Tensions between Beijing and Taipei in 2022 reached their heights since the 1995-1996 Third Strait Crisis. The decision by the outgoing Speaker of the US House of Representatives Nancy Pelosi to visit Taiwan in August, few months prior to the momentous 20th Congress of the Chinese Communist Party, was immediately followed by an unprecedented display of military capabilities by the People’s Liberation Army in the waters and airspace surrounding Taiwan. Forceful assertions of sovereignty over the island by Beijing, and explicit declarations of support in case of a Chinese attempt at a military takeover by President Biden preceded and followed the events that occurred in August, only to partially wane by the end of the year following the Xi-Biden G20 meeting in Bali. With no open route to improve cross-Strait relations, the Tsai administration further deepened relations with the US and expanded unofficial engagement with Washington’s East Asian allies and the European Union and its member states. Shared support for Ukraine against Russia’s aggression and growing synergies in industrial policy related to the semiconductor sector drove this engagement, without however producing meaningful results in trade policy. In November, the Kuomintang obtained a sweeping victory in the local «nine-in-one» elections. The result showed the party’s continuing competitiveness in local elections, but the slowdown of the Taiwanese economy, rising inflationary trends, and declining popular support for the Tsai administration complicated the ruling Democratic Progressive Party’s prospects for the 2024 general elections.

Keywords – Taiwan; China; Cross-Strait relations; geo-economics.

1. Introduction

This study reviews the major political and economic events occurring in Taiwan in 2022 by exploring developments in the field of cross-Strait relations, international politics, and domestic politics and economics. The essay consists of six sections in addition to this introduction. The first section covers the most relevant events that occurred during the year in review: the visit by then-U.S. House of Representatives Speaker Nancy Pelosi to Taiwan, the military response to this visit by the People’s Liberation Army (PLA), and Taiwan’s countermeasures to Beijing’s actions. The second section examines, from a broader perspective, the issue of Taiwan’s security through the prism of the Beijing-Taipei-Washington triangular relation. The third section assesses the impact and implications of the Russian aggression of Ukraine for Taiwan. The fourth section further investigates Taiwan’s position in global politics through the lenses of geo-economics, with a focus on the impact of U.S. industrial policy. The fifth section, instead, covers domestic politics and economics. The first segment discusses the results of the local elections held in November 2022, while the second segment provides an overview of the performance of the Taiwanese economy throughout the year in exam. The essay ends with conclusions summing up the main findings.

2. A dangerous August: The Pelosi visit, Beijing’s response, and Taipei’s countermeasures

Between 2 and 3 August 2022, the then-US House of Representatives Nancy Pelosi’s decided to lead a Congress delegation visit to Taipei, notwithstanding warnings by Beijing, concerns by the Biden administration, and – at least according to pro-China Taiwanese media – an attempt by the Tsai administration to withdraw the invitation [Zhou, Wang and Wu 2022]. The visit resulted in a critical deterioration of the security environment in the Taiwan Strait. Pelosi became the first House Speaker to visit the island following Newt Gingrich, who visited Taipei for a few hours in April 1997. During her stay, Pelosi visited the Legislative Yuan (LY) and met with the Republic of China (ROC) President Tsai Ing-wen (蔡英文). On the same day of Pelosi’s arrival, the Eastern Theatre Command of the PLA issued a statement announcing «a series of joint operations» to be conducted «on the periphery of the island of Taiwan» from that day to 10 August. The PLA statement presented the operation as a «stern deterrence» against Washington and a «serious warning» against the Tsai administration [‘Dongbu zhanqu’ 2022]. A separate official Chinese statement, also issued on 2 August, announced the establishment of six «closure areas» for live drills surrounding Taiwan’s territorial sea [PRC MND 2022], leading to a virtual blockade of the island. Two of these closure areas overlapped with Japan’s Exclusive Economic Zone (EEZ) [Yu, Wang & Lin 2022]. On 4 August, the day after Pelosi’s departure, the PLA Rocket Force (PLARF) launched from the Mainland 11 ballistic missiles in four of the six closure areas. Four missiles reportedly crossed the island of Taiwan at an exoatmospheric altitude, thus without technically entering its airspace. Five missiles landed in Japan’s EEZ [Shu 2022].

Starting on 2 August, aircrafts from the PLA Air Force (PLAAF) and the PLA Navy (PLAN) conducted sorties within Taiwan’s Air Defense Identification Zone (ADIZ) at an unprecedented scale and tempo, well beyond the supposed end of the «joint operations» on 10 August. Between 2 August and 2 September, PLAAF and PLAN aircrafts totalled 458 sorties, compared to the 625 sorties conducted between 1 January and 1 August 2022, and the 972 sorties conducted throughout 2021. By the end of 2022, the total number amounted to 1737, in contrast with the 1382 that occurred between 2019 and 2021 [Brown & Lewis]. Moreover, starting on 3 August, PLAAF and PLAN aircrafts began to systematically cross the so-called «median line» of the Taiwan Strait.1 Previously, the median line had been crossed only on five occasions: in 1999, 2011, 2019, 2020 [Pedrozo 2020], and in May 2022. Following the beginning of the joint operations, 302 crossings occurred only in August. By the end of 2022, the total number of crossings was 564 [Brown & Lewis]. Conversely, the information provided by the ROC Ministry of National Defense (MND) on the activities of PLAN vessels in the waters of Taiwan’s «surrounding region» were much less detailed. The number of vessels identified oscillated between 10 and 14 in the period from 5 August to 10 August. PLAN vessels, however, continued to maintain a constant presence in the «surrounding region» even after the official end of the joint operations [MND]. The two PLAN air carriers, however, were not deployed during the joint operations. Similarly, no meaningful activities from the PLA ground forces were reported – most likely a way to allay potential concerns over an actual amphibious invasion of Taiwan.

Well into late August, Beijing also used civilian unmanned aerial vehicles (UAVs, «drones») to enter the airspace of the ROC-controlled Kinmen Islands facing the shores of Fujian. The repeated incursions and the harassment of ROC Armed Forces troops stationed there were systematically disseminated on Chinese social media. President Tsai eventually issued a presidential order calling for the adoption of «necessary and strong countermeasures» [ROCOP 2022b], and the troops reportedly shot down a Chinese UAV for the first time in late August [Yeh 2022]. These actions led Fujian authorities to strictly regulate the use of UAVs [Feng 2022].2 In the wake of these developments, the ROC Ministry of Defense Chiu Kuo-cheng (邱國正) announced that any Chinese incursion in the Taiwanese airspace or in the territorial waters would be now considered a «first strike» [Hung 2022].

