TRADE & INVESTMENT – The Economic Impact of Taiwan’s New Leadership

With the victory of Tsai Ing-wen and her Democratic Progressive Party in the latest elections, what will it mean for cross-border investment and international commerce in the region as well as the Trans-Pacific Partnership? Rupert Hammond-Chambers, an expert on Taiwanese political and economic issues who serves as BowerGroupAsia’s managing director for Taiwan and as President of US-Taiwan Business Council, reveals his thoughts on the issues

By Leon Lee


On January 16, Taiwan elected a new president as incumbent President Ma Ying-jeou will have served the limit of two consecutive four-year terms later this year. Tsai Ing-wen of the Democratic Progressive Party (DPP) garnered 56 percent of the votes to become the first female president of Taiwan as her political party also regained a simple majority in the legislative branch.

With the change of leadership comes a great deal of concern about its impact on Taiwan’s economic policies. Rupert Hammond-Chambers, an expert on Taiwanese political and economic issues, shared his analysis on the election and what it means for cross-border investment and international commerce in the region as well as the Trans-Pacific Partnership (TPP).

The election outcome

In the latest Taiwanese elections, not only did Tsai score a resounding victory in the presidential election, the DPP also secured 68 out of the 113 seats in the Legislative Yuan – making her political party the majority since 2008. The Kuomintang (KMT), Taiwan’s other major political party, now have 35 seats, the lowest number they have ever had in the legislature.

Another sign of KMT’s diminished presence in the elections is the fact that their presidential candidate Eric Chu received only 31 percent of popular votes compared to Tsai’s 56 percent – an outcome with the widest gap between the two major parties in any of the three presidential elections since 1996.

“At the legislative level, the [DPP] did a very good job choosing candidates that were appealing to local constituencies and did a nice job of tactical [campaigning] in a way that ensured the DPP would secure the majority it was looking for,” says Hammond-Chambers.

Hammond-Chambers, who serves as BowerGroupAsia’s managing director for Taiwan and as President of US-Taiwan Business Council, believes that the 56 percent of votes is a good indication that Tsai is well-positioned for two terms as President.

But, while it does seem like she has the people’s support, the 59-year-old president-elect faces a number of fairly formidable challenges in her new role. For one, Taiwan’s economy is in danger of heading towards recession as growth is modest.

Challenges ahead

Last year, Taiwan only recorded a GDP growth of 0.85 percent. Its GDP in the last quarter of 2015 fell 0.28 percent year-on-year, after experiencing a 0.63 percent decline in the third quarter. With an export-driven economy, it is highly influenced by the declining markets in the countries where a large portion of Taiwanese exports are bound, including the United States and Mainland China.

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“Therefore, I don’t believe that Taiwan, in the next year or two, is going to see any dramatic change to its economic fortunes that would have an impact on its GDP growth rate,” Hammond-Chambers says.

Another challenge the country is facing is the lack of mergers and acquisitions of businesses. Hammond-Chambers points out that Taiwan isn’t as innovative as it used to be. There aren’t as many new businesses starting locally as the entrepreneurial spirit for which Taiwan was once well-known for seems to be missing, and it could result in the further loss of talent to economies abroad.

“In the absence of that, I can see young, smart Taiwanese men and women looking at the broad spectrum of opportunities in front of them [elsewhere]. That’s a real concern for [the Taiwanese economy],” he explains.

“Tsai needs those young, capable twenty-somethings to stay in Taiwan and build businesses there. And they have to make it more attractive,” he adds. “It’s not just about getting the business culture right, it’s also about making housing affordable so they will not have to live with their parents anymore. It’s also other things as well.”

Besides access to affordable housing, other issues that Tsai was elected to address include stagnant wages, underemployment, unemployment and infrastructure development.

TPP candidacy

Hammond-Chambers believes Tsai is well-prepared for the challenges as she has Taiwan’s five domestic pillar industries, namely energy, pharmaceutical, cyber, defense and IC tech, as economic engines well covered. She has people with expertise and a good understanding of those sectors to drive further development but might need time before success can be realized.

At the same time, trade liberalization is an area where she is going to be influential and looking closely to effect some change. “The TPP, in my view, will be her primary external goal for her first term,” Hammond-Chambers believes.

“And I want to be clear: I am not suggesting that at the end of four years, Taiwan will be a member with all its bilateral and multilateral negotiation complete and moving down to the phase of application.”

