Taiwan’s President Lai Ching-te takes office, China threat & slowing economy to shape his term

Even before Lai Ching-te was sworn in as the President of Taiwan on Monday, the chaos that he may face in his term was visible in the parliament last week.

On Friday, lawmakers from Lai’s Democratic Progressive Party (DPP) and the opposition comprising Kuomintang (KMT) and Taiwan People’s Party (TPP) brawled over bills that would bring more parliamentary oversight over Lai’s incoming government. Six lawmakers required medical treatment for injuries from the fighting.

The brawl highlighted a key contradiction of Lai’s presidency. While he led his party DPP for a third consecutive presidential term, he could not secure a parliamentary majority. The internal politics of the self-ruled island are, however, dwarfed by the external factor in the Taiwanese elections and polity at large: China.

In a rare case in the world, the Taiwanese elections are conducted in the shadow of its neighbour China, which considers the self-ruled island a breakaway province and is committed to its reunification with the mainland. It has not ruled out the use of force for such reunification. In recent years, Beijing has increased military drills simulating the invasion of Taiwan and has stepped up military harassment. The threat from China is, therefore, very existential for Taiwan. But it’s not just China that Lai should worry. The island’s economic growth has fallen in recent years.

As Lai took over on Monday, the dual challenges of dealing with the threat from China and managing the economic slowdown with a fractured parliamentary mandate means that he has work cut out for him and has no honeymoon period.

‘China should face the reality of our existence’: Lai

In his inaugural address, Lai urged Beijing to “face the reality” of Taiwan’s existence”. He said Beijing should respect the will of the people of Taiwan.

Lai further called for the pursuit of “peace and mutual prosperity” and said Beijing’s outreach could start with the resumption of tourism on a reciprocal basis and academic initiatives.

Lai called upon China to cease the “political and military intimidation against Taiwan” and maintain peace and stability in the Taiwan Strait. He, however, also warned that the Taiwanese people should not harbour any delusions about Beijing.

“My fellow citizens, as we pursue the ideal of peace, we must not harbour any delusions. So long as China refuses to renounce the use of force against Taiwan, all of us in Taiwan ought to understand, that even if we accept the entirety of China’s position and give up our sovereignty, China’s ambition to annex Taiwan will not simply disappear,” said Lai, adding that Taiwan must improve its defences and national security framework.

Lai’s icy relationship with China

Beijing has not kept its loathing of Lai a secret.

In the Taiwanese elections in January, Beijing openly lobbied against Lai and favoured his rival Hou Yu-ih from the party KMT. Beijing had called Lai “secessionist” and “confrontational”. It called upon the Taiwanese voters to make the “right choice” in the elections and warned that Lai would take them on the “evil path of provoking independence”. Later, Microsoft in a report revealed that China had deployed artificial intelligence (AI) led election interference operations against Lai. Clearly, the Taiwanese voters did not listen to Beijing and the AI-led disruption did not work.

Lai is not a stranger to handling China or the threat posed by the Communist regime. For the past eight years, he was the Vice President of Taiwan under outgoing President Tsai Ing-wen’s administration. Tsai’s tenure coincided with the emergence of Xi Jinping as the ruler of China who has now amassed unprecedented power and has projected China as a world leader of the future in a challenge to the United States.

Previously, Lai identified himself as the “pragmatic worker for Taiwanese independence” in 2017. He was long seen as a leader of the DPP’s radical wing that asserted Taiwan’s independence, but, as the threat from China has intensified lately, Lai has given up on such assertions. He said in his inaugural address that while he will not yield to China, he will also not provoke the country.

So, while there is going to be continuity from Tsai’s tenure in the sense that Taiwan under Lai will continue to build its defences against Chinese military action, Lai’s presidency will be much more moderate because of realpolitik, says Anushka Saxena, a China researcher at the Takshashila Institution.

“Lai will have to be much more moderate in his policy approach than he may have been in the past eight years. This is because over-the-threshold emphasis on independence or indigenous defence will inevitably lead to excessive show of force from China. This is neither in the interests of the Taiwanese government nor its people. But at the same time, we are not going to see US arms sales or democratic support to Taiwan dissipate, due to the national security, technological and values-based interests mutual to both,” says Saxena.

Lai faces crisis of slowing economy & fractured mandate

While the threat from China and Taiwan’s status as a self-ruled democracy took centre-stage in the elections, the elephant in the room domestically remains the yearslong economic slowdown. Taiwan’s growth of the gross domestic product (GDP) has fallen from 6.6% in 2021 to 1.4% in 2023.

At a time when the economy is slowing, Taiwan also faces mounting social security expenditure as the population is ageing. Managing social security expenditure compulsions while boosting economic growth at a time when defence spending is supposed to take priority in the face of rising threats from China is set to be the running theme of Lai’s tenure. He has to work these challenges out with a fractured parliamentary mandate.

