Taiwan’s New President: Priorities and Challenges

On 20 May 2024, William Lai was inaugurated as President of Taiwan. Faced with a divided legislature and political polarisation, acute pressure from China, and an uncertain international arena, he has pledged to continue the policies of his popular predecessor, President Tsai Ing-wen, in managing domestic social and economic policy as well as cross-Strait and foreign relations.

• Domestically, key issues for Lai to tackle include stagnant wages, rising housing costs, and a shrinking and aging population. While his proposed policies in these areas may gain traction, more contentious are his plans to phase out nuclear energy in Taiwan.

• In cross-Strait relations, Lai has promised to safeguard the status quo – that is, to maintain Taiwan’s de facto sovereignty. He plans to strengthen Taiwan’s deterrence capabilities and follow a pragmatic and principled approach that refuses Beijing’s “one country, two systems” paradigm while expressing openness to cooperation between equals with China.

• In foreign policy, Lai’s goal will be to deepen and broaden Taiwan’s strategic relationships with democratic partners and further entrench the country’s economy in international markets. Particular focus will be on maintaining Taiwan’s leading position in the semiconductor industry.

• To achieve these goals, Lai will have to overcome numerous difficulties: a divided government and an increasingly polarised political landscape, demanding domestic social and economic challenges, continuing and potentially increasing pressure from China, and an international arena in flux.

Policy Implications

In an autocratising world increasingly seeing the erosion of democratic norms and practices, Taiwan will remain an important democratic partner in the Asia-Pacific region and beyond. European and German policymakers should seek channels to increase cooperation on trade, defence, and other key areas with Taiwan, supporting it politically below the threshold of official state-to-state interactions.

After the Elections: A Third Consecutive DPP Presidency but Divided Government

On 20 May 2024, William Lai (Lai Ching-te) of the Democratic Progressive Party (DPP) was inaugurated as Taiwan’s new President, after winning 40.1 per cent of the vote in the January 2024 general elections. After two terms in office, incumbent President Tsai Ing-wen (DPP) was ineligible for re-election. Lai, Tsai’s vice-president, ran on a platform of continuity in most relevant policy areas. His challengers in the presidential race were Hou Yu-ih of the Kuomintang (KMT) and Ko Wen-je of the Taiwan People’s Party (TPP). The KMT had ruled Taiwan as an authoritarian one-party state before the transition to democracy in the 1990s and, together with other parties from the “pan-Blue” camp, generally supports closer relations with mainland China. The TPP emerged as a new political power in 2019, offering an alternative to the pan-Blue and the DPP-led “pan-Green” camp, which advocate for Taiwan’s independence, sovereignty, and self-determination.

With Hou only garnering 33.5 per cent and Ko 26.5 per cent of the vote, the DPP secured hereby an unprecedented third consecutive victory. While this outcome suggests that the DPP has become the dominant party in Taiwanese politics, the road ahead looks challenging for President Lai, not least because the DPP lost its comfortable majority in the country’s legislature, the Legislative Yuan. The DPP lost 11 seats, retaining 51 out of a total 113, while the KMT came out of the polls as the single strongest party with 52 seats, up by 14 compared to the 2020 elections. In addition, two independent legislators are close to the KMT. The TPP won eight seats, three more than in the previous legislature. For the first time since 2004 no party has a parliamentary majority, such that the TPP’s eight legislators will play a key role in determining policy over the course of the next four years.

Of vital importance, then, is to determine the likely goals of the Lai presidency in domestic, cross-Strait, and foreign policy as well as the main challenges his government will face in seeking to realise them. Across all three policy areas, Lai will generally try to follow the contours outlined by his predecessor. However, his ability to steadily steer Taiwan towards a safe and prosperous future will be hindered by a divided government, demanding domestic social and economic challenges, pressure from China, and an evolving international arena.

