On May 20, Taiwan will inaugurate Lai Ching-te of the Democratic Progressive Party (DPP) as its new president. The DPP is returning as a minority government after eight years ruling as a majority. Although the DPP won the presidential elections, it lost 11 seats in the legislative elections. As a result, the DPP occupies 51 seats, the Kuomintang Party 52 seats, Taiwan People’s Party has eight, and the independents two seats in the Legislative Yuan.
The DPP is a Taiwanese nationalist party with core policies favoring a more pro-independence stance. China, on the other hand, has always viewed Taiwan as a breakaway region that would eventually be under its control, and has not ruled out the potential use of force to take the territory. Despite posturing from China, past experiences indicate that Beijing currently favors a “short-of-war coercion campaign,” which is mainly centered on political and economic warfare rather than direct military confrontation.
While this sort of intimidation has steadily increased in recent years, there is often a peak in activity during events symbolic of Taiwan’s independence. Moreover, tensions between Taiwan and China are likely to escalate further as U.S. President Joe Biden will dispatch a bipartisan delegation of former U.S. officials to Taiwan to show its support for the territory. As such, China is highly likely to escalate its posturing activity around Lai’s inauguration, both to signal its displeasure with the DPP and to test the incoming administration. Such actions by China would likely result in related effects on supply chains in the region.
Chinese military exercises could impact air and maritime shipping
Precedent suggests that China could respond to the inauguration by staging major military exercises in the vicinity of Taiwan. Beijing has done this twice in the last two years: In August 2022 after Nancy Pelosi, the Speaker of the U.S. House of Representatives, visited Taiwan and in April 2023 when then President Tsai Ing-wen visited the United States. In both cases, China’s exercises encircled and simulated attacks on Taiwan, prompting maritime and airspace restrictions in the area.
As of May 14, Beijing has not announced similar military drills around the date of Taiwan’s presidential inauguration. However, Taiwan’s defense ministry monitors and responds to regular airspace incursions by China’s People’s Liberation Army (PLA) aircraft and have noted at least three “joint combat readiness patrols” involving PLA aircraft and warships close to Taiwan in the last month. China claims these sorts of maneuvers are normal procedure, but this activity could quickly escalate to large-scale military exercises, again prompting airspace or maritime restrictions in the region.
Such military exercises in Taiwan and the Taiwan Strait could cause disruptions to air and ocean freight, which could impact global supply chains. The airspace above Taiwan is an important transit point for air transportation in the Asia-Pacific region, with at least 1.5 million flights passing through the Taipei Flight Information Region (FIR) annually. Moreover, Taipei Songshan Airport (TSA) and Taoyuan International Airport (TPE) handle around 2.85 million tons of cargo annually. Airspace closures in the region could force carriers to enact costly diversions or stall cargo at transportation hubs.
Similarly, the Taiwan Strait plays an important role in ocean logistics. The Taiwan Strait is an important shipping lane that carries goods from major hubs including China, Japan, South Korea, and Taiwan to Europe, the United States, and countries in between. Disruptions in the Taiwan Strait could force carriers to re-route vessels, leading to delays in sending and receiving goods.
Presidential inauguration could lead to increase in cyberattacks and trade restrictions
Lai Ching-te’s inauguration could see an increase in cyberattacks targeting Taiwanese businesses and institutions. During the lead up to Taiwan’s elections in January, the territory received a 3,370% increase in Distributed Denial of Service (DDoS) attacks compared to the previous year, possibly directed by China. As such, the days surrounding the inauguration could also see a significant spike in malicious cyber activity targeting Taiwan.
China could use cyberattacks to target critical infrastructure in Taiwan, for example by attempting to sabotage the country’s power grid in the south. If successful, such an attack could significantly disrupt activity across the supply chain, including production, procurement, and distribution of goods and services. These types of attacks on infrastructure are difficult to stage, and Taiwanese security officials have stated they are alert to the threat. Nonetheless, China is likely to increase the intensity of its ongoing hacking and disinformation campaigns targeting Taiwanese society and businesses.
China’s stance towards Taiwan will further be influenced by Lai Ching-te’s inaugural address. Should Beijing be dissatisfied with the contents of the speech, it could punish Taiwan through trade restrictions. One potential example could be terminating the tariff waivers for specific items on the Cross-Straits Economic Cooperation Framework Agreement’s early harvest list. This list removed tariffs for over 520 Taiwanese industrial products in various sectors including textiles, machinery, and petrochemicals.
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