At a Glance
- The Democratic Progressive Party (DPP) won an unprecedented third term in the presidency but will not maintain control of the legislature.
- China views the DPP’s President-elect Lai Ching-te as a “diehard secessionist,” and military and economic pressure tactics are expected in the near term.
- Western media coverage is historically high and breathless given the geopolitical implications, but the voters struck a balance and did not hand the DPP a mandate.
- Lots can happen and the weeks ahead will be critical to watch for businesses—this was not the outcome China desired, though there appears to be no immediate threat.
What Happened
Taiwan voters elected the Democratic Progressive Party’s Lai Ching-te (William) as president, but the DPP must “humbly review” the results, according to the President-elect. Winning just 40.1% of the vote, the DPP did not secure a mandate; voters did affirm support for the status quo of Taiwan’s sovereignty but signaled the importance of tackling domestic priorities like the economy as well. Lai, who has served as DPP Vice President since 2020, is expected to carry forward the political and economic policies of his predecessor, President Tsai Ing-wen, who saw escalated tensions with China. Lai stressed he is open to engaging with China.
Despite the presidential win, the DPP failed to maintain control of the Legislative Yuan. Results as of late Saturday local time indicated the DPP won 51 seats, the Kuomintang (KMT) 52, and the Taiwan People’s Party (TPP) eight, in addition to two independent seats. Lai will have to govern with an opposition coalition in the legislature, making it harder to advance his policy priorities of building up Taiwan’s national defense, promoting green energy development, and addressing a slowing economy. He immediately indicated willingness to cooperate with the KMT and TPP, which won 33.5% and 26.5% of the vote, respectively.
Taiwan’s high voter turnout—an estimated 70%—is remarkable. Voting in Taiwan is complicated; there are no absentee ballots and all ballots are paper, which are hand counted in front of poll watchers. Voter enthusiasm matched the high stakes of this election.
Global Response
China’s reaction thus far is dismissive, noting that the DPP does not represent public opinion as it was unable to win a majority in both the presidential and the legislative elections. Over the next few days, China will likely react to the election in its typical fashion: harsh rhetoric, some military drills in the Taiwan Straits, and economic pressure. President Xi reiterated recently that reunification is inevitable but has not stated a timetable. Stiff domestic economic headwinds and a corruption crackdown in the military ranks make military action beyond drills unlikely at this stage.
China is also watching international reactions carefully, which to date have largely been balanced. Official statements have affirmed the status quo, which is code for not supporting Taiwan independence, and should help to moderate China’s reaction.
Leaders in the EU, Japan, and the UK have focused on this election being a victory for democracy. A spokesman for the EU added, “The EU remains concerned about growing tensions in the Taiwan Strait and opposes any unilateral attempt to change the status quo.”
In a comment after the election, President Biden stated clearly that the United States “does not support independence” for Taiwan. US Secretary of State Antony Blinken congratulated Lai Ching-te on his victory and said the United States "is committed to maintaining cross-Strait peace and stability, and the peaceful resolution of differences, free from coercion and pressure." He added that the US looks forward to working with Lai and leaders of all parties in Taiwan to advance their "longstanding unofficial relationship, consistent with the US one China policy."
What does a Lai Administration Look Like?
Geopolitics are important, but domestic issues are a priority. Taiwan voters’ top issue in this election was the economy. Housing affordability, inequality, and unemployment were major concerns for voters—particularly young people—as they went to the polls Saturday. Lai’s strategy for boosting the economy hinges on promoting inbound and outbound investment, raising the minimum wage, and providing financing support to emerging businesses. He has also pledged to bolster solar, wind, geothermal, and hydroelectric projects to ensure a stable power supply for the island—a major concern since Taiwan relies on imported energy for 97% of its power.
Lai is open to engaging with Beijing, but without preconditions. That’s unlikely given China’s requirement that he accept the 1992 Consensus on One China. Despite being labeled by Beijing as a “separatist,” Lai says he has no plans to declare independence and wants to maintain the cross-Strait status quo.
Lai also pledged to strengthen engagement with Taiwan’s allies, particularly Europe, the US, and Japan, as well as Southeast Asia. Lai emphasized his intention to expand economic and trade relations and collaborate on global issues like climate change as well as peace in the Indo-Pacific with allies. Keeping close to Washington has been a consistent strategy of Lai’s—last July he said a top political goal was to see Taiwan’s president step foot into the White House. Lai also wants closer ties to Tokyo and has vowed to step up bilateral security cooperation.
What Businesses Should Monitor—Now and in the Long Term
Expect heightened rhetoric from China but balance from the world. Global reactions have been balanced so far and have been split between focusing on the election as a victory for democracy and direct congratulations to Lai. Beijing has initially indicated that the DPP’s win is “not representative” of Taiwanese opinion and reunification is “inevitable.” They will be closely watching global reactions too.
The US is sending President Bush’s former National Security Advisor Stephen Hadley and President Obama's former Deputy Secretary of State Jim Steinberg as unofficial envoys to Taiwan, and Speaker of the House Mike Johnson will send a group of House Committee chairs to Taipei after the inauguration, two actions certain to prompt a response from Beijing. Congress also advanced three pieces of legislation on January 12 all aimed at supporting Taiwan.
Expect heightened messaging from the Chinese Foreign Ministry as well as the country’s top diplomats and ambassadors and for Chinese officials to publicly denounce congratulatory remarks to Lai from foreign governments—particularly from the US. In the long term, watch for shifts in rhetoric. Beijing’s messaging on Taiwan is highly predictable so any indication that China will no longer prioritize “peaceful reunification,” as the consistent message has been, or that Beijing has a clear timeline for reunification will be significant.
Watch for potential trade sanctions. Economic pressure in the form of tariffs and export controls is a common political tool of Beijing’s used around inflection points. Beijing could impose tariffs on Taiwanese agriculture or automotive products—China’s Ministry of Commerce warned as much ahead of the election. It could also suspend entirely the Cross-Strait Economic Cooperation Framework Agreement, a bilateral free trade agreement between China and Taiwan enacted in 2010.
Monitor military displays of strength. We also expect Chinese military drills in the Strait as a sign of Beijing’s displeasure at the outcome. Military action to unilaterally force unification in the near term is unlikely, however, we are watching for shifts in long-term indicators—such as a buildup of force in the region—that could suggest a change in Beijing’s approach to Taiwan and increased risk of conflict. A sustained increase in military presence in the region would have major implications for business as global supply chains, particularly for ships coming in and out of the ports of Shanghai, Xiamen, Shenzhen, and Hong Kong, could be interrupted. And as always with military drills, the risk of an accident leading to misunderstanding and conflict is high.
EGA has developed a scenario planning tool to help companies prepare for and factor in China-Taiwan risks beyond the elections. Please reach out to Chynna.Hawes@EdelmanEGA.com to learn more.
