Russell Hsiao

Taiwan has occasionally emerged as a talking point in the U.S. presidential campaign, from candidate comments on how far they would go to defend the island to discussions of Taiwan’s all-important semiconductor industry. But the impact that such remarks have on Taiwan is often overlooked. At a time of political polarization in Taiwan, U.S. economic and security policies – and how Taipei should respond – are topics for scrutiny and debate.

For more insight into how U.S. policies mesh with Taiwan’s politics, The Diplomat’s Shannon Tiezzi interviewed Russell Hsiao, the executive director of the Global Taiwan Institute as well as a senior fellow at The Jamestown Foundation and adjunct fellow at Pacific Forum. Ultimately, Hsiao said, “The United States is inextricably linked with Taiwan’s domestic politics… both for historical reasons of the bilateral relationship and the vital role that the United States continues to play in Taiwan’s defense and security.”

Taiwan has been a talking point in the U.S. presidential election – and the U.S. was also a part of Taiwan’s election dynamics earlier this year, via the so-called U.S. skepticism theory. How does the United States factor into Taiwan’s domestic political dynamics?

The United States is inextricably linked with Taiwan’s domestic politics. This is both for historical reasons of the bilateral relationship and the vital role that the U.S. continues to play in Taiwan’s defense and security and critically for its relations with China even in the absence of diplomatic relations between the United States and Taiwan.

Since the abrupt switch in diplomatic ties by the United States from the Republic of China to Beijing during the Cold War in 1979 – and to an extent even before that – there existed a degree of skepticism in Taiwan, particularly among the political elite, in older generations of officials, and the public toward the intentions of the United States. The switch in diplomatic ties amplified that schism in Taiwan’s domestic politics or, more accurately for the time, factional politics within the Kuomintang (KMT) – the party that directly ruled Taiwan as a one-party state from 1949 to 1996 and was in charge during the period in which the United States switched diplomatic ties. That schism persists today and is reflected in some of the platforms held by the political parties in Taiwan.

Some in the KMT, particularly those of the older generations, harbor deep-seated angst toward the United States given what they saw as a political betrayal by Washington. This feeling of doubt and cynicism remains pronounced among party members and also with a traditional constituency within the KMT that is more aligned with China for political and ethno-nationalistic reasons.

For the Democratic Progressive Party, which was only established in 1986 – after the United States’ switch in diplomatic ties – and many of whose members had been politically persecuted and suppressed during the period of martial law imposed by the KMT, the practical and emotional impact of the switch in the diplomatic relations was perhaps secondary to the direct struggle for democratic and human rights of Taiwan’s people. Some believe that were it not for the political pressure imposed by the U.S. decision to withdraw its political support for the KMT regime, then the KMT may not have liberalized and loosened its political control – and Taiwan would not be the beacon of democracy it is today. As such, there is a natural pro-U.S. constituency within the DPP.

At the same time, because of its past and origin in opposition to or outside of the party-state (dangwai), ever since its founding, there is a traditional constituency within the DPP that aspires for Taiwan to be fully independent of the Republic of China – as manifested by a declaration and a new constitution. Those who hold this view believe that U.S. support or non-support for independence would be instrumental.

While there are many other smaller political parties within Taiwan’s political system like the Taiwan People’s Party, the newest political party created only in 2019 by former Taipei City Mayor Ko Wen-je, the schism in Taiwan’s politics is broadly reflected by the two major political parties, and the smaller parties’ view of the United States are variations of the two.

Understanding the internal competition within the parties themselves as well as interactive dimensions is important to understanding how the United States – and also China and the Sino-U.S. relationship – factors into Taiwan’s domestic politics. Perhaps more so than in other countries given its unique political status, voters attach greater significance to foreign policy and more precisely relations with the United States and China.

Despite the unofficial nature of the U.S.-Taiwan bilateral relationship, how political parties manage and what they say or do for the country’s relations with the United States matters greatly in the people’s perceptions about the capabilities of the party and can affect national elections. This was seen by some observers as the case in 2012. While the mainstream wings of the parties understand the criticality of maintaining strong ties with the United States, given the history of the two major political parties, both have different relationships with the United States and that plays into the domestic political game between the political parties.

U.S. support for Ukraine has been a point of debate in this year's U.S. campaign cycle. Both sides often point to Taiwan to support their arguments: Critics say that the U.S. should focus less on helping Ukraine and more on helping Taiwan, while supporters argue that U.S. credibility on Taiwan’s defense hinges on its assistance to Ukraine. How does Taiwan's own government view this issue?

Both in terms of policy and in action, the Taiwan government and its people from both parties see the situation in Ukraine as increasingly directly related to its own security. While the two situations are not directly comparable, political leaders in Taiwan are concerned that if Russia is successful in annexing Ukraine – due to a perceived lack of resolve and intervention from the West – it could embolden Xi Jinping to take military action against Taiwan for Beijing’s own revanchist claims. 

Taipei has long championed itself, and also been praised by the international community, as a leading democracy in Asia with core values shared with the United States. It thus views itself as a frontline state in the competition between authoritarianism and democracies – an organizing principle for geopolitics put forward by the Biden administration. If another authoritarian state is successfully able to annex another strategically important frontline democracy then, Taipei reasons, what will stop the PRC, arguably the world’s most powerful autocracy, from accomplishing its aims with regard to Taiwan?

