Summer Brings More Acute Challenges for Taiwan
Editor’s Introduction: Hi there. In today’s Asia Policy Brief, ASPI’s Managing Director Rorry Daniels breaks down recent political and economic developments in Taiwan, and how these events point to an uncertain future for the Lai administration and his Democratic Progressive Party (DPP). August will prove to be an important month that has the potential to further impact U.S.-Taiwan and cross-Strait relations.
State of Affairs: Taiwan’s President Under Pressure
Taiwan’s leader Lai Ching-te had a series of setbacks over the last two weeks as Taiwan’s voters rejected a recall of opposition legislators, plans for his U.S. transit in early August were called off, and Taiwan failed to secure a favorable trade deal with the United States. While not explicitly linked, the close timing of these multiple setbacks has spiked anxieties in Taipei about the future of Lai’s agenda.
Lai, as Chair of the ruling Democratic Progressive Party (DPP), publicly apologized after throwing the party’s weight behind the attempt to recall 24 opposition Kuomintang (KMT) legislators and appointed new party leadership to manage the upcoming second wave of recall votes, scheduled for August 23. However, the total failure of the first round of votes means the DPP has lost the opportunity to change the majority in the legislature through the recall process.
A day later came the indefinite postponement of a Lai transit visit through the U.S. on a planned trip to Taiwan’s diplomatic allies in Central America. Details surrounding the final decision to delay the visit remain opaque, but the cancellation came amidst ongoing U.S.-China trade negotiations and rumors of a U.S. President Donald Trump summit in Beijing this fall.
Finally, while many Asian economies concluded trade negotiations with the United States just before the August 1 deadline, Taiwan was unsuccessful in doing so and now faces a tariff rate of 20% with no clear sign on how the two sides will close the gap between U.S. demands and Taiwan’s own imperatives and sensitivities.
Why It Matters: A More Vulnerable Taiwan
This series of events are an inflection point in Taiwan’s domestic politics that could have long-term implications. Pressure at home and abroad could push Taiwan’s parties into closer alignment on key issues or serve to highlight differences and deepen divides. A Taiwan weakened by in-fighting and vulnerable to economic shocks may affect Beijing’s calculus on how to advance its unification objectives, opening up the Taiwan Strait to further instability or an escalating crisis.
While the DPP had hoped the recall would end the gridlock in domestic politics caused by the opposition’s majority in the Legislative Yuan, voters completely rejected the attempt. Several factors may have contributed to the recall’s failure: the late arrival of the DPP to support the grassroots movements that began the recall process; the failure to centralize coordination of the same toward a catalyzing narrative; and a dissatisfaction with other domestic political intrigue, such as the long-time detention of Ko Wen-je, leader of the Taiwan People’s Party aligned with the KMT, which may have mobilized support for the targeted lawmakers. Whether the voters rejected process or substance, the DPP is in the middle of a larger shift—having been in power for almost a decade, it is no longer the upstart party but the political establishment.
If the Lai administration couldn’t solve the domestic politics puzzle, it had hoped to establish Lai’s connections to a U.S. now dominated by the Trump agenda. However, the DPP has been slower than expected to code switch from thundering support for the rules-based international order and shared democratic values to a narrative that would more directly appeal to President Trump’s priorities and transactional style.
While Taiwan has strong bipartisan support in Congress and U.S. defense appointees seem focused on denying the PRC a full-scale invasion, Taipei has also been asked to raise its defense budget and contribute as a semiconductor powerhouse to the build out of a U.S. high-tech manufacturing sector. Despite doing all it can on these points, a bigger fish—a potential U.S.-China trade deal—seems to have deprioritized public shows of support from Washington. Calling off Lai’s visit in the midst of U.S.-China trade negotiations suggests concerns from the U.S. side that Lai’s presence or actions might jeopardize bigger picture priorities with Beijing. As one of the 21 APEC members, Taiwan will be attending APEC 2026 in Beijing—if the U.S. is unwilling or unable to pull off a balancing act between Taipei and Beijing, Lai’s job in promoting Taiwan’s interests becomes that much more difficult leading into local elections just after the APEC summit.
On trade, the Lai administration has been actively trying to close a deal, preferably one similar to the other advanced economies in its periphery, South Korea and Japan. Instead, Taiwan was hit with a 20% tariff rate while negotiations continue. In order to reach an agreement, the U.S. is pressing Taiwan to provide market access in politically sensitive sectors, such as agriculture and autos, as well as invest more in U.S. semiconductor manufacturing and purchase more energy, agricultural products, or weapons from the U.S.—even as Taipei has already put billions on the table with little to show from Washington given delays in fab construction and in delivery of arms sales. The devil will be in the details of the final deal—to what extent will the Trump administration use Taiwan’s vulnerability as leverage that bolsters U.S. economic priorities at the expense of Taiwan’s prosperity?
What to Watch: Can the DPP Pull Out of a Tailspin?
Defense Special Budget Vote: The Lai administration has pledged to increase Taiwan’s defense budget to over 3% by use of special budget authorizations that need to pass the LY. The next tranche will be submitted to the legislature in August. The resulting LY debate could give clues on the trajectory of domestic politics—how will the KMT navigate domestic head-butting around the next set of recall votes when defense preparation and relations with the U.S. are on the line?
Support from the U.S. Congress: Beijing will not be pleased to see the announcement of a new Congressional delegation to Taiwan this month, led by Chair of the Senate Armed Services Committee, Roger Wicker (R-Colorado). How will Taiwan’s media cover the visit, and will Beijing respond with increased military pressure and/or seek to route complaints through the ongoing trade negotiations? Can the U.S. Congress help balance the executive branch’s focus on a trade deal with the PRC, including reconstituting a Lai transit visit at a later date?
Supply Chain Shifts Could Expand Taiwan’s Partnerships. The ongoing restructuring of global trade due to U.S. trade negotiations may create opportunities for Taiwan to build connective tissue through its unofficial and economic relations with the countries of Asia and the world. While cross-Strait trade continues, Taiwan companies are moving their investment dollars elsewhere,. If Taipei can capitalize on developing tech supply chains into Asia’s rising economies, it may find more support overall for continued peace and stability in the Taiwan Strait—and better channels to convey its concerns about Beijing’s aggression.
Nuclear Power Referendum. Alongside the remaining August 23 recall votes, Taiwan’s electorate will vote in a national referendum to decide whether to restart its Maanshan nuclear reactor. The DPP led efforts to sunset all nuclear power from Taiwan after the Fukushima incident in 2011, but increasing power needs for an AI-driven economy and resilience from fossil fuel imports have reopened the debate. A win for the KMT-TPP referendum could further magnify a sense that the DPP is out of touch with emerging challenges.
Dive Deeper with ASPI
Explore ASPI’s Taiwan Policy Database, a one-of-a-kind interactive that allows visitors to trace the evolution of cross-Taiwan Strait relations from the perspectives of Beijing, Taipei, and Washington.
Read Simona Grano’s Taipei Times op-ed on “Europe, Taiwan Amid Global Chaos.”
Read Rorry Daniels’ South China Morning Post op-ed on “Missed Signals Only Worsen Tensions over Taiwan.”