The PLA demonstrated its ability to impose a potentially devastating blockade over Taiwan, highlighting the stark shift in the regional military balance in the region that occurred since the 1995-1996 Third Strait Crisis. Chinese external and internal propaganda focused on this point, presenting the PLA’s operations as acts of «encirclement» and «blockade and control» of the island [Liu 2022; Fan & Chen 2022]. The response to Pelosi’s visit paved the way then for a dangerous «new normal» in the Taiwan Strait security environment, featuring a sustained increase in the number of PLA aircrafts and vessels in Taiwan’s ADIZ and surrounding waters, and the effective erasure of the «median line».

Against this backdrop, it is difficult to paint Pelosi’s visit in a positive light. Pelosi arguably prioritised her legacy and political calculations related to the U.S. midterm elections in November over Washington’s and Taipei’s long-term security interests. Her supporters may point to a couple of welcomed developments. First, an increased awareness of the existential threat that Taiwanese liberal democratic institutions face among the global and in particular Western public opinion. Second, the statements issued by G7 Foreign Ministers on 3 August, which called on «the PRC not to unilaterally change the status quo by force in the region, and to resolve cross-Strait differences by peaceful means» [U.S. Department of State 2022a], as well as those by the European Union (EU) High Representative for Foreign Affairs and Security Policy Josep Borrell [EETOT 2022]. These statements were demonstrations of unity among major liberal democracies over the Taiwan issue hard to fathom during the Trump presidency. Third, the resilience of the Taiwanese economy, which was barely affected by the events surrounding Pelosi’s visit [Blanchette et al. 2022]. Yet, these developments hardly balanced the deterioration of the security environment, because Beijing’s reaction has substantially eroded its room for future escalation if a new flashpoint emerges. In addition, with the exception of Japan and Australia, the reactions of regional state actors, while not overly sympathetic to Beijing, remained generally frosty to Washington [Zheng & Heijmans 2022; Kim 2022]. Arguably, the visit bolstered Beijing’s narratives about the origins of current tensions on the Strait, which present Washington and Taipei as the two sides actually responsible for the disruption of Asia-Pacific’s stability.

3. The Beijing-Washington relation and Taiwan: Trapped in an action-reaction dynamic

Notwithstanding Pelosi’s direct responsibilities, the deterioration of cross-Strait security should be seen as a new stage within an action-reaction cycle that has been characterising the relation between Beijing, Washington and Taipei since the second half of the 2010s. The origins of this dynamic trace back to: (1) China’s decision, matured between 2014 and 2017, to abandon its previous «strategic patience» over the Taiwan issue; (2) the emergence of full-fledged Sino-American competition under the Trump administration in 2018 – and the fundamental continuity (notwithstanding glaring differences in style) in the China policy of the Biden administration; and (3) the Tsai’s administration eagerness to internationalise cross-Strait tensions and to deepen relations with Washington, and other major liberal democracies, in response to Beijing’s actions [Insisa 2021].

In the months prior to the August crisis, Beijing’s messaging – amplified by continuing presence in Taiwan’s ADIZ and surrounding waters – insisted in condemning «foreign forces’ interference and «‘Taiwan-independence’ splittists’ plots», while attempting to project a cognitive climate of inevitability over unification [‘2022 nian dui Tai’ 2022]. A key component of Chinese messaging in this stage was the focus of domestic propaganda and propaganda targeting Taiwan on the «Party’s Comprehensive Plan for Resolving the Taiwan Issue in the New Era», originally introduced in the Communist Party of China’s (CPC) 2021 Third Historical Resolution [‘Zhonggong zhongyang’ 2021; ‘2022 nian dui Tai’ 2022]. In line with past analyses of the nexus between propaganda and policy-making in the People’s Republic of China (PRC) [Ohlberg 2013], the «Comprehensive Plan» was at the same time ubiquitous in official statements over the island and never clearly articulated, if not as a vague summation of Xi Jinping’s (习近平) previous statements on Taiwan. Given the black-box nature of China’s Leninist politics, it is possible that the Comprehensive Plan is an actual roadmap for unification, but its ubiquity may have simply reflected two necessities for the Party-centre. First, to present Xi as the actor in the controlling seat in the period leading up to the CPC 20th Congress eventually held in October. Second, the need to mask the atrophy of Beijing’s Taiwan policy, which is stuck to a narrow interpretation of the «one country, two systems» framework, notwithstanding its rejection by the Taiwanese people.

The Biden administration, in turn, framed Beijing’s message as evidence of an escalation geared toward a military invasion of the island, rather than as a Chinese attempt to signal concern over Washington’s efforts to deepen cooperation with Taipei and internationalise cross-Strait tensions. Answering a reporter’s question during his visit in Tokyo for the Quad Summit in May, Biden stated that the U.S. had to honour its «commitment» made to Taiwan to use military force if China invades [Sevastopulo, Inagaki & Hille 2022]. His answer provided further clarity to the President’s position, after in 2021 he had first mentioned an unspecified «agreement» over Taiwan with Beijing, then mentioned American «commitment» to the defence of the island, and finally stated that Taiwan «is independent, it makes its own decisions» [Insisa 2022, p. 133]. Exemplifying the action-reaction dynamic sketched above, China not only used extremely assertive language to defend its sovereignty claims at the Shangri-La Dialogue held in June [IISS Shangri-La 2022], but it also launched an external propaganda campaign using state officials and state media to deny the status of the Taiwan Strait as «international waters» [MFA 2022a; Kong 2022], pushing both Washington and Taipei to forcefully reject these claims [MOFA 2022a].

