There are many issues that can influence an election. Local and national elections often present different issues for political candidates. National elections, like Taiwan’s presidential election scheduled for January 13, 2024, tend to place a greater emphasis on issues like national identity, national defense, and geopolitics in comparison to local elections. The economy can also have a powerful influence on national politics. While politicians do not control the economy, they will often debate the merits of different economic policies—and incumbent politicians will either take credit or be blamed for economic conditions, whether those conditions are related to government policies or not.
Since the last presidential election in 2020, Taiwan’s economy has experienced what we might call a “pandemic bump.” Because of the global COVID-19 pandemic, industrial production in—and exports from—Taiwan increased in tandem with increased demand abroad for personal electronics. In the beginning of 2021, Taiwan saw its greatest increase in gross domestic product (GDP) in over a decade. However, because Taiwan’s economy relies heavily on trade, there has also been an increase in prices (inflation), which has in turn put pressure on household wages. As the election approaches, Taiwan’s economy is expected to see a slowdown in growth, though this will likely be accompanied by a slowdown in price increases. Meanwhile, Beijing is already using its trade relationship with Taiwan as a means to influence Taiwan’s election. What follows in this article is a preliminary analysis of the ways in which economic issues could affect the 2024 Taiwan presidential election.
The Pandemic Bump
Despite the toll the 2020 COVID-19 pandemic took on the world—death, lockdowns, confusion, and more—Taiwan’s economy managed relatively well. Between the 2016 presidential election and 2019, Taiwan’s annual GDP grew between 2.2 percent and 3.1 percent annually. But in 2020, Taiwan’s economy grew 3.4 percent and reached an annual GDP growth rate of 6.5 percent in 2021—the highest growth rate since 2010. This was mostly thanks to an increase in exports. Taiwan’s exports grew 32 percent between 2020 and 2021, primarily because global demand for electronics increased as more people started working (and living) at home.
Overall, the export of electronic devices such as computer parts and smartphones (and the semiconductors that support them) accounts for 62 percent of Taiwan’s total annual exports. But in 2021, most other exports increased as well, including vehicle parts, chemicals, metals, and plastics. Given Taiwan’s small geographic size, its economy relies predominantly on trade. The value of total trade (exports plus imports) was roughly equal to 116 percent of Taiwan’s GDP in 2019, though this ratio of total trade-to-GDP reached 123 percent in 2021.
Industrial production picked up in 2021 as well, which contributed to overall GDP growth. Annual month-over-month growth in Taiwan’s Industrial Production Index increased from -9.5 percent in March 2019 to 18.1 percent in June 2021. And, investment as a percentage of domestic demand increased from 26 percent to 33 percent between the third quarter of 2019 and the third quarter of 2021. Perhaps this is why Taiwan saw no significant shock to its employment levels during the pandemic, as employers kept staff on to try and meet increased production demands.
However, the pandemic bump has largely subsided in recent months. Taiwan’s projected annual GDP growth rate for 2023 is estimated to be 2.1 percent – the lowest growth rate since 2015. The monthly value of Taiwan’s exports has already been decreasing since it peaked in July 2022, and the growth rate of exports started diminishing as early as May 2021. A silver lining to this is that the monthly value of exports is still higher than pre-2021 levels. However, the continued slowdown in global demand will mean a slowdown for Taiwan’s economy going forward.
Inflation Versus Wages
GDP is a useful gauge for determining how well an economy is doing on a macro level, but it is practically meaningless for households, and therefore meaningless to voters. What generally matters for most people are wages and affordability (i.e., prices measured by inflation). Unfortunately, the pandemic and the war in Ukraine have put considerable pressure on global prices in recent years. Given Taiwan’s reliance on trade, the island nation has faced price increases as well.
The prices of goods and services in Taiwan have been increasing, with inflation increasing significantly in 2021 and 2022 for both consumers and producers. Producer prices are important for understanding the increase in production costs, which can sometimes be passed on to consumers in the form of higher consumer costs. Taiwanese producers saw a 10.5 percent increase in prices by the end of 2021, and a 6.4 percent increase by the end of 2022. These were primarily driven by price increases for fuel and electrical parts.
As a result, consumers saw prices increase by 1.97 percent in 2021, and 2.95 percent in 2022. These were the highest price increases Taiwanese consumers have experienced since 2008. This has been particularly painful for Taiwanese consumers, who have gotten used to seeing inflation below 2 percent, with some years even experiencing deflation (price decreases). Notably, food and services prices experienced some of the steepest increases.
Generally, employers increase wages to keep up with the increase in inflation. However, many countries—including the United States—have not been able to keep up with the pace of the most recent spike in inflation. This is possibly due to the quick and non-structural nature of the current rise in inflation. In Taiwan, wages have increased marginally, but there has still been a noticeable gap between wage growth and inflation.