Challenges to Lai’s Domestic Political Agenda

Addressing Social Inequalities and Taiwan’s Energy Transition

Lai’s pre-election promises include an energy transition, investment in youth, housing justice, educational equality, reform of child subsidies, and better long-term care. His plans on energy and the environment are especially ambitious, with Lai recognising the urgency of moving towards net zero emissions. Droughts in recent years and a heavy reliance on carbon-based energy imports to meet demand underlie this urgency. Lai’s strategy would include accelerating the development of geothermal, hydrogenic, and other energy sources while improving carbon capture and storage capabilities, promoting green manufacturing, and expanding the circular economy. More contentiously, he aspires to continue Tsai’s efforts to eliminate nuclear power from Taiwan’s energy mix, an issue on which the DPP can expect to face considerable continued opposition (Hope 2024).

Among pressing economic issues are some of the world’s highest housing prices and wage stagnation. Although economic growth was generally strong under Tsai, the positive effects of this have not been felt by all segments of Taiwanese society. Economic problems have led many young voters to turn away from the DPP and towards the TPP, which tapped into their frustrations. Thus far, Lai and the DPP have committed to raising the monthly minimum wage to TWD 27,470 (EUR 783.29), which falls short of the TWD 30,000 (EUR 855.43) that Tsai had previously promised. He has not announced clear policies or plans to reduce work time in Taiwan, which at 2,008 hours per year is among the longest for advanced economies based on OECD data. Neither did he or any of the other presidential candidates express a clear intention to improve conditions for migrant workers in Taiwan, who face issues including high brokerage fees, debt, and even forced labour as well as physical abuse (Lin 2023). A failure to address these issues could see more voters snub the DPP in future elections and affect Taiwan’s image and economic competitiveness globally.

Moreover, Taiwan faces a shrinking as well as aging population. Lai’s proposals to address these trends include making childcare more affordable by increasing subsidies for daycare centres and reforming Taiwan’s health-insurance system. His stated aim is to recruit government officials based on capability, regardless of party affiliation, and to increase cooperation between central and local government – with many branches of the latter being controlled by opposition parties. He also mentioned in his post-election speech that he would study the social policy proposals of his rival presidential candidates and consider incorporating them into his own programme. This suggests a willingness to compromise and cooperate with political opponents.

A Divided Legislature

The opposition KMT now has a plurality – but not a majority – in the Legislative Yuan. KMT politicians have floated the idea of reviving the Cross Strait Services Trade Agreement, a controversial treaty that sparked the 2014 Sunflower Movement and occupation of the Legislative Yuan, due to concerns that it would effectively allow China to control Taiwan’s economy. The TPP’s Ko also voiced his support for restarting talks. The KMT has also pledged to revive the Special Investigation Division (SID), an erstwhile special unit under the Supreme Prosecutor’s Office charged with investigating acts of corruption by senior government and military officials, and to place it under the authority of the legislature. During the KMT presidency of Ma Ying-jeou (2008–2016), the SID was reportedly used to target DPP politicians and Ma’s rivals within his own party. The KMT may now hope to direct a newly established SID to investigate DPP politicians accused of corruption. Additionally, the KMT has proposed expanding the power of the legislature, including giving it the authority to question and prosecute government officials who “hold the legislature in contempt.” These proposals recently led to a brawl in the legislature, with some legislators being badly injured. Such events could increase political polarisation, making it difficult to advance reforms and proposals as well as generating further tensions within civil society.

Yet the KMT is by no means a unitary party, being divided between its “deep-Blue” and moderate factions. This division became apparent during the procedure to elect the speaker of the Legislative Yuan in January and February 2024, with not all KMT members supporting nominee Han Kuo-yu. As speaker, Han will play a major role in determining which bills are discussed in the legislature. While he has the backing of the deep-Blue camp, Han is less popular among the general public, having earned a reputation for poor governance as Mayor of Kaohsiung. Thus, the KMT will continue to face challenges in advancing its political agenda.