The rhetorical escalation continued after Pelosi’s visit. On 10 August, Beijing issued the first white paper on the Taiwan issue under Xi’s leadership. This document provided no new insights, but attempted to project a climate of inevitability over unification [SCIO 2022a]. A month later, Biden reiterated its administration’s commitment to defend Taiwan in case of an «unprecedented military attack» [‘Biden tells 60 Minutes’ 2022]. The next week, the then-Chinese Ministry of Foreign Affairs Wang Yi (王毅) warned that «any move to obstruct China’s cause of unification is bound to be crushed by the wheels of history» [MFA 2022b]. The same metaphor appeared also in the report delivered by Xi during the CPC’s 20th Congress in October, together with customary vows to «never promise to renounce the use of military force» to achieve unification [SCIO 2022a]. Days later, both U.S. and ROC officials sounded the alarm of a potential use of military force by Beijing to change the status quo as soon as 2023-2024 [Marlow 2022; Chau 2022], in contrast with the previous forecast suggested identifying 2027 as the most likely period of «maximum danger» for the island, a talking point introduced by the then-exiting Commander of the U.S. Armed Forces Indo-Pacific Command, Philip Davidson, in 2021 [Sugeno & Nagasawa 2022]. Secretary of State Antony Blinken would further argue that Beijing decided that the «status quo was no longer acceptable … they wanted to speed up the process by which they would pursue reunification» [Pamuk, Martina & Lewis 2022], forcing Chinese officials to deny such a shift [Zheng 2022]. Arguably, these statements are not realistic, because there is no indication of an imminent Chinese invasion. The composition of the new CPC Central Military Commission that emerged from the 20th Congress features neither officials possessing deep operational expertise on Taiwan, nor the composite configuration between PLA branches that would reflect the requirements of a massive joint operation such a military invasion [Wuthnow 2022]. Furthermore, any attempt at a military takeover of the island would require logistic, financial, and social preparations to such a scale that maintaining an element of surprise would be simply impossible [Culver 2002].

After the meeting held in November between Biden and Xi at the G20 Summit in Bali, widely seen as a joint attempt to establish a «floor» to a bilateral relation in free fall [Bose & Widianto 2022], the rhetorical escalation between China and the U.S. relatively waned. Indeed, immediately after the meeting with Xi, Biden himself declared «I do not think there’s any imminent attempt on the part of China to invade Taiwan» [Moriyasu 2022]. Yet, the same action-reaction dynamic remained at play. President Biden’s signature of the National Defense Authorization Act (NDAA) for the fiscal year 2023, which included in the new Taiwan Enhanced Resilience Act (TERA) US$ 2 billion in financing of military sales for Taiwan and up to US$2 billion a year in grant assistance for the island through 2027 [U.S. Congress 2022], was followed two days later, on Christmas day, by the second largest display of aircrafts and vessels into a single day join patrol operation [Everington 2022].

The account provided above highlights one issue that deserves further examination: the significance of Biden’s statements over an American «commitment» to defend Taiwan. Arguably, the statements in May and September are based on the U.S. President’s interpretation of the 1979 Taiwan Relations Act as a legal tool committing the U.S. to defend the island in case of a Chinese military takeover. Furthermore, this interpretation is not seen in contradiction with Washington’s own «one China policy», according to which – contra Beijing’s interpretation – the U.S. recognises the PRC as the legitimate government of China but, crucially, stays mum over its sovereignty claims over Taiwan [Bush 2017].3 This position, in turn, explains the efforts by White House officials and by Blinken to reassure Beijing – and the other actors in the Asia-Pacific – that the President’s words do not affect the country’s «one China policy» [White House 2022a; U.S. Department of State 2022b]. This approach, however, can be criticised as a convoluted attempt to deter Beijing that could in fact lead to the very same scenario that it tries to avoid – especially if the Xi administration misperceives its design and concludes that all remaining avenues for unification are closed.

The last segment of this section concerns defence cooperation between Washington and Taipei, and the Tsai administration’s defence policy. The year in review saw one meaningful development in security cooperation: the announcement of cooperation between the ROC armed forces and the U.S. National Guard announced by President Tsai in May. It also saw the continuing routinisation of U.S. sales of weapons systems to Taiwan. Yet tensions between Washington and Taipei over the strategy underlying the ROC Armed Forces’ military build-up continued. Both sides share a rhetorical commitment to a concept of asymmetrical defence that aims at leveraging Taiwan’s advantages against a PLA amphibious invasion [U.S. DoD 2022a, p. 17]. Yet, the U.S. politico-military establishment continues to perceive Taiwanese resistance to this qualitative transformation of the ROC Armed Forces, given their continuing request for «expensive legacy systems» to counter the PLA in the air and sea domains [Timbie & Ellis, Jr. 2021]. Thus, the Pentagon blocked the sale of anti-submarine helicopters and tactical airborne early warning aircrafts, in the attempt to nudge Taipei toward its preferred acquisitions [Hille & Sevastopulo 2022]. Further tension over defence cooperation with Taiwan also emerged within the U.S. Congress. The TERA introduced in the 2023 NDAA, in fact, saw a drastic reduction of proposed American support for the Taiwanese military build-up, as the US$ 10 bn, 5-year package built around grants originally proposed in the Senate was reduced to a US$ 2 bn loan for one fiscal year – as discussed above [Wise & Hutzler 2022]. Concerns among the most vocal supporters of Taiwan in the U.S. policy environments were amplified by the reduction of naval activity across the Taiwan Strait throughout 2022 to nine transits, in contrast with the 10, 13, and 12 transits performed in the previous three years [Lindberg 2022].

In regard to Taiwan’s defence policy, the MND proposed a record US$ 18.3 bn defence budget for 2023 (13.9% higher than the 2022 budget), primarily focused on personnel and logistics and maintenance, with only about US$ 0.8 billion destined to the purchase of new weapon systems [Hung & Yeh 2022]. Moreover, on 27 December President Tsai announced the extension of conscription, from the current four months to one year, starting from 2024. The reform aims at better addressing the threat of a Chinese invasion by improving the quality of training, preparedness, and size of troops. TVBS polls stated that 71% of Taiwanese people endorsed these changes [‘Bingyi yanchang’ 2023].

4. Taiwan and the war in Ukraine: Sanctioning Moscow, supporting Kyiv, engaging EU countries

The Russian full-scale invasion of Ukraine that started on 24 February 2022 showed Taiwan’s increasingly relevant role in international politics, as well as the width and scope of its expanding ties with EU member states. During a public event in Tainan on 25 February, President Tsai argued against comparisons between Ukraine and Taiwan, implicitly reflecting the then widely shared belief of Kyiv’s rapid capitulation. She emphasised the Taiwan Strait’s function as a natural barrier, the geostrategic position of the island, the resolve of the ROC armed forces, and the international (another word for «American») support that it enjoyed [ROCOP 2022a]. Following the success of the Ukrainian resistance and its international resonance, the Tsai administration’s messaging over the war pivoted toward that very same comparison that it had initially avoided. The ideational contours of the conflict in Ukraine, in particular, enabled Taipei to further lean into the strategic narrative of a global confrontation between democracies and autocracies – a mainstay of Taiwanese political communication in the Tsai era [Insisa 2021].

