As Taiwan holds local elections on November 26 and presidential elections in early 2024, the island nation faces tough decisions in the midst of its changing economic, political and strategic trajectory. Polling suggests that the Kuomingtang (KMT) may have the upper hand in local and municipal elections, although the party has also made allegations that its main political rival, the Democratic Progressive Party (DPP) is turning Taiwan into a “voted-in autocracy” with the help of ”ignorant” youth voters (Kharis Templeman, October 28; iFuun, July 4; United Daily News [UDN], December 25, 2021). A closer study of the impetus behind such claims reveals a longer history of waning KMT electoral influence, which has occurred in tandem with significant changes in the cross-strait economic relationship. It also reflects the current DPP government’s efforts to remake Taiwan’s overall grand strategy.
The End of the “Pendulum” Strategy
Current KMT criticism of the DPP’s political strategy more likely stems from the former’s inability to swing Taiwan’s political pendulum towards pro-China policy since at least the Sunflower Movement of 2014 (China Brief, September 9).  As a result, there has been a loss of Taiwan’s “Post-Chiang” Grand Strategy of alternating from “pro-China” to “pro-Independence” forces, which served to galvanize a two-party electorate while maintaining the island’s “economic pragmatism.” Under that strategy, no matter which way the pendulum went, the island would pursue economic growth by maintaining a stable relationship with the PRC as well as Taiwan’s many other trading partners.
Successive Taiwanese presidents since Lee Teng-hui have oscillated in the predictability of their behavior and the extent to which their policies touted closer political and economic ties with the Mainland —or conversely, greater recognition of Taiwan as an independent polity at the expense of that relationship (Straits Times, January 2016). Much like democratic politics elsewhere, the unpredictability of the Taiwanese electorate reflected swing voters’’desire to “have their cake and eat it too.” In other words, many Taiwanese voters believed they could enjoy the best of both worlds—generally cooperative relations with the PRC and a growing sense of national pride due to partial, de facto international recognition of Taiwan, particularly given its role as a key player in the global economy.
Perhaps ironically, the Post-Chiang era began sunsetting during Taiwan’s Sunflower Movement of 2014 and accelerated with the KMT’s stunning losses in 2014, 2016 and 2020 elections. The Sunflower Movement was a popular protest against the Cross-Strait Service Trade Agreement (CSSTA), made specifically to facilitate the trade in services as part of the Economic Cooperation Framework Agreement (ECFA), the free trade agreement that the KMT government of Ma Ying-jeou signed with Beijing in 2010 (FTV News, March 2015).
The CSSTA was signed by the semiofficial bodies responsible for managing cross-strait relations, the Straits Exchange Foundation (SEF) representing the Taiwanese side and the Association for Relations Across the Taiwan Straits (ARATS) representing the PRC side, on June 21, 2013 in Shanghai, but the agreement never came into force as it was not ratified in Taiwan’s Legislative Yuan (Taipei Times, June 22). In the months following the signing of the CSSTA in Shanghai, Taiwanese sentiment against the perceived impact of the agreement on small and medium businesses grew, along with resentment against the KMT-led government for fast-tracking the agreement without proper debate in the legislature. Fears were also widespread that the agreement would lead to Taiwan becoming too close to China too quickly and that jobs would be lost in the service industry as a result of opening the sector to PRC investment.
The immediate result was a 23-day student occupation of the Legislative Yuan beginning on March 18, 2014, but the longer-term impact of the Sunflower Movement cannot be understated (Liberty Times, April 11). The movement marked a turning point in Taiwanese public opinion against closer relations with China that propelled the DPP and new third-party and independent politicians, most notably current Taipei Mayor Ko Wen-je, to electoral wins and created a new political landscape in Taiwan (The Initium, January 17, 2016). However, one consequence of this shift was the collapse of Taiwan’s longstanding Post-Chiang Pendulum grand strategy, which the KMT had been attempting to maintain, but failed to discern at the time that political sentiment was swinging away from support for deepening ties with the PRC.