The TPP is now kingmaker in the legislature. While the TPP is generally seen as closer to the pan-Blue camp in Taiwanese politics than to the DPP, it has signalled that it may cooperate with the latter on an issue-by-issue basis (Nachman and Hioe 2024). It will be in its own interest to distinguish itself meaningfully from the KMT, namely so as to establish itself as a viable third force in Taiwanese politics in the long run. Otherwise, the TPP could face the same fate as the New Power Party: a pan-Green party that emerged from the Sunflower Movement and had five seats in the 10th Legislative Yuan (2016–2020) before faltering in recent years after struggling to resolve the question of how closely to cooperate with the DPP exactly. This may partly explain why the TPP abstained in the vote on Han becoming Speaker of the Legislative Yuan, and also why it has hesitated about backing calls to revive the SID. Nevertheless, to the extent that the TPP leans towards the KMT and opposes the DPP on social, economic, and cross-Strait policies, Taiwan’s domestic politics could become more contentious in the coming years.

The executive branch of government is relatively strong in Taiwan. The Premier, who is directly appointed by the President without parliamentary confirmation, appoints cabinet ministers and oversees the government’s day-to-day operations. The Premier usually works closely with the President to implement the latter’s envisaged political project. President Lai and the DPP can expect to continue facing pushback from the KMT and the TPP, especially if those two parties are able to form a working coalition. Nevertheless, the DPP caucus will continue to wield influence in the legislature. The DPP administration may not necessarily be paralysed in its efforts to advance its agenda (Batto 2024).

All three major parties will have to compromise. The alternative would be political gridlock and hostile interparty relations. Such an outcome could lead to a failure to advance key social, economic, and defence reforms, which would in turn would affect both Taiwan’s democratic credentials and international standing.

Cross-Strait Relations: Maintaining the Status Quo?

For much of his political career, Lai has been viewed as a “deep-Green” politician favouring Taiwanese de jure independence. Before the 2024 elections he softened his rhetoric, arguing that a formal declaration of independence was neither planned nor necessary since Taiwan already was a sovereign state. His vision for Taiwan’s cross-Strait policy rests on “Four Pillars”: next to an economic policy designed to reduce Taiwan’s dependency on China, and a foreign policy focusing on strengthening Taiwan’s relations with its democratic allies, this includes enhanced deterrence capabilities and a pragmatic and principled approach to cross-Strait relations.

Lai’s Approach to Cross-Strait Relations

Strengthening Taiwan’s ability to deter an attack already formed a core element of President Tsai’s cross-Strait policy. Next to reinforcing Taiwan’s civil-defence readiness and the resilience of its civilian infrastructure, this includes preparing for asymmetric warfare to slow down an invading force, extending compulsory military service from four months to one year, and investing in advanced capabilities such as cyber- and electronic warfare as well as precision strikes. To finance this military modernisation, Lai has pledged to spend at least 2.5 per cent of Taiwan’s gross domestic product on defence in the coming years. This is in line with developments already started under his predecessor, who raised defence spending from around 2 to 2.5 per cent of GDP after 2016. Since Taiwan’s access to the global arms market is limited, Lai has emphasised the need to further develop the country’s indigenous defence technologies. These efforts will also be a strong signal to the United States – Taiwan’s main international ally and primary supplier of advanced weaponry – that the country is willing and able to shoulder the burden in resisting Chinese aggression (Detsch 2024).

Improving military ties with the US and other democratic partners is crucial to Lai’s vision here. Under Tsai, an increasing number of Taiwanese military personnel received training in the US in recent years, while the latter regularly deploys soldiers and military instructors to train Taiwanese forces. Additionally, the coastguards and navies of both countries have intensified their joint training manoeuvres and operations. Lai is expected to continue and expand these activities with the US while also looking to build security-oriented cooperation with partners like Japan and the European Union. He may, for example, look to European nations with significant defence industries like France, Germany, and Sweden to obtain greater technological and military know-how for its indigenous manufacturing of weapons as well as coordination on countering cyberattacks and disinformation. Additionally, Japan’s recent recognition that any Chinese intervention against Taiwan constituted a “survival-threatening situation” for Japanese security has helped strengthen bilateral relations.