The annual growth of monthly earnings in Taiwan has been increasing, with wage growth standing at 2.4 percent in the first quarter of 2023. Over the last several years, wage growth was 2.8 percent in 2022, 1.9 percent in 2021, and 1.5 percent in 2020. These are significant increases, especially considering wage growth in Taiwan rarely grew beyond 2 percent post-2000. However, it might not be enough for consumers, especially as day-to-day items like food have increased at higher rates.
While prices have grown only slightly faster than wages in recent years—with prices for some goods, like eggs, making headline news—the central bank of Taiwan expects prices to “gradually cool down” for the rest of 2023. This means that by the time of the election, voters may not feel as much pressure from inflation as they did last year, while the economy still maintains relatively higher wages.
Beijing’s Attempts to Influence the Election
Beijing is increasingly using economic tools—such as leveraging its massive trade relationship with the world—as a means of political coercion. Taiwan has frequently been a target of both economic sticks and carrots wielded by Beijing. As the 2024 election approaches, Taipei is already starting to see Beijing use these tools again to exert influence.
On April 12, one week after President Tsai Ing-Wen (蔡英文) met with House Speaker Kevin McCarthy, China’s Ministry of Commerce announced an investigation into Taiwan’s alleged restrictions on the import of certain goods from China. The investigation involves 2,455 products, mostly consisting of agricultural goods, minerals, chemicals, and textiles. Beijing could use this investigation as a pretense to levy punitive measures against goods exported from Taiwan. While the investigation is scheduled to be concluded by October, the official statement notes that the investigation may be extended until January 12, 2024 – one day before Taiwan’s presidential election.
This is not the first time that Beijing has used trade as a political tool. Beijing suspended the import of some fruits and fish from Taiwan last year after former US Speaker of the House Nancy Pelosi visited Taiwan. It also suspended the import of pineapples, apples, and grouper in 2022. Many of these restrictions were cited as relating to food and safety concerns. Unfortunately, Beijing’s use of economic coercion as a political tool has undermined any of its legitimate concerns about food safety. Additionally, Beijing’s tools are not just limited to trade, as it limited Chinese tourism to Taiwan before the last election. It has also implemented measures in the past to coerce Taiwanese investment into the mainland.
Since President Tsai took office in 2016, Beijing has made no attempt to hide its contempt for the ruling Democratic Progressive Party (DPP, 民主進步黨). PRC officials frequently describe the DPP as “separatists” who are making cross-Strait relations worse. Meanwhile, Beijing has increased its military drills around Taiwan, destabilizing the Indo-Pacific region while simultaneously blaming the Tsai Administration. It certainly appears that this newest trade development is another attempt to influence Taiwan’s upcoming election in ways that would negatively impact the DPP and any other political party not approved by Beijing.
Trade, wages, prices, and so much more affect Taiwan’s economy. Polling offers a roller coaster of opinions on how individuals perceive Taiwan’s economy, as well as the Tsai Administration’s performance in managing it. Overall approval of the Tsai Administration’s economic performance has swung from 29 percent approval/64 percent disapproval in 2019; to 58 percent approval/37 percent disapproval in 2020; back down to 35 percent approval/52 percent disapproval so far in 2023. During this same time, another poll found that roughly 60 percent of respondents feel the economy is the same as the year before. However, between 2019 and 2023, the percentage of individuals who feel the economy was getting better has decreased from 13 percent to 6 percent, while the percentage who feel the economy is getting worse has increased from 24 percent to 32 percent.
As for Taiwan-China relations, 71 percent of individuals polled feel that Beijing’s attitude towards the government of Taiwan is generally unfriendly. 85 percent disapprove of Beijing’s efforts to use its economy to “poach” Taiwan’s diplomatic allies and ostracize it from international organizations. However, 84 percent approve of the efforts of Taiwan’s government to resume cross-Strait exchanges.
Even though Taiwan is a nation with a population of less than 24 million, it is still one of the most significant economies in the world. There are many economic issues that could become major factors in the upcoming election—including wages, prices, employment, trade, taxation, semiconductors, foreign investment, water usage, food scarcity, and more. While presidential candidates will undoubtedly debate over who can offer the better economic policies in the next administration, voters will have to be careful to avoid being unduly influenced by Beijing’s efforts to influence this election.
The main point: The COVID-19 pandemic generated both economic growth and uncertainty in Taiwan. While Taiwan’s economic growth is expected to cool down by the January election, inflation is expected to do the same. It will be difficult to gauge how the 2023 economy might influence voters by that point in time. However, Beijing will almost certainly be looking for new ways to leverage its economy to influence Taiwan’s presidential election.