From China to Southeast Asia?
Despite the Sunflower Movement protests scuttling the CSSTA, the cross-straits ECFA free trade deal remains functional and in force. However, in 2016, the newly-elected Tsai Administration proposed the New Southbound Policy (NSP), a broad framework for Taiwan’s economic growth, which would serve as an alternative to the China-centric, Post-Chiang model of economic development (TECRO Brunei, August 2016). NSP is an initiative to promote investment, cultural and diplomatic relations and bilateral economic ties between Taiwan and the Association of Southeast Asian Nation (ASEAN) countries (Taiwan Ministry of Foreign Affairs, 2022). It was presciently initiated during a time when production costs, particularly for labor, were rising in the PRC, making Southeast Asian countries more attractive for manufacturing-focused Taiwanese businesses looking for other locations to produce goods from factories offshore. The NSP also reflected the DPP’s popular mandate to reduce economic reliance on Mainland China.
From a purely investment standpoint, Taiwanese companies have divested from the PRC, in no small measure due to the impact of the global COVID-19 pandemic and the PRC’s own national policy responses to the outbreak (Central News Agency, November 10). Extended lockdowns and supply chain disruptions on the Mainland have increased the already rising costs of doing business there. Economic data from Taiwan’s Ministry of Economic Affairs show a significant decrease in approved indirect investment by Taiwanese companies in the Mainland since the pandemic, with Taiwanese outward direct investment in Asia (excluding China, Hong Kong and Japan) and Singapore increasing dramatically in 2021 (MOEA, 2022).
The NSP is the Tsai Administration’s biggest platform for creating a new grand strategy for Taiwan, and it remains to be seen whether the relatively small amount of $2.2 billion invested in NSP countries last year will continue to grow (Nikkei, October 8). During the pandemic, Taiwanese companies’ onshoring activity – both labor and investments – has significantly increased domestic investment and GDP from 2020 to 2021 (Nikkei, January 27). Still, this activity may expand outward to Southeast Asia as COVID controls there wind down and inflation takes hold in Taiwan. Partly missing from statistics surrounding Taiwan’s export and manufacturing-focused economy is the service sector, which was the focus of the 2013 CSSTA. Any successful economic strategy for Taiwan must make efforts to improve the competitiveness of non-manufacturing jobs in Taiwan, which employ the vast majority of the population (Emerald Insight, February 1, 2016; Focus Taiwan, June 11, 2016).
Taiwan may have no choice but to pivot in the vastly changed post-COVID political and economic landscape. China has placed what are tantamount to political sanctions upon its own economy in the form of lockdowns, crackdowns on “monopolistic” industries and its use of corruption investigations against business and political leaders, all of which have had a chilling effect on Taiwan’s investment in the PRC. On top of the PRC’s self-imposed sanctions, there have been extensive U.S. sanctions against China targeting advanced industries such as semiconductors and increased regulatory scrutiny of major Chinese companies listed on U.S. stock exchanges. American sanctions in particular make it impossible for Taiwanese businesses to do business with sanctioned entities or in sanctioned industries in the PRC without first obtaining a business license or exemption.
As a result, economic pragmatism looks far different than it did a decade ago, reflecting a partial rejection of globalization on a massive scale—the same form of China-centric globalization that propelled Taiwan to its high place in the global economic rankings to begin with. The PRC’s reliance on Taiwan’s economic pragmatism to maintain sustained, cross-strait economic relations is now on uncertain ground and may lead the Xi Jinping government to conduct additional provocations against the island after losing an established source of leverage.
However, when the effects of sanctions and the rise of Southeast Asian economies are combined with continuing zero-COVID policies on the Mainland, Taiwan may be acting just as pragmatically as before, only in a different way. Even if GDP growth of the NSP countries likely will not match the meteoric rise of China’s economy during the 1990s to 2010s, the PRC’s economic growth has slowed and the costs of doing business have grown to the point where an alternative is starting to look more appealing.