Thus, Taipei firmly supported Ukraine via official statements from the Ministry of Foreign Affairs [MOFA 2022b], from the TECRO representative in Washington Hsiao Bi-Khim (蕭美琴) [Hsiao 2022], and from the President herself [ROCOP 2022c]. The support for Kyiv was not only rhetorical. Taipei immediately joined the U.S., the majority of American allies within and without NATO, and the member states of the EU in imposing sanctions against Moscow. By blocking the near totality of exports of semiconductors produced on the island towards the Russian Federation [MOEA 2022a; MOEA 2022b],4 the Tsai administration provided a concrete contribution to the international efforts to hit the Russian domestic economy [Sonnenfeld et al. 2022, p. 49; Kofman et al. 2022, p. 5], even though by the end of 2022 the country’s industrial military complex had secured access to chips via Turkey, the UAE and China [Nardelli 2023; Taplin 2023]. Sanctions against Russia were also coupled with the delivery of material support for Ukraine, an effort primarily driven in the first months of the conflict by Taiwanese private businesses and citizens. Drones, ammunition, and sanitary equipment worth US$ 45 million reached Ukraine from Taiwan in the first months of the conflict [‘A kindred spirit’ 2022]. Additional funding for US$ 56 million were promised by the Ministry of Foreign Affairs Joseph Wu Jaushieh (吳釗燮) at the end of October [MOFA 2022c].

Given the minimal scope of bilateral relations between Moscow and Taipei, the Kremlin’s response was limited to the inclusion of Taiwan in its list of «hostile countries». This was in fact a diplomatic faux pas, given Moscow’s strict adherence to Beijing’s «One China policy». Yet, as in the case of other countries aligning with the U.S.-led regime sanctions, Taiwan too saw, counterintuitively, a significant increase in imports of energy resources from Russia. Even before the beginning of the conflict, Russia played an important role in energy imports, being the third provider of both liquefied natural gas (LNG) (9.7% of the total) and coal (14.6%) to Taiwan [Myllyvirta et al. 2022]. The first five months of the war saw a significant increase in imports of energy resources from Russia, as Taiwan became the fifth coal-importer and the eighth LNG-importer in absolute terms [Myllyvirta et al. 2022]. The war, however, also established a new baseline for unofficial relations with Ukraine.5 The «no-limit partnership» signed between Moscow and Beijing twenty days before the beginning of the invasion, and the consequent pro-Russian neutrality showed by the Xi administration [Chestnut Greitens 2022], damaged China’s standing in Ukraine and sparked a new interest for Taiwan. In late August, a pro-Taiwan caucus was established in the Verkhovna Rada [Yang 2022], with a delegation eventually visiting Taipei and meeting with President Tsai in October [‘President Tsai Receives’ 2022]. Yet these developments did not signal a «pivot to Taipei» by the Zelensky administration. Kyiv instead repeatedly appealed to China to play a role in negotiations to end the conflict, without addressing Beijing’s pro-Russian neutrality [Chew 2022]. President Volodymyr Zelensky himself refused to explicitly criticise Beijing when asked about cross-Strait tensions by a reporter after his remotely-delivered speech at the Shangri-La Dialogue in June [Harrison 2022]. Arguably, more than fear of Chinese military support to the Kremlin, an unlikely scenario given Beijing’s need to avoid secondary sanctions, the real constraints against an actual Ukrainian pivot to Taipei along the lines established by Lithuania rest upon Beijing’s votes in future resolutions on the end of the conflict in the United Nations, and, above all, on the hopes of Chinese investments in the future reconstruction of the country after the war.

Against the backdrop of the Chinese refusal to press Russia to end its invasion, Taiwan’s support to Ukraine also facilitated its engagement with EU countries, especially with those member states in Central and Eastern Europe who have strongly supported Ukraine and had already experienced a profound re-evaluation of their relations with China [Insisa 2022]. Evidence of this linkage is the fact that the Ukrainian parliamentary delegation that visited Taipei did so together with a counterpart from Lithuania, the Baltic country embroiled in a trade dispute with China due to its decision to deepen unofficial relations with Taiwan. Other parliamentary delegations to Taiwan arrived from Poland, Slovakia, Czechia, France, Germany, the European Parliament (headed by Vice-President Nicola Beer), and the international Inter-Parliamentary Alliance on China.

Did the conflict in Europe, and Ukrainian resistance to Russia, impact the resolve of the Taiwanese population? A TVBS poll conducted in March showed that 52% of Taiwanese were favourable to sanctions against Russia, while 27% opposed them. Furthermore, 57% did not consider a Chinese invasion of the island to be more likely because of the war, against a 37% who believed so; 44% were confident that the ROC Armed Forces can defend Taiwan from a Chinese invasion, against an opposing 48%; 62% stated to be ready to defend the island, while 26% were opposed to armed resistance. Yet, at the same time, only 30% believed in an American military intervention in support of the island in case of a Chinese invasion, against 55% who were sceptical. This data point is particularly relevant, as in 2011, the percentages were almost perfectly inverted: 57% trusted an American intervention, while 27% were dubious about it [‘E-Wu zhanzheng’ 2022]. This shows how Washington’s tacit acknowledgement of Putin’s nuclear blackmail at the beginning of the invasion [Lewis 2022] has affected American credibility on the island, at least in the short term.

Even though the Taiwanese public showed a relative nonchalance, the war in Ukraine arguably also had an impact on the prospects for a conflict with China. As Saunders and Wuthnow argue, rather than dissuading Beijing, «[t]he operational challenges the Russian military encountered in its invasion of Ukraine and the political and economic sanctions imposed on Moscow … will likely cause Chinese leaders to increase their estimates of the possible costs and risks of taking military action against Taiwan» [2022, p. 24]. In particular, Russia’s litany of failures on the battlegrounds of Ukraine likely pushed the PLA to (1) re-evaluate plans for joint operations across the Strait; (2) re-consider the efficacy of both made-in-Russia weapons systems and of indigenous weapon-systems based on Russian models at its disposal; (3) re-examine those elements of the Russian military reforms that the PLA embraced in the past decade [Sacks 2022]. A far more consequential effect of the war in Ukraine for Taiwan in the short-term was the considerable delay in the delivery of US weapon systems redirected to the Eastern European country. By late 2022, the delay in deliveries resulted in a US$ 19 billion-worth backlog [Lubold, Cameron & Youssef 2022].