In the 120-seat parliament, the DPP won 51 seats, the KMT won 52, and the TPP won eight. While the DPP is more hawkish about Taiwan’s status as a self-ruled island, the KMT is much friendlier to China and is expected to fiercely contest Lai’s defence spending and national security agenda.

“High housing prices and stagnant wages continue to be economically challenging for young voters despite the DPP being in both presidential and parliamentary power for eight years. So we may just see more welfare-based policy proposals in the legislature,” says Saxena, a China Studies Research Analyst with Takshashila’s Indo-Pacific Studies Programme.

These measures may come at the cost of defence preparedness — as has already been the case. During 1994-2022, social welfare spending increased by 9% and defence spending declined by 8%, according to an analysis by Min-Hua Chiang of the East-West Center, which further noted that while Taiwan spent 10% of its GDP on defence in 1961, it reduced to 6% in 1991, and it is expected to be mere 2.6% in 2024 — despite unprecedented Chinese aggression.

Will Taiwan be the next Ukraine?

The clock is ticking. Xi, who is serving an unprecedented third term as China’s leader and is the president for life, has set 2049 for the realisation of the ‘Chinese Dream’ for the rejuvenation of the Chinese nation. This includes the reunification of Taiwan with the mainland.

After Russia invaded Ukraine in 2022, several commentators said the war will serve as a primer for any invasion of Taiwan. Now, two years later, they say while China has learnt from Russian failures in Ukraine, Taiwan too has learnt from both the successes and failures of Ukraine. The two countries, after all, face similarly large enemies and are similarly outmatched.

Saxena of the Takshashila Institution, however, says that Taiwan’s case may not be like Ukraine — not in a good way for the self-ruled island.

Saxena highlights that if China invades Taiwan in the foreseeable future, then the appetite in the international community for another war is expected to be low as war fatigue from conflicts in Ukraine and the Middle East is already setting in. Moreover, she says China is not Russia and Ukraine is not Gaza and much of the international community is unlikely to come to be invested in Taiwan’s cause.

“Unlike Ukraine, the conventional global understanding on Taiwan is that it is not a sovereign state of its own accord. For starters, the fact that Russia’s invasion of Ukraine has been seen largely as a subversion of international law and a grave violation of sovereignty and territorial integrity may not remain true in Taiwan’s case. This is especially so because China is a major economic partner for many countries, particularly in the Global South, and largely the relationship is highly asymmetric and in favour of China. So, such countries may not even take a stance on the Taiwan issue,” says Saxena.

The only support expected to come is from the United States and some of its Western partners. US President Joe Biden has repeatedly asserted that he is committed to defending Taiwan militarily. In comments that sparked debates about whether the US policy of ‘strategic ambiguity’ has changed, he has gone on to say that he would even put US boots on the ground if needed to defend Taiwan.

The centrality of the US is visible in the form of Hsiao Bi-khim’s selection as Lai’s Vice President, who is a former Taiwanese envoy to the US.

Saxena of the Takshashila Institution says that US support is expected to continue even if Donald Trump wins in the upcoming US presidential election — who has otherwise indicated he would pursue an isolationist foreign policy in his potential second term.

“Trump has been clear with his sentiments against China. The economic security undertone of the US-China competition will not go away under Trump administration. Moreover, on the Taiwan front, Trump has been equally committed. As president, he announced a greater volume of arms sales to Taiwan than Biden did,” says Saxena.

Whether the world comes to Taiwan’s defence or not, the world will face the toll of any war. Bloomberg Economics has assessed that a Chinese war on Taiwan will cost the world economy $10 trillion.

US & allies may defend Taiwan but at huge cost: Wargame result

A wargame conducted by the Center for Strategic and International Studies (CSIS) concluded that the US military along with Japan, the principal regional partner, would come to Taiwan’s defence. It concluded that while they will manage to beat the Chinese invasion, the cost will be huge.

“The United States and Japan lose dozens of ships, hundreds of aircraft, and thousands of servicemembers. Such losses would damage the US global position for many years. While Taiwan’s military is unbroken, it is severely degraded and left to defend a damaged economy on an island without electricity and basic services. China also suffers heavily. Its navy is in shambles, the core of its amphibious forces is broken, and tens of thousands of soldiers are prisoners of war,” said the CSIS report on the wargame.

The report, however, said that the US could also win a ‘pyrrhic Victory’ where it may technically win but may incur a cost so great that it loses in the long run.

“The United States might win a pyrrhic victory, suffering more in the long run than the ‘defeated’ Chinese. Furthermore, the perception of high costs might undermine deterrence: if China believes that the United States would be unwilling to bear the high costs of defending Taiwan, then China might risk an invasion. The United States should therefore institute policies and programs to make winning less costly in the event of conflict,” said the CSIS report.