echoed previous statements, reiterating its commitment to the “inevitable trend” of annexation and criticizing other countries for welcoming the result.

China may regard Taiwan’s now more fragile and divided government to be in its favor. A show of military strength is also possible. While a full-scale military assault is unlikely, China could stage large-scale military drills around Taiwan, cut off supplies to outlying Taiwanese islands, or even quarantine commercial ships heading to Taiwan. These measures would disrupt shipping in the critical Taiwan Strait, which would have an even more significant impact on supply chains if shipping through the Middle East continues to be disrupted. The impact would also be felt in industries that depend on Taiwan for critical inputs such as semiconductors, including in the electronics, software, and automobile sectors.

China may not take such aggressive actions for the foreseeable future unless Lai clearly pursues an independence agenda or western countries interfere. China is likely to tie actions to obvious touchpoints, such as Lai’s inauguration in May and visits by senior US politicians. US House Speaker Mike Johnson has announced the possibility of a congressional delegation after the inauguration in May, which could lead to Chinese action.

At the same time, economic issues, military realities, and geopolitical tensions could constrain China’s response. A key priority for China’s government is to boost its economy and to strengthen investor and consumer confidence. This argues against any escalatory actions that would invite too forceful a US response and potentially destabilize the economy. Nevertheless, China remains on alert for any sign from Taipei or Washington that implies a move towards Taiwanese independence.

The impact in Washington

The Biden administration will face increased pressure to respond if China escalates measures against Taiwan. Senior administration officials responded to the election result in a restrained way, and Biden himself said on January 13th that the US does not support Taiwanese independence. However, any escalation of Chinese measures against Taiwan would intensify domestic pressure to take a tougher line on China.

In the immediate term, a US-China war of words over Taiwan would increase pressure to broaden the scope of the upcoming prohibitions on outbound US investment into China, as there is already strong momentum in the US Congress behind efforts to restrict trade and investment ties. In the House of Representatives, Republican leaders are negotiating legislation to establish an outbound investment screening. In July, the Senate passed legislation, by a vote of 91-6, to establish an outbound investment regime requiring investors to notify the US Treasury when taking a stake in certain Chinese sectors such as quantum computing, advanced semiconductors, and artificial intelligence. With both chambers actively engaged on the issue, we anticipate that there will be a floor vote in the House on outbound legislation and further compromise between the House and Senate in 2024. Meanwhile, the Treasury Department is working under an August Executive Order to establish a mechanism to review outbound investments from the US to protect US national security.

There would also be increased calls to revoke China’s Permanent Normal Trade Relations status, and the House of Representative’s Select Committee on the Chinese Communist Party would likely intensify its scrutiny of US firms operating or investing in China. In an election year, with Democrats and Republicans falling over themselves to be tough on China, we could see statements on Taiwan that upset the delicate balance in the Taiwan Strait and provoke China.

Looking ahead

The authorities in Taipei, Beijing, and Washington all have an incentive to prevent tensions from spiraling, but the sensitivity of the issue makes this tricky to avoid. Their actions are closely inter-related: A loose statement from Lai may prompt a large-scale Chinese response, which in turn would increase the pressure on the US administration to act against China. Conversely, China could also react forcefully to any US statement or action perceived to imply support for Taiwanese independence. Recent progress in increasing US-China dialogue is fragile. The stormy Taiwan Strait will continue to hang over US-China relations in the years to come.

With contributions from Flint Global

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Header image: chenning.sung @ Taiwan / Getty

The opinions referenced above are those of the author as of Jan. 18, 2024. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties, and assumptions; there can be no assurance that actual results will not differ materially from expectations.