5. Taiwan’s external relations and the geo-economic arena: The opportunities and challenges of other developed economies’ «reshoring»

Throughout 2022, the assertive industrial policy of the Biden administration reshaped the landscape of a global economy facing the challenges of a major war in Europe – with its impact on energy and food markets, climate change and energy transition, and the long aftershock of the COVID-19 pandemic. It did so primarily via two legal tools focusing on the critical semiconductors industry. First, the CHIPS and Science Act signed in August, which provided US$ 52.7 bn in subsidies for «reshoring» semiconductor manufacturing in the country. Second, the U.S. Department of Commerce’s export controls targeting the Chinese semiconductors industry, and thus PLA modernization, imposed in October. While trade data continue to contradict predictions of a Sino-American economic «decoupling» [Flatley 2022], Washington’s re-orientation toward industrial reshoring has spurred similar adjustments among other critical actors in the global economy with complex relations with China: the two US allies in East Asia, Japan and the Republic of Korea (ROK), and the European Union (EU) and its member states, with the G7 and to a lesser extent NATO functioning as connecting tissues between these multiple actors [U.S. DoS 2022a; Terry & Orta 2022; Ozawa 2022]. The result has been the proliferation of multiple geo-economic dynamics across Eurasia and the Indo-Pacific that imbue trade relations with hard security.6 Taiwan has played an increasingly relevant role in these dynamics, given the devastating consequences for the global economy of a «Taiwan contingency» caused by a Chinese attempt to coercively change the status quo, especially in light of the Taiwanese companies’ dominance in the most critical sector of the contemporary global economy, the semiconductor industry. For this reason, this section examines U.S.-Taiwan relations, U.S.-ROK-Japan-Taiwan relations, and Taiwan-EU-U.S. relations from a geo-economic perspective.

In regards to the U.S.-Taiwan relation, both the CHIPS and Science Act and the export controls targeting China directly impacted the Taiwanese semiconductor industry because of its dominant position in the global foundry market; its reliance on US companies’ semiconductor-design; and the diminished but still relevant role of the Chinese market for its industry [Kamasa 2021]. Taiwanese officials rapidly signalled the island’s company compliance to the new US export controls [Blanchard 2022]. The critical actor in this shifting geo-economic context was Taiwan Semiconductor Manufacturing Company (TSMC), the public company (of which the National Development Fund controls 6%) that exercises a near-monopoly on logic semiconductors below 10 nanometres (nm). TSMC inaugurated the establishment of its first plant in the U.S., in Phoenix, Arizona, in December, and announced the establishment of a second plant in the same state to produce 3 nm chips in the wake of the new American subsidies – as it did another Taiwanese major player in the industry, Global Wafer, which announced the establishment of a new plant in Sherman, Texas. TSMC also obtained a waiver to keep ordering American equipment for the production of 16 nm chips in its Nanjing plant that opened in 2021 [Cheng 2022a]. The company appeared however committed to maintaining its most cutting-edge foundries within Taiwan, given the announcement of a new plant for 1 nm chips within the Hsinchu Science Park on the island [Chang, Cheng & Huang 2022].

Yet, the vocal criticism by TSMC founder, Morris Chang (張忠謀), against the economic logic of American reshoring and the «death» of globalisation [Magnier 2022; Cheng 2022b] reveals the company’s discomfort for the erosion of Asia-Pacific-centred global supply chains that had been crucial to its rise. The political aftershocks of American reshoring on Taiwan were also evident in the Kuomintang’s (KMT, 國民黨) willingness to attack the Tsai administration, accusing it of «gifting» the company to Washington and of hollowing out the core sector of Taiwan’s national economy [Pan 2022]. The Tsai administration in fact responded by introducing a new tax incentive bill to boost research and development on semiconductors on the island. The Democratic Progressive Party (DPP, 民進黨) majority in the LY consequently approved the bill on 3 January 2023 [Yang 2023]. Underlying tensions between Washington and Taipei were in fact discernible in the trade relations. Notwithstanding a public appeal by the Ministry-without-Portfolio John Deng Chen-chung (鄧振中) [‘Tai-Mei’ 2022], Taiwan was in fact excluded from the launching of the U.S.-led Indo-Pacific Economic Framework (IPEF) in Tokyo in May. This decision was likely influenced by the looming spectre of Chinese reactions targeting the other members of this new – and vaguely defined – multilateral architecture. Washington steered Taipei toward a separate framework, the U.S.-Taiwan 21st-Century Trade Initiative (USTTI), with the first round of consultations concluded in November [U.S. EOP 2022]. Broadly mirroring the IPEF agenda, the USTTI appears also to overlap another bilateral platform, the Technology Trade and Investment Collaboration framework launched in 2021, which delivered new agreements spanning the renewable energy, 5G, and healthcare sectors between American and Taiwanese companies [U.S. Department of Commerce 2022]. These developments, however, only partially masked the lack of progress in the Trade and Investment Framework Agreement (TIFA) talks officially resumed in 2021, a stalling that reflects the protectionist headwinds in force both in Washington and Taipei.

The launching of another «minilateral» platform, the so-called «Chips 4» working group including Japan and South Korea, is further evidence of the Biden administration’s geo-economic designs. The new working group, inaugurated in Taipei in September, nominally aims at strengthening semiconductor supply chain resiliency and cooperation. Yet, it is clear how the «techno-democratic» alignment targets China and, at the same time, aspires at integrating Taiwan, as a de facto state, within a U.S.-led geo-economic order – exactly the type of moves that Beijing frames as a hollowing out of its «one China policy». It is unsurprising then that Seoul, the American ally traditionally most wary of Beijing in the Asia-Pacific, has raised doubts on this platform [Davis et al. 2022], even as the newly elected conservative Yoon cabinet signalled a renewed willingness to engage Washington and Tokyo. The Biden administration’s aspirations to integrate Taiwan through trade and security can be evinced also from the Joint Press Statement issued after the U.S.-Japan-ROK Trilateral Ministerial Meeting in June, which emphasised «the importance of peace and stability in the Taiwan Strait» and «shared concerns on activities that are inconsistent with the international rules-based order and stressed the importance of freedom of navigation and overflight» [U.S. DoD 2022b]. The statement, in fact, was later echoed in the first ROK Indo-Pacific Strategy issued in November [Government of ROK 2022, p. 28].

