Post-election risk analysis for the Taiwan Strait

Decoding the election results

Taiwan had its general elections on 13th January. The current Vice President, William Lai from the Democratic Progressive Party (DPP), won the presidential election with 40.1% of the votes. However, the DPP lost its majority in the Legislative Yuan, which is Taiwan's legislative body with 113 seats. Although no party got a clear majority, the Kuomintang (KMT) got the most seats with 52, while the DPP got 51, and the Taiwan People’s Party (TPP) got eight.

On 15th January, an unofficial US delegation visited Taiwan for a post-election meeting, stating that the US commitment to Taiwan remains strong. However, US President Biden reiterated the US’ official policy of not supporting Taiwanese independence after the elections. Nauru announced on 15th January that it will be cutting off its official ties with Taiwan in favour of establishing diplomatic relations with China, meaning that only twelve countries now recognise Taiwan.

Implications for the Taiwan Strait and beyond

The newly elected President, William Lai, has expressed his intention to continue the previous president's policy of maintaining the status quo in the Taiwan Strait. Even though Lai has shown some support for independence in the past, it's expected that he will follow a foreign policy similar to his predecessor, strengthening ties with the U.S. and its allies. Support for independence or unification remains low in Taiwan, with most Taiwanese people preferring the continuation of the status quo with China.

However, China is likely to remain suspicious of Lai and the DPP, considering them as separatists. China has refused to hold cross-Strait dialogue since 2016 without the DPP leadership’s acceptance of the ‘One China’ principle, which stipulates that both Taiwan and China are part of one country. It's unlikely that Lai will agree to this, so Cross-Strait dialogue is not expected to resume.

China is unlikely to hold major military exercises over the coming weeks. Precedent suggests that China is more likely to pursue aggressive military tactics, such as live-fire exercises around Taiwan, around Lai’s inauguration as president on 20^th May 2024. President Tsai’s inauguration in 2016 prompted major Chinese military drills after she did not endorse the ‘One China’ principle in her inauguration speech. China’s military activity in recent weeks has been relatively muted and is indicative of a similar approach. However, visits by high-ranking foreign officials, particularly US lawmakers, can prompt major Chinese military activity in the Taiwan Strait. The risk of major Chinese military activity will also be elevated if Lai makes strong remarks against China.

China is highly likely to instead increase economic and diplomatic pressure on Taiwan in the coming months. Beijing has accused Taiwan of discriminatory tariffs in recent months and imposed restrictions on Taiwan’s exports of petroleum products to the mainland in December 2023. Further steps can include the suspension of programmes under the Economic Cooperation Framework Agreement (ECFA) that gives preferential tariffs to Taiwanese products. Nauru cutting off its official ties with Taiwan is further indicative of Beijing’s ongoing efforts to diplomatically isolate Taiwan. Although China’s economic and diplomatic pressure on Taiwan is expected to continue, conflict in the short to medium term remains highly unlikely.

What’s next for post-election Taiwan?

Lai’s ability to enact policies as president will be significantly limited by the DPP’s failure to win a majority in the Legislative Yuan, with the DPP likely to face intense opposition on foreign policy and economic issues. It is highly unlikely that KMT agrees to work with or support Lai’s policies in the legislature due to the traditional animosity between the two parties and the KMT’s disapproval of DPP’s approach towards key issues.

With both KMT and DPP not having a majority in the Legislative Yuan, the TPP’s political influence and ability to shape the policy agenda are expected to increase. TPP Chairman Ko Wen-je has indicated that TPP will not align with either the DPP or KMT but will support legislation based on its policy positions. It is the first time that a third party has had a swing vote in the Legislative Yuan, which is likely to elevate policymaking risks in the coming year.

During his election campaign, Ko supported increasing economic cooperation with China and the resumption of the Cross-Strait Service Trade Agreement, which sought to liberalise trade between China and Taiwan but was not ratified after opposition from pro-democracy activists. These positions align with the KMT’s policy agenda and could present an area of cooperation for the two parties. The KMT and TPP are unlikely to block Taiwan’s arms purchases from the US due to the increased salience of national security and defence spending over the past few years. However, policies that might be perceived as a significant provocation to China will likely be blocked, as both KMT and TPP have a more favourable outlook towards China than the DPP.

Considerations for businesses

• Stay informed through reliable local and international sources, like the Healix Sentinel Risk Management Platform.
• Avoid alignment with any political affiliations.
• Remain neutral in your social media profiles and refrain from posting and sharing content related to Taiwanese politics.
• Maintain support in-country. Consider placing retainers with logistics providers and security teams to ensure modes of transport are available in the event of a severe and rapid deterioration in the security environment.
• Ensure that insurance policies cover political evacuations.
• Ensure evacuation and escalation plans are actionable and can be implemented at short notice. As part of the evacuation planning process, organisations should identify internal triggers in line with the company’s risk tolerance that signals that the situation is improving or deteriorating enough to warrant a change to their evacuation posture.