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Taiwan’s economy faces a crossroads

The DPP government will find it very difficult to maintain its economic course now that it has lost its absolute majority in parliament. The ruling party's idea is to ally itself with the United States in order to become less dependent on the Chinese economy, but the other two parties want to deepen co-operation with the Mainland and are considering a coalition to block DPP proposals

Nelson Moura

Despite the victory of William Lai Ching-te and the Democratic Progressive Party (DPP) in Taiwan’s general elections, the current administration lost its majority in Taiwan’s parliament. No party won an absolute majority, with the Kuomintang securing 52 seats, one more than the DPP, and the new Taiwan People’s Party (TPP) winning eight.

“The result shows that Taiwanese voters are increasingly concerned about social issues, rather than purely cross-Strait relations, such as housing affordability and low wage growth,” economist and researcher at the Central European Institute for Asian Studies Gary Ng tells PLATAFORMA.

According to the economist, it will take good economic growth to solve the structural problems, and intelligence to balance the still considerable trade relations with China with the global trend of reducing the country’s economic dependence on the United States.

The island is one of the focal points of global semiconductor production, being responsible for the production of 90 per cent of the most advanced semiconductors. Since the signing of the Economic Co-operation Framework Agreement (ECFA) between the two governments in 2010, China has established itself as Taiwan’s main trading partner.

“The main pressing economic issue related to relations across the Taiwan Strait will be the continuation of the ECFA, the trade pact between Taipei and Beijing, which offers low tariffs to Taiwanese industries while prohibiting some Chinese industries from competing. The traditional manufacturing industry will be heavily impacted if it no longer benefits from this.

These companies offer more job opportunities for Taiwanese citizens than high-tech companies,” emphasises James Chen, an assistant professor in the Department of Diplomacy and International Relations at Tamkang University in Taiwan.

“The new government will face more challenges in implementing its policy agenda in a divided parliament, requiring more compromises with the other parties”

Gary Ng, economist and researcher at the Central European Institute for Asian Studies

Autonomous economy

China is currently Taiwan’s largest export market, accounting for around 35 per cent of the total. Although a sharp slowdown in demand for semiconductors and other electronic products briefly pushed Taiwan into recession in early 2023, global demand is expected to recover in 2024 and investment in artificial intelligence is expected to increase.

However, Taiwan’s investment in China fell in 2023 to just over 10 per cent of total direct investment abroad – the lowest percentage in decades and well below its fast-growing spending in the US and Germany.

“The United States is the largest contributor to Taiwan’s exports. It seems inevitable that there will be some estrangement with China’s interior given the lower importance of its investments there,” Ng points out.

“The main pressing economic issue related to relations across the Taiwan Strait will be the continuation of the ECFA, the trade pact between Taipei and Beijing, which offers low tariffs to Taiwanese industries while prohibiting some Chinese industries from competing”

James Chen, associate professor in the Department of Diplomacy and International Relations at Tamkang University

Parliament against the DPP

With the other political parties (KMT and TPP) willing to form a coalition to hinder the passage of DPP legislation, the ruling party will have to engage in greater dialogue and compromise with the other political forces. While the DPP favours greater diversification of economic ties away from the mainland, the TPP and KMT favour signing more economic agreements with China’s interior.

“The new government will face more challenges in implementing its political agenda in a divided parliament, requiring more compromises with the other parties,” explains Ng.
Next elections

In order to improve in the next elections, James Chen says that the KMT must guarantee parliamentary oversight, and the best way to do this “is to work with the TPP”. However, he warns that “it mustn’t give in too much”, as the KMT’s more traditional voters may “not tolerate” such a position. Moreover, “if the KMT wants to regain power, it will have to figure out how to attract young voters,” he says.

Looking at the growth of the TPP, Chen says that it shouldn’t join forces with the DPP, as it could end up being “absorbed and disappear”. In his opinion, it will have to ally itself with the KMT, because “it doesn’t have a similar voter base”. On the other hand, “it has to become more than a one-person party. Without sufficient numbers in local government, such as mayors and councillors, the TPP can’t attract enough votes to win the next elections, relying simply on eight seats in parliament.”

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