Much more than Seoul’s timid re-assessment of its China policy, however, it was Japan’s momentous shift in defence posture that dramatically changed the broader Asia-Pacific security environment. Spearheaded by the release of three critical documents in December, the National Security Strategy (NSS), the National Defense Strategy (NDS), and the Defense Buildup Program – Tokyo’s new approach aims at raising defence spending to NATO-level, acquire counterstrike missile capabilities, and overcome the civil-military divide in defence matters [Koshino 2022]. As Pugliese argues in this volume, the Kishida administration capitalised on the Russian invasion of Ukraine and on Beijing’s response to the Pelosi visit in order to implement a Zeitenwende that was long in the making and that traces back to the transformational premiership of the late Abe Shinzō [Pugliese 2023]. Indeed, both the NSS and the NDS directly mentioned China’s launching of ballistic missiles that landed in the Japanese EEZ during the August events [Cabinet Secretariat of Japan 2022, p.8; Japan MOD 2022, p. 6]. Immediate decisions following this shift involved the decision to install a surface-to-air guided missile unit and an electronic warfare unit on Yonaguni island, Japan’s closest territory to Taiwan as part of a wider expansion of missile deployments across the Ryukyu Arc [‘Japan to deploy’ 2022], as well as the announcement of an upgrade of the military capabilities of the Marine Corp unit based in Okinawa, which will eventually be provided with anti-ship missiles by 2025 [U.S. DoD 2023].

Tokyo’s new posture will obviously affect Beijing’s calculus over a potential attempt at a military takeover of Taiwan. Furthermore, Japan’s emphasis on economic and technological «capabilities» as «main elements» of the wider strategic toolkit to guarantee national security and regional stability [Cabinet Secretariat of Japan 2022, p.12] has the potential to create broader geo-economic synergies between Tokyo and Taipei – a development that was not unnoticed by President Tsai, who called for deepening ties in trade, tourism and security immediately after the release of the three strategic documents [ROCOP 2022d]. Yet, throughout 2022, Taipei and Tokyo failed to achieve any meaningful progress on the most pressing file, Taiwan’s access to the Japan-led Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) free trade agreement (FTA). As in the cases of the stalling TIFA talks with the US and of the failed access to the IPEF, this phase of stalling reflects both major challenges in further liberalising the Taiwanese economy against the desires of the local public opinion, and China’s capabilities to obstruct Taipei’s agency in trade policy [Walsh 2022].

The layered nature of such geo-economic dynamics is evident also in the triangular relation between Taiwan, the U.S. and the EU. Brussels has stepped up its political, military, and economic presence in the Indo-Pacific in recent years [Pugliese 2022]. At the same time, it has also moved toward industrial reshoring in the semiconductor sector, introducing its own Chips Act [European Commission 2022a]. A consequence of this shift has been the EU’s need to engage Taipei in order to achieve «technological sovereignty», while balancing opposed pressures from both Beijing and Washington. On the one hand, the Von der Leyen Commission decided to shelve plans to establish a trade- and technology-focused framework with Taiwan due to concerns over China’s reaction in 2021 [Bermingham 2021]. On the other hand, the National Security Strategy issued by the Biden administration in October 2022 stated that «U.S. interests are best served when our European allies and partners play an active role in the Indo-Pacific, including in supporting freedom of navigation and maintaining peace and stability across the Taiwan Strait» [White House 2022b, p. 17].

Within the complex institutional architecture of the EU, the most vocal actor pushing the envelope of politico-economic engagement with Taiwan was the European Parliament (EP). The EP adopted multiple reports favouring closer relations and cooperation with Taiwan and supporting its participation in international organisations. In particular, the EP adopted reports condemning Chinese military activities on the Strait – recognised as violations of the Taiwanese ADIZ [EP 2022a], and calling for the establishment of a bilateral investment agreement [‘MOFA welcomes’ 2022]. More in detail, the EP’s Indo-Pacific Strategy in the Area of Investment and Trade adopted in July urged the EU «to launch a structured dialogue with Taiwan on cooperating in green technology and the digital economy, including the semiconductor industry, with a view to signing a memorandum of understanding that benefits both the EU and Taiwan» [EP 2022b]. The Von der Leyen Commission eventually received these inputs, as it greenlighted the ministerial upgrade of trade talks with Taipei, which were held for the first time in Geneva [TW WTO 2022]. Both the launching of the EU Anti-Coercion Instrument [Duchâtel 2022], and the request of establishing a WTO panel to resolve the dispute with China over Beijing’s economic coercion against Lithuania [European Commission 2022b] are also welcomed developments for the Tsai administration’s aspirations to expand engagement with Europe.

Against the backdrop of engagement with Brussels, Taipei’s relations with Europe also developed through relations with EU member states, and through relations between Taiwanese and European tech companies. As in 2021, Lithuania played a critical role in expanding the space of Taiwan’s diplomatic engagement, given Vilnius’ decision to open mutual representative offices notwithstanding Beijing’s economic reprisal [Insisa 2022, pp. 145-146]. After rumours of a delay in promised investments from Taiwan, the Lithuanian Trade Investment Office, the counterpart of the Taiwan Representative Office established in 2021, was officially opened in November. The event followed multiple talks conducted in both polities, the opening of the Taiwan and Lithuania Center for Semiconductors and Materials Science in Vilnius, and the launching of the Central and Eastern European Investment Fund (CEEIF), sustained by the Taiwanese government-participated venture capital firm Taiwania and also involving Czechia and Slovakia. Moreover, after having repeatedly denied plans to establish a chip plant in Europe, it was reported that TSMC had begun negotiations for the opening of its first plant in the EU in Dresden, Germany [Li and Fang 2022]. The plant would focus on chips in the 22 nm 28 nm nodes and open in 2024 [‘TSMC-Pläne’ 2022]. At the same time, another major player in the industry, the Dutch company ASML, the monopolist in EUV lithography machines critical for chip-making, announced its largest ever investment in Taiwan with the construction, planned to start in July 2023, of a new factory in the Linkou Industrial Park of New Taipei [‘Aisimo’er’ 2022].

