The elections in Taiwan gave the Democratic Progressive Party (DPP) a third mandate. The results were not China’s preferred outcome. 

William Lai, the DPP’s Vice-President, was elected with 40.1% of the vote in the Taiwanese elections held on January 13th. He will replace the current incumbent and DPP President, Tai-Ing-wen, securing a third mandate for the party. Hou-Yu-ih, from the opposition Kuomintang Party, won 33.5% of the vote and Ko-Wen-je, from the new Taiwan's People’s Party (TPP), 26.5%.

Relations between Taiwan and China were at the centre of the election debate and the process was carefully monitored by both Beijing and Washington. The DPP’s stance has always been to reject China’s sovereignty claims over Taiwan, saying that Taiwan was already ‘de facto’ an independent country. However, the DPP has always come short of declaring a formal independence of Taiwan, something that Beijing may see as a red line not to be crossed. China’s preferred candidate was Kuomintang’s Hou-Yu-ih, who advocated improving relations with the mainland.

Although the results did not come as a surprise (the DPP was leading the polls), the outcome is not preferred for China.  The most likely scenario, nonetheless, is a continuation of the status quo, although a tense one. China will continue to say that ‘a peaceful reunification is inevitable’ and Taipei will maintain that a formal independence declaration is not necessary as the island is already ‘de facto independent’. Both parties will save face, but the Taiwan Straits will remain an area of geopolitical concern and a sticking point for US-China relations.   

One key reason that the status quo is likely is Taiwan’s critical role in global supply chains via its semiconductor industry, sometimes referred to as Taiwan’s “silicon shield”. Taiwan supplies about 60% of the world’s semiconductors and about 90% of the most advanced chips.  Taiwanese chipmaker TSMC dominates the global market, accounting for over 50% of the total semiconductor foundry market share.

This reality helps promote stability, in spite of geopolitical tensions. Any upheaval in Taiwan, trade restrictions, or other schisms could massively impact numerous global supply chains and the global economy.  China is Taiwan’s biggest trade partner, including for semiconductors. The US imports about 44% of its logic chips from Taiwan. Meanwhile, the EU is a net importer of electronic integrated circuits (mainly from Taiwan), while TSMC is a major customer of Dutch microchips printing supplier, ASML.