Military deterrence coupled with political support from strong democratic partners are crucial for Lai’s vision of a “pragmatic and principled” approach to cross-Strait relations. This includes the offer to cooperate with China “under the principles of dignity and parity” – that is, if the Chinese Communist Party (CCP) renounces its threats of violence to achieve unification and engages with Taiwan without certain prerequisites. As part of this principled approach, and again following Tsai’s position, Lai also rejects the “1992 Consensus,” a tacit understanding reached between the KMT and the CCP according to which both parties acknowledge that there is only “one China” while allowing for differing interpretations of what “China” means exactly. Lai criticised the 1992 Consensus as being equal to accepting China’s “one country, two systems” formula.

Lai’s Cross-Strait Policies Contested

Lai’s policies are a direct continuation of President Tsai’s approach to managing cross-Strait relations. This continuity is also in line with the preferences of over 80 per cent of Taiwanese people, who in surveys regularly express a clear desire to maintain the status quo in the Taiwan Strait. It is, as such, not surprising that Lai’s competitors for the presidency did not depart too far from this consensus position. On the campaign trail, both Hou and Ko pledged to maintain the status quo, expressed openness to dialogue between equals with the mainland, and rejected China’s “one country, two systems” paradigm. Differences between the candidates’ platforms were mainly rhetorical and over not whether but how best to maintain the status quo. One example concerned divergence on expanding the Economic Cooperation Framework Agreement (ECFA) between China and Taiwan, which was signed in June 2010 but whose further development was halted after the Sunflower Movement protests of Taiwanese students and civil society activists in 2014. While Lai opposed further deals under the ECFA, both Hou and Ko were in favour of reopening talks here after enacting a new oversight bill.

Despite this large degree of overlap, cross-Strait relations are likely to remain a highly contentious policy field, limiting the chances for cooperation between Lai and the parliamentary opposition. Moreover, while the new President’s two rivals ultimately share his goal of upholding the status quo in the Taiwan Strait, the KMT especially is more willing to engage in dialogue with the CCP – with high-ranking KMT politicians repeatedly visiting China. Most notably, former President Ma met with Chinese President Xi Jinping in April 2024 during an 11-day trip to the mainland. Some analysts see such informal meetings as a useful way to reduce tensions and allow communication across the Taiwan Strait, which Beijing cut off after Tsai took office in 2016. Others, however, warn that such direct communication between (parts of) the KMT and the CCP undermine the authority of Lai and his government (Lin and Wu 2024).

This latter interpretation would be well in line with Beijing’s broader “grey zone” approach to convincing Taiwan’s people of the inevitability of unification. The Chinese military has intensified its air and naval incursions into Taiwanese territory and regularly conducts military exercises and patrols in the Taiwan Strait. After Lai’s inauguration, the Chinese military staged large-scale air and sea drills around Taiwan as a self-proclaimed “stern warning” and “punishment” for what Beijing considers Lai’s “separatist acts”. China also actively seeks to isolate Taiwan diplomatically by pressuring countries to cut ties with Taipei. Two days after Lai’s election, for instance, Nauru severed diplomatic relations with Taipei, recognising Taiwan as an “inalienable part of China’s territory.” Economically, China has repeatedly restricted access to Taiwanese firms and banned agricultural imports since the DPP came to power in 2016. Finally, Taiwanese security agencies and international experts accuse China of conducting disinformation campaigns, engaging in cyberwarfare, and influencing local media so as to increase political polarisation and domestic strife, weaken support for the DPP, and instil an atmosphere of defeatism among the Taiwanese population (Kuehn 2024).

Finally, since Taipei is heavily dependent on Washington’s continued support, Lai’s cross-Strait policies are likely to be affected by the outcome of the 2024 US presidential elections. Should Joe Biden secure a second term, the current relationship is likely to remain stable, as he will attempt to further strengthen alliances with democratic partners in the Asia-Pacific region. A Donald Trump victory, however, might come with different challenges for cross-Strait relations. Taiwan benefitted symbolically, politically, and militarily from the first Trump administration’s hardline and confrontational China policy (Kuehn 2021), with the Republican nominee promising more of the same should he return to office. Yet, his transactional and unpredictable “America First” approach might in fact mean that supporting Taiwan becomes a bargaining chip in a potential future “deal” to leverage concessions from China.