Two related developments that emerged by the end of 2022, however, could create obstacles to the best scenario for Taipei, which is the emergence of a wider front including both European and Asia-Pacific’s allies of the U.S., that is willing to support Taiwan, to deepen its integration in a techno-democratic, geo-economic order, and to deter Beijing from using military force to change the status quo. The first development was the re-emergence of trans-Atlantic tensions, after the show of unity over Ukraine, on the impact of US subsidies on European business following the US Inflation Reduction Act. The second development was China’s tactical charm offensive toward Europe which coincided with the country’s reopening after the hasty abandonment of COVID-zero policies.

6. Domestic politics and economics: The KMT sweeps the field in the «nine-in-one» elections, the economy slows down

The most important event in Taiwanese domestic politics in 2022 was the so-called «nine-in-one» elections held on 26 November concerning mayors, councillors, and chiefs-of-villages across 6 first-level administrative divisions and 16 second-level administrative divisions. The elections saw a resounding victory of the KMT against the DPP, as in the previous electoral round held in 2018. The major opposition party in the LY won 14 local government seats. It held 11 seats, gained 3 seats – including for the first time since 2010 the mayoralty of Taipei with the victory of Wayne Chiang Wan-an (蔣萬安) – and lost 3 seats. Conversely the DPP held 4 seats, won 1, and lost 3, namely the mayoralties of Taoyuan, Keelung and Hsinchu. The personalist populist Taiwan People’s Party of the outgoing Taipei mayor Ko Wen-je (柯文哲), instead, solidified its position as third party in the domestic electoral landscape, gaining the Hsinchu mayoralty from the DPP [CEC]. On the same day of this electoral round, a constitutional referendum regarding a proposed amendment to the Additional Articles of the Constitution to lower voting age from 20 to 18 and minimum age for candidacy from 23 to 18 was held. The votes in favour were 5.6 million, well below the 9.6 million votes threshold required to pass the amendment [CEC].

The KMT’s victory strengthened the party leadership of the Chairperson and former Presidential candidate Eric Chu Li-lun (朱立倫), who had been challenged by the «deep-blue», pro-unification wing of the party at the beginning of the year [‘Zhang Yazhong’ 2022]. Conversely, the DPP’s defeat resulted in Tsai Ing-wen’s resignation from the Chairpersonship of the party. Yet the electoral result does not provide decisive indications for the next presidential and legislative elections to be held in January 2024. The KMT’s victory reflects the party’s staying power in local elections, which traces back to the construction of effective patron-client relations on the island throughout its decades of authoritarian rule. and their survival after democratisation [Fell 2018, pp. 132-149]. Notwithstanding a history of electoral competitiveness at the local level, the KMT has not appeared in fact capable of overcoming the «China cleavage» in Taiwanese politics, namely the salience that the issues of Taiwanese identity, of political autonomy from Beijing, and of opposition to Chinese unification maintain in presidential and legislative elections [Batto 2018]. Polls from the authoritative Election Study Center of the National Chengchi University showed that only 14.4% of the Taiwanese identify in the KMT, the lowest data ever recorded, against the 30.8% of the DPP and the 8.4% of a surging TPP [ESC 2023]. Given the 45.6% of independent and undecided recorded on the poll [ESC 2023], it is possible to see a path for the KMT’s return to power if it could engage swing voters. Yet the party – first under the short-tenured chairmanship of Johnny Chiang Chi-chen (江啟臣), and then under Chu’s leadership – has failed to design a vision of the future of cross-Strait relations that is appealing to the Taiwanese electorate. Rocked by factional divisions and an electoral base detached from mainstream public opinion, the KMT has remained anchored to its «one China, multiple interpretations» version of the so-called 1992 Consensus.7 Insisting on such formula, successful under the presidency of Ma Ying-jeou (馬英九) between 2008 and 2016, fails however to recognise the gradual glissement of its meaning for Beijing that has occurred in Tsai era, as the Xi administration came to equate endorsement of the «Consensus» with bilateral commitment to unification under the «one country, two systems» framework [Insisa 2021].

This essay concludes with a brief outline of the major economic indicators during the year in review and its impact on the prospects of the major parties gearing toward the 2024 elections. Taiwan’s GDP growth slowed down to 2.43% GDP compared to 6.53% the year prior, reflecting the island economy’s dependence on the export sector as the global economy experiences profound uncertainty. In particular, in the fourth quarter of 2022 the economy shrank by 0.86% [ROCNS]. This was the first time that the economy shrank on a quarterly basis since 2016 and the worst data recorded since the Great Financial Crisis [Hou & Yung 2023]. By November 2022, industrial production, which had risen 9.98% in 2021, shrunk by 4.9% on a yearly basis, with manufacturing declining 5.3% [ROCNS]. Total exports reached however a new historical high, totalling US$ 479 bn, growing 7.4 % on a yearly basis, but imports totalled US$ 427 bn, growing 11.8% compared to 2021. As a result, the trade balance recorded a US$ 12.3 bn surplus, a minus 19% compared to the trade surplus of the previous year. Exports to Mainland China and Hong Kong counted for 38.7%, compared to the 42.3% of the total in 2021, reaching US$ 185.9 bn, while combined imports from the same two areas stood at 19.9% of the total, compared with 21.1 the year prior and amounting to US$ 85.4 bn. By comparison, exports to the U.S. and Japan counted for 15.6% and 7% of the total, namely US$ 75 bn and US$ 33.6 bn, while imports from these two countries amounted to 10.6% (US$ 45.4 bn) and 12.7% (US$ 54.5 bn) [BFT]. Foreign direct investments (FDI) to Taiwan between January and November 2022 reached US$ 12.4 bn for 2307 cases, a decrease of 5.7% decrease in the number of cases, but an increase of 84.7% in FDI amount compared to the same period of 2021 [MOEA 2022c]. Unemployment rate stood at 3.51% at the end of 2022, the lowest recorded since January 2001 [ROCNS]. Yet, increases in the prices of food, rent and fuel – caused by the long aftershock of pandemic-era fiscal policies, cost of energy transition in developed economies, and the war in Ukraine – led to a comprehensive 2.95% rise of the consumer price index on a yearly basis, the highest since 2008 [ROCNS].

