Pro-independence Democratic Progressive Party (DPP) candidate (William) Lai Ching-te won Taiwan's presidential election with 40% of the votes, beating Kuomintang (KMT) candidate Hou Yu-ih and the Taiwan People's Party (TPP) candidate Ko Wen-je, who received 33.5% and 26.5% of the votes respectively.

The victory results in a historic third consecutive presidential term for the DPP, following Tsai Ing-wen's two terms. For the more Beijing-friendly KMT, the result will prompt them to reflect on their campaign style and approach to relations with Beijing. However, parliamentary elections proved more fruitful for the KMT, which became the largest party in the Legislative Yuan. The DPP failed to gain a majority (57 out of 113), securing 51 seats, down from 61 in 2020. Meanwhile, the TPP secured eight seats and the final two seats were won by independent candidates, which will likely align with the KMT.

This leaves the TPP as kingmaker in the Legislative Yuan, with the KMT signaling its intention to work closely with the TPP. Whether this occurs will become clear this month, when the legislative must elect a speaker and vice speaker. The two parties failed to agree on a coalition ahead of the elections. The loss of a majority in the legislature will weaken Lai's position as president, and concessions will be needed to get the legislative's backing on reforms and budgets. This could result in the KMT and TPP pushing back slightly on the DPP's military strategic and pledges, such as to extend military conscription to 12 months.

The legislature will likely also scrutinize weapons purchases from the US, although both the KMT and TPP support an expansion in military spending.

Source: Central Election Commission, abrdn, January 2024.

Beijing response has been muted as Lai seeks to de-escalate

Cross-strait tensions remain elevated given Beijing's clear aversion to Lai's victory. Lai, who had been vice president, is from the DPP's more independence-leaning faction. And his choice of former representative to the US, Hsiao Bi-khim, as his running mate, was perceived by Beijing as evidence that Lai's presidency could begin an intensified push for independence. However, the parliamentary result has allowed Beijing to use democracy in its favor, declaring the outcome is evidence that the DPP “cannot represent the mainstream public opinion on the island”.

Following the results, Beijing's initial response has been fairly muted, with official communications reiterating the “One China” principle and opposition to any steps towards Taiwanese independence, with unification “inevitable”. China's foreign ministry and embassies also criticized governments that congratulated Lai on his victory.

The DPP and US politicians made efforts to communicate their intention to maintain the status quo in attempt to reduce tensions. In his victory speech Lai took a conciliatory tone, calling for a resumption of communication between Taipei and Beijing, as well as avoiding mention of his predecessor’s “four commitments”, which promote Taiwan’s sovereignty.

US President Joe Biden was quick to reaffirm the US did not support Taiwanese independence (and is firmly in favor of the status quo). Moreover, the fact that the bipartisan “unofficial” delegation sent to Taipei was made up of two former US officials – former national security adviser Stephen Hadley and former deputy secretary of state James Steinberg – rather than current officials, may have been an attempt to minimize the delegation’s provocation to Beijing.

China reacted with a show of force to Speaker Nancy Pelosi’s visit in August 2022, and while it is still possible that the US delegation invokes a reaction, China may be wary of a further deterioration of relations, following a relative improvement since Xi and Biden met on the sidelines of the APEC meeting and US-China militaries resumed dialogue. Nevertheless, it remains plausible that Beijing will respond to Lai’s victory with a show of military strength, increased ‘grey zone’ actions, or via economic sanctions at some stage in the coming months. This may in part be for domestic audiences, but also to put pressure on Lai ahead of his inauguration in May and influence the KMT and TPP in the legislature.

One indicator will be how Beijing approaches its review of Taiwan's preferential tariff agreements under the China-Taiwan Economic Cooperation Framework Agreement (ECFA). Beijing removed tariffs and blocked imports of certain Taiwanese food exports in the lead-up to the election, so further punitive steps could be announced.

Taiwan is unlikely to be the largest driver of risk …

Taiwan's political drift away from mainland China remains a source of conflict risk. But it is unlikely to be a decisive factor over an 18–24-month horizon. Beijing has made clear that moves towards independence will not be tolerated and ultimately both the DPP and KMT want to maintain the status quo, polling shows (Chart 2).

Source: Election Study Center, National Chengchi University, abrdn, January 2024.

President-elect Lai is cognizant of the risks of testing China's tolerance, and while Taiwanese identity politics is likely to strengthen over time, there is little sign of a sudden move towards independence in the near-term. This puts more onus on monitoring US-China tensions.

… US-China tensions are key for assessing conflict risk

We continue to judge that there are powerful counterweights to the potential escalating factors between the US and China that could lead to conflict or invasion. Key reasons include:

The West's response

The potential economic costs to China now appear larger following the actions taken by the West after Russia' invasion of Ukraine. China is much more integrated into Western supply chains and a withdrawal of Western investment, loss of trade or freezing of reserves access could be severely damaging for China's economy.

China's long-run hard and soft power is directly related to the size of its economy

We do not think the Chinese Communist Party (CCP) would be willing to risk severe sanctions and collateral damage, particularly given that China's economy could surpass the US within a decade or so.

A quick win is not guaranteed

Taiwan has become a national security issue for the US, with TSMC largely dominating production of advanced semiconductors used in state-of-the-art weapons systems – this raises the chance that the US does in fact step in militarily. Even if the US does not intervene militarily (which could be disaster for all), there is a risk that an invasion by China fails given the logistical difficulties posed by the Taiwan Strait. And even if “successful” the potential for protracted resistance could draw China into a prolonged insurgency, which damages the CCP's international standing via mass internments.

The US election arguably poses the greatest risk. Moving away from “strategic ambiguity” nullifies the One China policy which has been a bedrock of the US-China relationship. In the extreme, US policy confirming it would defend Taiwan could trigger a “closing window of opportunity” moment, whereby the calculus swings for Beijing, prompting an acceleration of unification plans. Similarly, there is a risk that US ramping up arms sales to Taiwan backfires.

Given these risks, we expect that “strategic ambiguity” will continue, at least in a de facto sense, but in practical terms policy continuity is far from certain, particularly under any future Trump administration. Trump's first term in office saw official US policy towards Taiwan remain broadly unchanged. Trump's comments, however, were marked by inconsistency, alternating between advocating for traditional US support for strategic ambiguity and implying that policy towards Taiwan could be altered by trade concessions by China.

Final thoughts

Trump's comments on his future foreign policy strategy on the campaign trail, while not explicitly outlining an approach to Taiwan, emphasize his desire to pull back from overseas conflicts. His comments imply that he would be focused on a transactional style of foreign policy that would likely lead to less enthusiastic endorsement of strategic ambiguity. If continued in office, this approach could undermine any deterrence effect the US attempts to pursue in the region, even if official policy remains unchanged.

A second Biden administration is also not entirely without risks. On a number of occasions President Biden has implied that the US would in fact launch a military response should China invade Taiwan, in direct contradiction of the strategic ambiguity policy. In each instance his administration has clarified that US policy remains unchanged – and this could be an attempt to address concerns that strategic ambiguity is suffering from diminished credibility – but any future comments risk muddying the waters and raising US-China tensions.