Continuity and Change in Lai’s Foreign Policy

As with domestic affairs and cross-Strait relations, Lai’s foreign policy goals are characterised by continuity as well as stable and consistent statesmanship. After victory at the ballot box, Lai asserted that he would follow the tone set by his predecessor on international affairs. This will involve fostering multi- and bilateral – if unofficial – cooperation with democratic partners, alongside the further integration of Taiwan’s economy into world markets.

Nurturing International Cooperation

With the likely odds of Chinese pressure on Taiwan only intensifying, the necessity of widening and deepening Taiwan’s international ties will form a core part of Lai’s agenda. To this end, he has pledged to adopt values-based diplomacy as the best way to respond to the complex geopolitical climate of the day. This will enable meaningful collaboration and tangible progress in relations with like-minded partners, including the US, Australia, South Korea, Japan, and the EU.

Lai plans to prioritise specifically democratic values in international relations, much like Tsai’s promotion of the “Taiwan Model” (Tsai 2021). On the campaign trail, Lai made several promises to establish Taiwan as a champion of democracy and an indispensable part of the global community. For instance, Lai reaffirmed Taiwan’s commitment to peace, stability, and upholding the rules-based order in the Indo-Pacific. He intends to build on Tsai’s embrace of the “Indo-Pacific” concept, and under the ethos of “Taiwan Can Help” will redouble contributions to the region in areas ranging from public health and agriculture to infrastructure and humanitarian assistance.

This spirit is exemplified by Taiwan’s somewhat outsized role under Tsai in supporting Ukraine’s defence against Russia, which aimed to show that no invasion can go unpunished. With Hsiao Bi-khim, former Taiwanese Representative to the US, joining the Lai administration as Vice President, the new government will likely continue its aid to Ukraine – including via multilateral relief efforts, for example through the European Bank for Reconstruction and Development. These strategies aim to expand Taiwan’s restricted international space and give it a greater voice globally.

Enhancing Economic Security

In pursuit of greater economic security, Lai will seek to further expand Taiwan’s discourse power internationally beyond the World Trade Organization and the Asia Pacific Economic Cooperation, both of which it is a member of. Through a whole-of-government approach, he intends to enhance economic resilience, improve supply-chain security, and participate in multilateral and minilateral economic frameworks like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Indo-Pacific Economic Framework.

Special focus will be on Taiwan’s semiconductor industry, which accounts for almost 65 per cent of the global market for this commodity. Some think it could act as a “silicon shield” to deter a potential Chinese invasion and give third parties a material stake in preserving Taiwan’s autonomy. However, with major economies aiming for chip self-sufficiency, Taipei fears the weakening of its dual protection. Lai has not yet laid out specific policies for the semiconductor industry but has made impassioned comments that signal its centrality to his administration’s economic and foreign policies (Cheng and Li 2024). The expectation is that he will continue to provide chip companies with tax relief, subsidies, and greater leeway under environmental-protection laws, while also promoting their greater integration into international markets by supporting offshore manufacturing facilities. As president-elect, he welcomed TSMC’s expansion to Japan, lauding it as the first step to a closer strategic chip partnership. Several other Taiwanese tech companies are beginning to invest heavily in overseas plants – including TSMC’s EUR 11 billion facility in Germany, USD 40 billion project in Arizona, and a second USD 20 billion project in Japan. The new government will likely encourage such expansion to bolster Taiwan’s trade relationships, and, with time, push for bilateral investment and free trade agreements with key partners.

Lai can also be expected to aid Taiwanese businesses’ further diversification away from China. Taiwan’s foreign direct investment decreased from a figure of 42 per cent thereof heading to China in 2012–2015 to 5 per cent in 2020–2023, with FDI increasingly going to India, Vietnam, and OECD countries instead (Irwin-Hunt 2024). In high-tech industries, however, FDI to China has plateaued but remains strong.

