The Taiwanese people elected the candidate of the Democratic Progressive Party as President for a historic third consecutive term. In this Macro Flash Note, Senior Economist GianLuigi Mandruzzato assesses the implications of the vote for relations between China, Taiwan, and the United States.
Lai Ching-te, the incumbent Democratic Progressive Party (DPP) candidate, was elected as Taiwanese President on 13 January, confirming poll projections of voting intentions (see Table 1).1 Although by a much smaller margin than in 2020, the DPP won an unprecedented third consecutive term in office since Taiwan held its first free elections in 1996. Lai, who served as Vice President during the last legislature, will be sworn into office on 20 May.
Table 1. Taiwan presidential vote results (%)
Source: Taiwan Central Election Commission. Data as of 15 January 2024.
There was a risk that the DPP’s victory would inflame tensions between Taiwan and China and, consequently, between also China and the US. China claims Taiwan as part of its territory and President Xi Jinping called Taiwan’s reunification with mainland China “a historical inevitability” during celebrations marking the start of 2024.
However, initial reactions to the vote suggest that the risk of an escalation of tensions between Taiwan and China is limited for now. President-elect Lai stressed in his victory speech that he has “the responsibility to maintain peace and stability in the Taiwan Strait“. This points to preserving the status quo in the relations with China, as polls show most Taiwanese would prefer, thereby avoiding either de jure independence or unification with mainland China.2
Furthermore, Lai recognised the strength of the opposition parties, the Kuomintang (KMT) and the Taiwan People’s Party (TPP). In fact, the DPP lost the absolute majority it previously held in the 113-seat Parliament. This means the next government will be either in a minority or in a coalition with either the KMT or the TPP (see Table 2). On this basis, China’s Taiwan Affairs Office said that the DPP “cannot represent the mainstream public opinion on the island“.
Table 2. Taiwan Parliament composition
Source: Taiwan Central Election Commission. Data as of 15 January 2024.
The need to mediate with the other parties in Parliament will dampen the pro-independent momentum of the DPP, a welcome development for Beijing. However, during the electoral campaign a consensus emerged among the three parties on some key points including, maintaining the status quo in relations with China, an increase in military spending to deter the threat of a Chinese invasion and a strengthening of ties with Taiwan’s main allies such as the US, Japan and the EU.
The period until Lai takes office as the new President will be important. China, which has not had any direct dialogue with Taiwan since the DPP won the 2016 elections and called Mr. Lai “a dangerous separatist”, is expected to test the new President before he is sworn in. Economic retaliation by Beijing against Taiwan cannot be ruled out and nor can military exercises close to the island. The type and intensity of Chinese initiatives will be carefully followed by markets and US authorities to assess the risk of escalation.
It remains true that the persistence of a state of high tension in the area carries the risk of an incident that could intensify the situation. This scenario is not in the interests of any of the parties involved. China’s economy is already struggling, and the authorities would have much to lose from a military escalation. Awareness of this delicate balance could help maintain frictions between China, Taiwan, and the US at a tolerable level that keeps a lid on the risk premium.
1 Taiwan’s president is head of state and commander in chief of the armed forces, represents the nation in foreign relations and is empowered to appoint heads of four branches of the government, including the premier. The premier leads the Cabinet and must report regularly to the Parliament. See Government Portal of the Republic of China (Taiwan).
2 See David Sacks, “Taiwan’s Status Quo Election”, Foreign Affairs, 10 January 2024.