• Tsai Ing-wen’s international economic policy is underperforming in some countries.
• The Taiwanese leader is balancing various challenges as fall elections loom.
• Tsai’s ability to integrate Taiwan with its regional economy will affect global security and economy.

Why is Tsai Ing-wen cold?

Answer: Tsai Ing-wen’s New Southbound Policy—while succeeding in India and the ASEAN countries—has underperformed in much of South Asia.

In recent months, Taiwanese President Tsai Ing-wen has celebrated a warming relationship with the Republic of India. Talks to establish a bilateral free trade agreement began last year, and various investment proposals have been announced as recently as June. However, Taiwan has yet to integrate itself with its other South Asian neighbors as much as Tsai would like, leaving her out in the cold.

In 2016, Tsai inaugurated her presidency by introducing the New Southbound Policy (NSP), a plan to develop a “sense of economic community” with Taiwan’s desired partners in the Indo-Pacific. The NSP would deepen Taiwan’s integration into the region by promoting trade and investment with the ten countries of ASEAN; Australia and New Zealand; and Bangladesh, Bhutan, India, Nepal, Pakistan, and Sri Lanka.

The NSP has succeeded in certain areas. ASEAN countries have seen a particular increase in exports and investment from Taiwan, and Taipei has established new ties with Australia as well. Taiwan’s dominance of the semiconductor industry has made it particularly attractive.

But in South Asia, the plan has fared worse. Aside from the notable exceptions of India and Bangladesh, Taiwan has struggled to cultivate the economic and diplomatic relationships Tsai wants. While a variety of regional obstacles account for this, most prominent among them is the People’s Republic of China (PRC).

What is changing Tsai’s temperature?

Answer: Chinese influence in South Asia is challenging Taiwan’s bilateral relationships, just as looming economic difficulty and a growing threat from China itself have raised their importance.

Tsai is cooling down in South Asia because domestic changes have highlighted the importance—and the underperformance—of her flagship economic policy. Ties between South Asian countries and Taiwan have not necessarily deteriorated in recent months. Rather, Tsai is learning how insufficient those ties remain in the wake of an uncertain economic outlook and a rising threat from mainland China.

The cases of Bhutan, Nepal, Pakistan, and Sri Lanka are each unique. While a similar Chinese territorial threat makes the monarchy in Bhutan sympathetic to Taiwan, Tsai has done little to develop ties there due to Bhutan’s closed economy and sheer difficulty of access. Nepalese leadership has been reluctant to work with Taiwan as it fears prematurely picking a side in a potential Sino-Indian conflict. Tsai’s success in Pakistan has been limited by Pakistan’s ongoing participation in the PRC’s Belt and Road Initiative (BRI). Finally, a financial and political crisis has made outreach to Sri Lanka exceedingly difficult.

Taiwan’s relations with South Asian countries are largely characterized by uncertainty. While significant ties indeed exist, much more is to be desired, especially in states where Taiwan engages in little to no investment. The NSP intended to enhance “regional social and economic cooperation.” Six years on, some South Asian countries seem kept out of the loop.

This comes in the context of various challenges to Tsai’s political aims. Lingering Covid protocols and suboptimal international demand have moderated economic growth in recent months. Meanwhile, there are global fears of a recession. Furthermore, tensions across the Taiwan Strait have risen, beginning last fall with increased Chinese military adventurism and continuing in recent months since Russia’s incursion into Ukraine.

What is driving Tsai?

Answer: In addition to upcoming elections, a personal commitment to Taiwanese autonomy and an academic background in international trade are driving Tsai.

The NSP is central to Tsai Ing-wen’s foreign policy strategy, so local elections this November could serve as a referendum. In 2018, Tsai’s Democratic Progressive Party (DPP) took a beating, despite the NSP’s success in ASEAN countries. At that time, voters had expressed concerns—similar to today’s—that the economy was underperforming and that labor needed further reform. While Tsai won re-election in early 2020, the past two years have seen renewed foreign policy concerns alongside the pandemic.