Among the goals regarding diversification will be to build on Tsai’s New Southbound Policy (NSP). While extensive, the latter primarily targets trade cooperation with the 10 ASEAN and six South Asian countries, Australia, as well as New Zealand so as to derisk from China. Taiwanese investments in South and Southeast Asia reached USD 5.2 billion – narrowly surpassing China (USD 5 billion) – for the first time in 2022. Overall, however, the NSP’s dividends have been limited. This is in part due to the reluctance of target states to antagonise China, which remains the leading trade partner and market for most of them. Lai’s challenge will be to explore the NSP’s potential in high-tech sectors and cross-cultural cooperation. The new President has promised that a portion of Taiwan’s outbound FDI will be targeted towards sustainable projects in third countries co-financed with like-minded peers to enhance Taiwan’s position as a reliable partner and provider of public goods. Directing such investment flows to burgeoning sectors like healthcare and sustainable energy can help reinvigorate the NSP and generate opportunities in economic and non-traditional security.

Navigating Complexity

The Legislative Yuan’s new makeup will make it challenging to pass any legislation related to foreign and trade policy, which are especially controversial and divisive issues. Rallying political and financial backing for the NSP and offshoring chip-manufacturing plants, for instance, are likely to encounter significant pushback. Such decisions will test Lai’s ability to convince the Taiwanese people of his foreign policy vision.

The foremost challenge, however, will emanate from the external environment. Despite Tsai’s efforts to further integrate Taiwan into the international community, the island has lost 10 diplomatic allies in the past seven years alone, bringing the total remaining down to 12 – most of them small states of only limited sway. China’s long shadow will continue to loom large over Taipei’s foreign policy outreach, complicating its bid to join international institutions like the United Nations and World Health Organization. One area where Tsai enjoyed success was in expanding Taipei’s unofficial partnerships, especially in the realm of parliamentary diplomacy. Lai’s challenge will be, then, to build on such informal engagement in ways that bring tangible gains; amid the vagaries of cross-Strait politics, this will be no easy feat.

Outlook

President Lai has emphasised that he intends to largely continue his predecessor’s political agenda. He will have to do so in a less favourable domestic political milieu and amid a more volatile international climate. In the legislature, much will depend on how the TPP makes use of its advantageous position. Between the two extremes of siding with the KMT on obstructing Lai’s agenda or entering into a de facto ruling coalition with the DPP, it might find middle ground in playing the role of constructive political opponent. This would not only cater to the preferences of the 20 per cent of the Taiwanese electorate who voted for the party but would also help sharpening the TPP’s political profile. Such a scenario could entail greater stability in Taiwan’s domestic politics, allowing each party to achieve some of their goals while having to compromise on others. In the first few months of 2024, Ko met with Tsai and emphasised the importance of supervising the DPP while remaining open to cooperation. At the same time, other recent developments – such as Ko being named a suspect in the ongoing corruption investigation and the planned introduction of “contempt of legislature” charges – have the potential to increase polarisation and lead to gridlock and stagnation politically.

Moreover, the China factor continues to loom large. Viewing Lai as a “separatist,” China will continue and likely intensify efforts to isolate Taiwan diplomatically, pressure the island economically and militarily, and attempt to influence Taiwanese society and politics through disinformation campaigns and working with the opposition. Besides improving its domestic resilience to such threats, Taiwan will also need to continue finding ways to boost its international profile as well as cement ties with democratic partners both in the Asia-Pacific region and beyond.

Taiwan’s partners – including the US, Japan, South Korea, Australia, and the EU – welcome its emphasis on democratic values and intention to contribute to peace and stability in the Indo-Pacific. There remain considerable opportunities for Western and European partners to increase cooperation in trade, defence, and other areas and support Taiwan politically below the threshold of official state-to-state interactions. Yet, Taiwan’s efforts will be complicated by developments in each country, not least the US in an election year, given the importance many leaders place on economic ties with China.

Consequently, Western policymakers need to find ways to support Taiwan without directly opposing China. In reference to cross-Strait relations, Joseph Wu, General Secretary of Lai’s National Security Council, has already extended his invitation to Taiwan’s democratic partners to support the country in countering China’s grey-zone tactics. Next to advocating for Taiwan’s greater global economic integration, this also includes rejecting China’s interpretation of the “one China” principle that considers Taiwan but a renegade province of the People’s Republic (Wu 2024).

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