“What I do believe she wants to achieve is a commitment from the TPP that Taiwan will be in the second round of negotiations. Or, at the very least, it will have launched negotiations that would allow Taiwan to accede.”

The implication of TPP will bring about reforms to the Taiwanese economy with potential opportunities for trade which it strongly needs across the spectrum. Its candidacy to be a part of the trade agreement would strengthen with the support of the United States. Therefore, according to Hammond-Chambers, Tsai has it in her mind to address the ban on US import of pork this year.

Currently, Taiwan bans the import of US pork containing ractopamine, a US Food and Drug Administration-approved leanness enhancer. The US has been asking for the ban to be lifted, and if it happens, it will help Taiwan’s chances into the TPP – albeit strong opposition from local pig farmers and related industries.

“The TPP is a high standard agreement, and Taiwan’s going to have to make some very unpleasant changes. There is a recognition, at least at the ruling class level, that membership in the TPP is essential for Taiwan’s future fortunes, particularly if Korea gets in and Taiwan doesn’t,” Hammond-Chambers explains.

Taiwan currently has free trade agreements with New Zealand and Singapore so there shouldn’t be any opposition from these countries; based on the political relationships with Australia, Canada, Mexico, and Vietnam, it suggests that those countries would support Taiwan’s candidacy as well.

In a congratulatory message to Tsai on her victory, Japan’s Prime Minister Shinzo Abe mentions that his country supports Taiwan’s inclusion in the trade agreement. Things, however, are not as clear with the remaining countries currently engaged in the TPP negotiations: Peru and Chile are key exporters of large quantities of agricultural goods to China, and they may see some risks in supporting the inclusion of Taiwan in the TPP.

Cross-strait relations

Over the last eight years, President Ma Ying-jeou has worked to expand cross-strait economic ties with Mainland China. With a newly elected president, there is a fear that cross-strait relations could be headed towards a different direction – a major issue since the very beginning of the election campaign.

In a speech at the Center for Strategic and International Studies (CSIS) in Washington, DC last June, Tsai highlighted, “While I advocate for constructive exchanges and dialogues with China, I will ensure the process is democratic and transparent, and that the economic benefits are equitably shared.” She also stressed at the time that once elected, she would “push for the peaceful and stable development of cross-strait relations.”

During the presidency of Ma Ying-jeou, cross-strait ties have strengthened. “We’ve just had an unprecedented period in which Mainland China and Taiwan have cooperated. Ma Ying-jeou is about as good as an interlocutor the Mainland could have hoped for,” says Hammond-Chambers.

He anticipates Tsai will strike a responsible balance. “She wants a broad spectrum of consideration in respect to how the two sides can engage one another. And I think she may try and do something to express and demonstrate that it’s not going to be ‘no, no, no’ all the time.”

One of the key initiatives is to push through a piece of legislation in the Legislative Yuan for fast-track authority on potential trade deals with the Mainland – a demonstration that Taiwan’s new leadership is not against doing business. Hammond-Chambers believes Tsai will seek opportunities to show that engagement can still take place.

The way forward

This year’s election was Tsai’s second run for president after having lost to Ma in 2012. Between then and now, she has evolved into a more polished and more comfortable politician, according to Hammond-Chambers’ observations over the years. With the background of an academic and a lawyer by trade, she was part of more than one previous administration of the executive branch.

“One of the challenges that [former president] Chen Shui-bian faced in the early years of his first term was the fact that his party had never run a government before,” Hammond-Chambers says. “They didn’t understand how to run the inter-agency processes.”

“When I look at the people around Tsai right now, I see a lot of people with executive branch level experience from the Chen era,” he says. “From a process standpoint, certainly we’re going to see people in leadership positions who understand what it is to be at a senior level in government.”

“Whether we agree with the policy priorities is a separate conversation, but I do believe, from what I have seen and heard from the people I’m interacting with, there is considerable experience at the top level,” he adds. “That should benefit her.”

It will be interesting to watch what happens with the KMT,” Hammond-Chambers notes. “The party truly is in disarray. They are short of next-generation leaders, short of a clear message, and some distance is in place between the outgoing Ma government and the party itself.”

“It is important for Taiwan that the KMT be a strong and relevant party with good policies. At the moment, the party does not appear to have those things.”

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