From an early age, Tsai experienced the uniqueness of Taiwan, living on a street named for Taiwan’s historical father and coming from mixed heritage. In the first decades after the Civil War, these things granted Tsai perspective on Taiwan’s multifaceted ethnic character. The Taiwan in which Tsai grew up preceded the “1992 consensus,” where the PRC and Taiwan’s Kuomintang party—the opposition to the DPP—agreed to consider the cross-strait relationship to be “one China, different interpretations.” As Xi Jinping increasingly pushes for reunification, Tsai feels the need to protect Taiwan’s autonomy is urgent.

Tsai earned law degrees in the U.S. and Britain, ultimately writing her doctoral thesis on international trade law. In the 1990s, she returned to Taiwan and entered the public sector, serving on Taiwan’s Fair Trade Commission and Mainland Affairs Council. That experience deepened her policy expertise and continues to be relevant today as the NSP is an international economic strategy designed to reduce the island’s dependence on China.

Throughout her career, Tsai has leveraged her skills, expertise, and background creatively to preserve Taiwan’s autonomy and advance its global integration. Tsai negotiated for Taiwan’s accession to the World Trade Organization (WTO) in 2002, for example. This move not only allowed Taiwan to be recognized in an international organization, but required that all other WTO members—including the PRC—treat it equally as a “most-favored trading partner,” per the WTO Agreements. The PRC had acceded to the WTO just three weeks prior and reacted disapprovingly to Taiwan’s joining the organization.

This hints to Tsai’s other passion: international trade. She is driven by a belief that international trade and investment lead to prosperity, informed by multiple advanced degrees in that field of study. As mentioned above, WTO accession opened the door to Taiwan for expanded international trade, giving the island privileged access to new import and export markets. In the vein of Taiwanese autonomy, WTO accession particularly enhanced Taiwan’s sovereignty by allowing it to participate at the same level as states in an intergovernmental organization. Now, Tsai Ing-wen continues using policies like the NSP to further Taiwan’s participation and integration in regional and global markets and organizations.

What does this mean for you?

Answer: Taiwan’s ability to foster partnerships in its neighborhood will stave off conflict with China and protect the openness of the global semiconductor market.

The NSP’s success will determine Taiwan’s ability to hedge its economic dependence on mainland China. As in Ukraine, economic dependence on a great power threatening a smaller power reduces policy options. In Taiwan, Tsai Ing-wen has worked since 2016 to integrate Taiwan into the broader Indo-Pacific economy in part so that Taiwan can reduce its dependence on China. Other states in the Indo-Pacific region—like Pakistan and Indonesia—also find themselves reliant on Chinese trade and investment. Therefore, the NSP likewise provides an opportunity for them to diversify their international economic connections.

The NSP’s success will also determine Taiwan’s ability to stave off conflict with the PRC. Xi Jinping has indicated his intent to eventually reunify China, with his eyes particularly set on 2049 (the hundredth anniversary of the Chinese Communist Party’s establishment of the PRC). A Taiwan-centered regional economic community hopes to deter aggression on this front. The more Taiwan integrates with the global economy, the greater the economic fallout in the event of a reunification by force. Moreover, NSP success signals Tsai’s resolve: unlike her opponents in the Kuomintang party, she has indicated a disinterest in increasing mainland ties. Whie Taiwan may not declare independence outright, Tsai is working toward making it more self-sufficient.

This is why the NSP’s underperformance in South Asia matters. A China-Taiwan conflict would destabilize security in the South and East China Seas. This would give the PRC control over crucial sea lanes, but also stall or disrupt an economic corridor through which over US$3 trillion in trade travels annually. Taiwan’s India and Bangladesh ties would also be disrupted, delaying investment and trade to a billion-person region. Xi Jinping, who is balancing a difficult territorial relationship with India alongside his Taiwan concerns, benefits from the NSP’s underperformance as it keeps Taiwan and South Asia separated. Disintegration makes it easier for the Chinese president to achieve his objectives.

Taiwan’s dominance of the world’s preeminent semiconductor manufacturing facilities would be most impactful: microchips are central to modern electronics. They are indispensable components of items from cell phones to military equipment. In the event of a conflict, tech companies in the U.S. and Europe would face severely reduced supply, passing higher prices to consumers in an era of already-high inflation. In the event of a PRC victory, Xi would be able to dictate global semiconductor prices, yielding China not just an economic advantage, but a significant military advantage as well.