With Vice President William Lai (賴清德) winning the presidential election, but his Democratic Progressive Party (DPP) failing to secure a majority in the legislature on Saturday, his administration is poised to face challenges over the next four years. The obstacles ahead involve not only Taiwan’s thorny relations with China, but also the new domestic political scene and an uncertain global economy.
In President Tsai Ing-wen’s (蔡英文) eight years in office, Taiwan strengthened its partnership with Asia-Pacific countries and formed a consensus with several like-minded nations on regional security. Lai is expected to continue Tsai’s foreign and defense policies such as bolstering ties with the US, Japan and other countries in the Indo-Pacific region, and building new weapons such as submarines and fighter jets.
In the run-up to Saturday’s elections, China used the Economic Cooperation Framework Agreement (ECFA) as a political bargaining chip against Taiwan, and the suspension of beneficial tariffs on several Taiwanese goods is sure to impact domestic industries. Unlike the other two candidates who talked about restarting ECFA negotiations with China, Lai focused on assisting local industries through digital transformation and advocates innovation-driven models to improve firms’ operations. Still, his adminstration should help Taiwanese firms to expand their global presence.
However, Lai faces the daunting task of facilitating meaningful dialogue across the Taiwan Strait without succumbing to Chinese pressure or decreasing Taipei’s goodwill toward Beijing. As Taiwan’s export-oriented economy relies on participation in regional trade blocs, Lai’s administration is expected to step up participation in trade deals such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Indo-Pacific Economic Framework, to avoid becoming marginalized in the global economy and to respond to China’s growing economic coercion.
The approach Tsai adopted has seen Taiwan gradually reduce its trade reliance on China and increasingly embrace other markets, resulting in significant economic growth and domestic investment over the past eight years. For instance, GDP expanded to NT$23.54 trillion (US$756.21 billion) last year from NT$17.06 trillion in 2015, and GDP per capita even surpassed South Korea’s for the first time in 20 years in 2022. The government’s incentive packages also led to 1,400 companies investing more than NT$2.1 trillion in Taiwan from 2019 to last year.
However, Taiwanese manufacturers no longer focus solely on low-cost contract manufacturing. Instead, the success of the nation’s semiconductor industry and robust shipments of information and communications technology products amid an artificial intelligence boom has made developing high-value, high-margin products the core of domestic industrial transformation and economic value in the post-COVID-19 era.
Due to changes in global politics and economic situations, Taiwanese industries face pressure to transform. Lai’s economic platforms have focused on building an innovative economy and smart nation, involving accelerating the development of semiconductors and artificial intelligence-related technologies, promoting financial technology innovations, as well as continuing investments in green energy, cybersecurity and national defense. He also envisions a future where traditional industries thrive on value-added innovation, net zero carbon emissions and digital technology.
The president-elect also emphasizes policies that promote domestic service industry development, such as in hospitality and tourism, as the industry accounts for about 60 percent of Taiwan’s employment and plays an important role in supporting local small and medium-sized enterprises. Yet he still faces the same problems his predecessor faced, such as high home prices, a low national birthrate and a widening wealth gap. Furthermore, the difficult tasks of accelerating wage growth, creating jobs for young people and promoting talent development also await him.
When it became clear that the world was entering a new era with a radical change in the US’ global stance in US President Donald Trump’s second term, many in Taiwan were concerned about what this meant for the nation’s defense against China. Instability and disruption are dangerous. Chaos introduces unknowns. There was a sense that the Chinese Nationalist Party (KMT) might have a point with its tendency not to trust the US. The world order is certainly changing, but concerns about the implications for Taiwan of this disruption left many blind to how the same forces might also weaken
As the new year dawns, Taiwan faces a range of external uncertainties that could impact the safety and prosperity of its people and reverberate in its politics. Here are a few key questions that could spill over into Taiwan in the year ahead. WILL THE AI BUBBLE POP? The global AI boom supported Taiwan’s significant economic expansion in 2025. Taiwan’s economy grew over 7 percent and set records for exports, imports, and trade surplus. There is a brewing debate among investors about whether the AI boom will carry forward into 2026. Skeptics warn that AI-led global equity markets are overvalued and overleveraged
Japanese Prime Minister Sanae Takaichi on Monday announced that she would dissolve parliament on Friday. Although the snap election on Feb. 8 might appear to be a domestic affair, it would have real implications for Taiwan and regional security. Whether the Takaichi-led coalition can advance a stronger security policy lies in not just gaining enough seats in parliament to pass legislation, but also in a public mandate to push forward reforms to upgrade the Japanese military. As one of Taiwan’s closest neighbors, a boost in Japan’s defense capabilities would serve as a strong deterrent to China in acting unilaterally in the
Taiwan last week finally reached a trade agreement with the US, reducing tariffs on Taiwanese goods to 15 percent, without stacking them on existing levies, from the 20 percent rate announced by US President Donald Trump’s administration in August last year. Taiwan also became the first country to secure most-favored-nation treatment for semiconductor and related suppliers under Section 232 of the US Trade Expansion Act. In return, Taiwanese chipmakers, electronics manufacturing service providers and other technology companies would invest US$250 billion in the US, while the government would provide credit guarantees of up to US$250 billion to support Taiwanese firms
RSS