Taiwan’s Post-Election Economic Woes

Written by John F. Copper.

Image credit: 五月二十日 中華民國第十四任總統、副總統就職慶祝典禮 by 總統府/Flickr, license CC BY 2.0

Little more than six months ago, Taiwan held its quadrennial presidential, vice presidential and legislative election. This was its most important electoral contest; an event for voters to decide decision-makers and policies at the national level.

In Taiwan’s election campaigns, the economy has always been a factor that influences voters and decides winners. January 2020 was no exception.

The state of the economy helped President Tsai Ing-wen win re-election and her party the Democratic Progressive Party (DPP) to continue its majority in the national legislature. Likewise, it explains why the Nationalist Party or Kuomintang’s (KMT) Han Kuo-yu was not elected president, and the party did not take back the legislature.

Clearly, Tsai and the DPP’s victories, both quite impressive, were the result of a number of factors leaning in their favour leading up to Election Day. One might say the stars were aligned right for them, or they were lucky. Alternatively, one can argue that their timing and momentum was great.

Had the economic numbers not been in their favour, would they have lost the election? Hardly. The fact the U.S. supported President Tsai and her party was an overwhelming advantage, as was China alienating Taiwan’s voters with its harsh statements and actions, which were further exacerbated with anti-China protests in Hong Kong. Both were critical factors. Finally, the KMT was very divided with its top leaders fighting among themselves.

Had the economy not helped President Tsai and the DPP, their victories would have no doubt been somewhat smaller. Also, their images and their governance going forward may be affected.

How so?

During the campaign, Taiwan’s economic dependence on China, along with the dread that it endangered Taiwan’s sovereignty, was a significant issue that affected voters. Both President Tsai and DPP leaders advocated reducing this dependence. Some DPP activists even declared that Taiwan might well do without commercial ties with China.

Thus, recent economic data are very revealing. The first half of 2020 record that Taiwan’s exports to China were $66 billion—a record figure. This was up a whopping 9.8 per cent from 2019. Furthermore, it amounted to 42.3 per cent of Taiwan’s total exports—another record high. By comparison, the U.S. took only 14.5 per cent of Taiwan’s foreign sales, less than a quarter of what went to China. Japan accounted for only 7.4 per cent of Taiwan’s exports; China counted for more than eightfold of that.

Still worse in terms of President Tsai and the DPP’s election campaign narratives was trade with Southeast Asia. During the election, they promoted what they called a “New Southbound Policy,” which was designed to reduce Taiwan’s economic dependence on China. However, the recent trade figure showed that Taiwan sold $24.9 billion in goods to Southeast Asian countries—a decline of 4.8 per cent year-on-year. It was the sharpest decline in more than four years.

In the meantime, exports to Europe, $13.4 billion, dropped 10.4 per cent. In other words, sales to countries that supported President Tsai and the DPP’s liberal progressive agenda during the campaign plummeted.

Looking forward, some other economic data also looks troublesome. Taiwan’s gross domestic product (GDP) growth is expected to be negative 4 per cent in 2020 due to the coronavirus. Several other factors are also concerning, including the fact that 60 per cent of its economy is in the service sector, and tourism is a good part of that, being linked to China—as are production chains.

The U.S., Europe and Japan will all experience negative GDP growth in 2020. China experienced a downturn in quarter one but bounced back with quite impressive growth in quarter two (over 11 per cent growth) and will end the year in positive territory.

Taiwan’s economy is expected to bounce back in 2021 with GDP growth in the 3 per cent range. Nevertheless, China is set to see over 8 per cent growth in 2021—close to three-fold Taiwan’s. Thus, Taiwan’s economic dependency on China will likely remain or even grow.

One unknown is Taiwan’s exports to China from its electronics and other high-tech sectors. The United States could (if U.S.-China tensions escalate further) block this due to patent issues, along with Taiwan’s significant exports to the U.S. This would hurt Taiwan’s economy.

Since much of the tension in Cross-Strait relations have persisted beyond the election campaign, and China’s military and hardliners want a more aggressive policy toward Taiwan. In contrast, the DPP base wants Taiwan to be independent, Taipei faces a conundrum of greater economic dependency on China with no end in sight and strained relations that remain after the election.

Will this affect the next election? It does not seem too likely as that is some time away—the end of 2022. But who knows?

John F. Copper is the Stanley J. Buckman Distinguished Professor (emeritus) of International Studies at Rhodes College in Memphis, Tennessee. He is the author of more than thirty-five books on China, Taiwan and U.S. Asia policy, including Donald J. Trump and China published this past summer and Taiwan: Nation-State or Province? 7th edition published in December.His forthcoming book is entitled Taiwan’s Politics in Action: Struggling to Win at the Ballot Box.

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