While consistently low when compared to other developed economies, the rise of the consumer price index, occurring against the backdrop of historically depressed wages, has resulted in a perceived cost of living crisis. A slowing economy and continuing concerns over cost of living, in turn, constitute the main hope for the KMT to regain the presidency and the majority in the LY, because these trends have the potential to de-emphasise concerns toward Beijing’s plans for unification and the polity’s security. Against this backdrop, initial speculations over the next presidential elections sketched on an uncertain three-side race involving the new DPP Chairman and ROC Vice-President William Lai Ching-te (賴淸德), the newly re-elected mayor of New Taipei Hou Yu-ih (侯友宜) for the KMT, and the TPP’s Ko Wen-je [‘2024 zongtong’ 2023].

7. Conclusions

Nancy Pelosi’s decision to visit Taiwan in August 2022 severely affected Taiwanese and regional security. The PLA’s effective erasure of the so-called median line of the Taiwan Strait as an «unspoken» buffer zone between Beijing and Taipei, in particular, in particular, raises the risk of incidents and reduces room for further escalatory manoeuvres by China. This deterioration of cross-Strait security, however, was ultimately the result of deeply ingrained dynamics in the triangular relation between Beijing, Washington and Taipei. In detail, the two superpowers remain locked into an action-reaction pattern.; the tenets of Beijing’s Taiwan policy remain unacceptable to the great majority of the Taiwanese electorate; and Taipei remains determined to shore up its fledgling security by further deepening relations with the U.S. and other major liberal democratic actors – an engagement facilitated by the support for the Western response to the war in Ukraine. This growing alignment with other liberal democracies, in turn, has been particularly visible in tech policy and growing coordination with Western and Japanese plans for industrial reshoring focusing on the semiconductor sector, but it failed to translate into concrete deliverables over access to new FTAs, a critical issue in Taiwan-EU engagement. The long-term viability of this approach, centred on building-up resilience vis-à-vis Chinese plans for unification while aligning with Western and regional liberal democracies, will be tested in the January 2024 general elections. In fact, at a domestic level, the year in review also saw a relative weakening of the outgoing Tsai administration and of the DPP ruling DPP majority in the LY. More than the KMT’s sweeping victory in the «nine-in-one» elections in the November 2022 – which was the result of deeply rooted local electoral dynamics –a decline of support for the DPP is rooted in the stuttering performance of the island’s economy after the extraordinary results achieved during the high tide of the COVID-19 pandemic era, and in the persistence of structural socio-economic woes on the island.

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[MOEA 2022b] —, High-Tech Commodities List for Exportation to Russia and Belarus Table of Contents,  1 June (https://www.trade.gov.tw/Files/PageFile/742117/High-Tech%20Commodities%20List%20for%20Exportation%20to%20Russia%20and%20Belarus.pdf).

[MOEA 2022c] —, Taiwan FDI Statistics Summary Analysis November 2022), 20 December.

[MOFA 2022a] Republic of China (Taiwan), Ministry of Foreign Affairs, MOFA Solemnly Reiterates That the Taiwan Strait Constitutes International Waters, Refuting False Claims Made by Chinese Officials during Recent Meetings with the US, 14 June. 

[MOFA 2022b] —, The Republic of China (Taiwan) Government Strongly Condemns Russia’s Invasion of Ukraine in Violation of the UN Charter, Joins International Sanctions against Russia, 25 February.

[MOFA 2022c] —, Remarks by Minister Jaushieh Joseph Wu at the 26th Forum 2000 Conference – Defending Taiwan after the Invasion of Ukraine, 22 September. 

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Moriyasu, Ken, 2022, ‘Biden, Xi lay out red lines on Taiwan to avoid misunderstanding’, Nikkei Asia, 14 November.

Myllyvirta, Lauri, Hubert Thieriot, Ronja Borgmästars, Vera Tattari, & Andrei Ilas, 2022, ‘Fossil fuel imports from Russia to South Korea, Japan, and Taiwan in the first five months of the invasion of Ukraine’, Center for Research on Energy and Clean Air, 18 August.

Nardelli, Alberto, 2023, ‘Russia is getting around sanctions to secure supply of key chips for war’, Bloomberg, 4 March.

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Pamuk, Humeyra, Michael Martina & Simon Lewis, 2022, ‘Blinken says China rejects status quo of Taiwan situation’, Reuters, 27 October. 

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 Pugliese, Giulio, 2023, ‘Japan 2022’, Asia Maior, XXXIII.

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[ROCOP 2022b] —, President Tsai Responds to Russia’s Invasion of Ukraine, Attends Groundbreaking of Expanded Shipbuilding Facility, 25 February.

[ROCOP 2022c] —, President Tsai Responds to Russia’s Invasion of Ukraine, 25 February 2022.

[ROCOP 2022d] —, President Tsai meets delegation led by Japanese House of Councillors member Seko Hiroshige, 28 December.

Sacks, David, 2022, ‘What is China learning from Russia’s War in Ukraine?’, Foreign Affairs, 16 May.

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[SCIO 2022b] —, 习近平: 高举中国特色社会主义伟大旗帜 为全面建设社会主义现代化国家而团结奋斗——在中国共产党第二十次全国代表大会上的报告 (Xi Jinping: Hold High the Great Banner of Socialism with Chinese Characteristics, Strive in Unity to Build a Modern Socialist Country in All Respects – Report to the 20th National Congress of the Chinese Communist Party), 16 October (http://www.gov.cn/xinwen/2022-10/25/content_5721685.htm).

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Sonnenfeld, Jeffrey, Steven Tian, Franek Sokolowski, Michal Wyrebkowski, & Mateusz Kasprowicz, 2022, ‘Business Retreats and Sanctions Are Crippling the Russian Economy’, Preprint available at SSRN (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4167193).

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U.S. Congress, 2022, H.R.7776 – James M. Inhofe National Defense Authorization Act for Fiscal Year 2023, 23 December.

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[‘Zhang Yazhong’ 2022] ‘張亞中: 國民黨縣市長選舉若未拿下16席朱立倫應下台’ (Chang Ya-chung: Eric Chu should step down if the KMT fails to win 16 seats in the county-level and mayoral elections), 自由時報 (Liberty Times), 29 April (https://news.ltn.com.tw/news/politics/breakingnews/3909494).

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