Taiwan’s Upcoming Elections

Taiwan is set to hold elections early next year that may be the most unusual the country has ever seen. The unexpected insurgence in Taipei last week of a Beijing-friendly third party has shaken decades of Taiwanese politics, which until now, has been a two-party system.

Taiwan and U.S.-China Relations:

Taiwan, a self-ruled island off the coast of China, is not formally recognized in the international community as Beijing considers it a runaway province. However, the United States has been Taiwan’s closest ally, providing it with billions of dollars of arms in case of a China invasion.

Dominating Politics in Taiwan:

Relations with China, the United States, and Taiwan’s globally coveted semiconductor chips dominate Taiwanese politics. Semiconductors are at the heart of Washington’s tech war with Beijing. U.S. tech restrictions have hurt Beijing’s access to advanced chips. However, powerful figures within the Biden administration are arguing that restricting Beijing’s access to chips isn’t enough.

Taiwan Semiconductor Manufacturing:

One Taiwanese firm, Taiwan Semiconductor Manufacturing (ticker: TSM), makes roughly 60% of the world’s semiconductors and almost all the world’s most advanced ones. They are arguably the most vital component of many sophisticated military, supercomputer, and communications devices. Their role in AI is becoming indispensable.

The U.S. believes it needs its own chip industry to reduce reliance on other countries, particularly on Beijing, which could potentially take over the industry. Though President Joe Biden has repeatedly broken with precedent and said that he would send troops to defend Taiwan in case of China invasion, the administration stresses its policy towards Taiwan hasn’t changed.

The Impact of U.S. Restrictions on Taiwan Semiconductor Sales to China

Taiwan Semiconductor’s (TSM) sales to China have been hit with restrictions due to the company using a small amount of American components and the U.S.’s close relationship with Taiwan’s Democratic Progressive Party (DPP). Although the chipmaker has attempted to bypass the limitations by manufacturing chips in its Arizona plant, the crackdown has negatively impacted U.S. chipmakers, including Nvidia (NVDA).

However, the recently passed legislation aims to mitigate the damage done to American chip manufacturers and counter China’s retaliatory actions against U.S. firms such as Micron Technology (MU).

The growing importance of Taiwan as a key player in Sino-American relations recently came to the forefront when U.S. Secretary of State Antony Blinken met with Chinese President Xi Jinping in Beijing last week. Amid several topics discussed, Blinken conveyed dissatisfaction with China’s aggressive military maneuvers near Taiwan and its violation of its airspace.

While reaffirming that the U.S. adheres to a non-support stance for Taiwan’s independence, Blinken’s decades-long policy statement sparked criticism from Republican officials, despite the party’s official stance against Taiwanese independence.

Notably, according to John W. Garver, an emeritus professor, and specialist on U.S.-China relations at Georgia Tech, China is taking advantage of America’s falling status by exerting dominance in certain areas such as its modern navy compared to America’s spread-out forces and past abandonment of former allies under previous leadership.

Third Party in Taiwan’s Elections

Campaigning for Taiwan’s presidential and legislative elections in January is in full swing. Recent polls show the DPP leading the Beijing-friendly Kuomintang, or KMT, by a small margin. However, a previously unknown party is now gaining momentum, causing a significant upheaval in Taiwan’s two-party system. The Taiwan People’s Party, or TPP, currently leads the KMT by about two percentage points, an insignificant difference within the margin of error for the ruling DPP amidst ongoing scandals.

According to Rory Green, Lombard Green’s chief China economist, “while it is too early to predict the election result,” a win for the DPP is likely to “increase cross-strait tensions,” while a victory for KMT or TPP “would decelerate U.S.-Taiwan engagement.”

Both the KMT and TPP are likely to reduce tensions with Beijing. The TPP is considered more accommodating than the DPP, and more prone to lessen chip sales. This could have significant implications for the political, military, and economic sectors.

However, as Austin Wang, a political science professor at the University of Nevada, Las Vegas and an expert on US-Taiwan-China relations, stated, “If the TPP or KMT wins in 2024, the U.S. chip ban will fail. And China will enhance its influence over Taiwan.” He continues, “U.S. high-tech companies who still invest in China may benefit from it temporarily, but it is likely that China will develop its own products in the long run.”

Therefore, Taiwan’s upcoming election remains crucial not just to its people but also to its neighbours.

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