The Missing Military Link?
The key element that remains largely lacking from Taiwan’s grand strategy is a military approach that goes beyond anticipating intervention by the United States and its Allies should a direct conflict with China occur. The prevailing military thinking in Taiwan has long reflected a preference for Cold War-era forward deployments and employment of large conventional weapon systems, although the Ministry of National Defense’s Quadrennial Defense Review of 2021 now includes sections on asymmetric warfare and Grey Zone Threats (MND, 2022). However, military policy does not fundamentally answer the question of military strategy as dictated by military identity – as in, what the military thinks of itself in the context of Taiwan’s democracy. This is unsurprising as the political basis by which Taiwan’s military acquired its mandate is relatively new. During the martial law period, Taiwan’s military served the interests of the ruling KMT party—including its systematic repression of political dissent under the governments of first Chiang Kai-shek and then his son Chiang Ching-Kuo, and U.S. interests vis-à-vis the PRC, to the extent that its activities were allowed under U.S. Asia policy. However, as plans to “take back the Mainland” were abandoned and Taiwan’s two-party democracy strengthened, an alternative military identity never fully developed, despite halting movement towards an all-volunteer force (UDN, March 1; March 17 ).
Strengthening the identity of Taiwan’s military in order to achieve clarity as to what its service people are defending against and making the population understand the importance of this goal in the absence of an actual kinetic conflict will be a critical part of any future Taiwanese grand strategy. This is certainly the case given recent political gains by the DPP and historical changes in what the military is expected to defend against due to the PRC’s significant recent military modernization (China Brief, August 12). Otherwise, it remains unclear as to whether additional military purchases and budget increases alone will allow Taiwan to adequately defend against a highly motivated and well-equipped adversary whose political mandate is direct and unambiguous and whose military’s missions now expressly include developing the capacity to invade Taiwan (Backchina, September 19; China Brief, September 20).
Conclusion: A Time to Choose?
As major elections in Taiwan approach, the local mayor/county magistrate and city council contests on November 26 and the next presidential election in January 2024, these difficult questions will loom larger. How far is Taiwan willing to commit to fighting totalitarianism regionally and abroad in a new global environment? The answer to this question is crucial to determining an effective grand strategy for Taiwan that fully accounts for changing from a Cold War-era defensive posture to correctly handling the global and regional impact of an assertive, even belligerent China. This once seemed like an anachronistic question, but now appears urgent given the PRC’s growing aggression against the island. Taiwan was not alone in assuming that the U.S.-led world order would deter “bad apple” actors from conducting regionally and globally destabilizing acts of aggression. Prior to the pandemic, it was unthinkable that such behavior would impact developed nations, much less result in the now exacting global challenges in food and energy supply, inflation and major disruptions to the technology sectors, which form the lifeblood of Taiwan’s modern economy.
If Taiwan’s posture is solely self-defensive and “preservative” of its society, it may risk becoming outmoded by U.S. allies in the Pacific who have committed to a proactive coalition against coercive and destabilizing states such as Russia and North Korea and a PRC that challenges the status quo of peace and order in East Asia. On the other extreme, the U.S. could soon find a new policy vehicle other than the Taiwan Relations Act in which active regional and global strategic measures will be delegated to Taiwan’s government, and this may be unpalatable to fiercely independent Taiwanese public opinion (Taipei Times, September 16). If this occurs, there will undoubtedly be pushback from some officials or politicians within the government, who either believe Taiwan’s neutral or ambiguous posture should be maintained to achieve security objectives, along with those who advocate for reinvigorating ties with the Mainland for the same and additional reasons, such as business. But once the debate is over, it may be time to choose a side.
Philip Hsu is a freelance consultant and writer. He is a graduate of Columbia’s School of International and Public Affairs and Georgetown’s Walsh School of Foreign Service.
 Wu Rui-ren, et. al. Shine Through: The Impact, Depth and Vision of the Sunflower Movement. Taiwan New Taipei Left Bank Culture, 2016.