At the same time, Taiwan’s leaders are naturally wary of and concerned by the ongoing political debate in Washington over the relationship between support for Ukraine and Taiwan, particularly as it sees the argument made that support for Ukraine could be seen as a lack of seriousness about its own defense. Taipei is cognizant of the fact that the U.S. support for Ukraine in materiel has contributed to a backlog in the delivery of arms that the United States has committed to provide Taiwan. A delay was caused also by limited industrial capacity in the United States. Taipei ostensibly does not see it in such zero-sum terms, but also must rely on the U.S. government’s assurances given the lack of alternative suppliers. 

Despite the lack of official contact between the Taiwanese and Ukrainian governments, the Taiwanese government and people have delivered humanitarian aid and other forms of support to Ukraine through its neighbors. It is also worth remembering that volunteer soldiers from Taiwan fought in frontline battles through the Ukraine Foreign Legion. While other governments have banned their citizens from participating in the legion, Taiwan honored its fallen volunteer who fought for Ukraine. This is a powerful representation of the government and people’s support for Ukraine within Taiwan.

There is also a broader international values proposition of supporting other democracies in times of need, such that should Taiwan require international support in its time of need, it could also count on the support of other fellow democracies.

There’s been some debate in Taiwan over whether the U.S. focus on semiconductor supply chains is good or bad for Taiwan. How has Taiwan’s government, first under Tsai Ing-wen and now under Lai Ching-te, adapted to the United States’ semiconductor policy?

The global attention on the vital importance of semiconductors for virtually all critical economic, military, and technological applications has significantly raised the profile of Taiwan given the vital role that it plays in the manufacturing of advanced semiconductors. As the U.S. is Taiwan’s primary security guarantor and also as a matter of domestic capacity issues, Taiwan has generally accepted the need for the United States to re-shore some of its production capacities for advanced chips with the announcement of the development of fabrication plants by TSMC in the United States.

At the same time, however, Taiwan must manage and temper fears about the risk of war to ensure that there is not too much capital flight out of the country and attract much-needed investments to continue to support its economy. The impact of investor Warren Buffet who, citing geopolitical tensions, sold his $5 billion stake in Taiwan’s TSMC in 2022, serves as a cautionary tale for Taiwan’s leaders about how concerns over the safety in the Taiwan Strait could spook investors and other businesses from the island and detrimentally affect its economic security.

Regionally, the Tsai administration began to diversify trade and investments from China through the New Southbound Policy and worked on realigning the global supply chain away from China. The Lai administration is continuing and intensifying that line of effort with an added emphasis on the trusted supply chain. With a greater emphasis on de-risking from China, and reducing Taiwan’s dependencies to the Chinese market, and thereby the leverage of the Chinese Communist Party over it, the Lai administration appears to be seeking ways to level the playing field for Taiwanese businesses looking to invest more into the United States through an avoidance of double taxation agreement (ADTA).

Given that Taiwan and the United States do not currently have an income tax agreement in place, corporations in countries like South Korea, Australia, and even China have significantly lower withholding tax rates on dividends, interest, and royalties when compared to their Taiwanese counterparts. In the absence of a tax agreement, Taiwan’s corporations have a 30 percent withholding tax on dividends, interest, and royalties – and this is in comparison to a range of 5 percent to 15 percent for the other three countries, which all have tax agreements with the United States.

As a result, Taiwanese companies have two to three times more tax burden when remitting dividends, interests, or royalties from the United States when compared to their Chinese, Australian, or South Korean counterparts. While all foreign companies have to pay the same level of federal and state taxes, the real income that Taiwanese companies earn is effectively garnished relative to the other companies by the higher remittance taxes placed on them. As such, the absence of an ADTA creates an unequal playing field and reduces the bottom line for Taiwanese companies relative to their market competitors.

Have you noticed a change in Taiwan’s approach to the U.S. since the Lai administration took office – particularly since Lai’s vice president, Hsiao Bi-khim, is fresh off a three-year stint as Taiwan’s top representative in Washington?

Externally, the primary emphasis of the Lai administration has been on continuity in policy with the Tsai administration to assure the United States and other allies and like-minded partners. Internally, if the DPP is interested in trying to win the next election, it would also have to listen to the voters, who showed through their allocation of votes – by keeping the DPP in the presidential office and handing the opposition parties control of the Legislative Yuan – that they want a degree of continuity in national policy.

In three signals of Lai’s policy approach since he became president – his inauguration speech, his Whampoa (ROC Military Academy) speech, and his 10/10 National Day speech – he has largely hewed to an approach that is broadly consistent with his predecessor with an emphasis on the ROC constitutional order. While his tone toward Beijing is indeed more assertive, the substance of his policy positions does not deviate from Tsai’s.

While questions undoubtedly remain given President Lai’s past statements, having the former top diplomat to the United States, Hsiao Bi-khim, by his side in the position of vice president does provide a degree of assurance.

Taiwan’s leaders like to point out that U.S. support for Taiwan is bipartisan and has been for decades. How has Taiwan policy escaped the intense polarization seen on some other foreign policy issues in the United States?

The Taiwan Relations Act of 1979 plays a critical role in ensuring that U.S. policy and policy debates over Taiwan do not get caught in the intense political polarization that we see afflict virtually every other issue. This is because, in part, at its origin the TRA was forged with bipartisan support. But support has remained strongly bipartisan only because of the strength of its underlying principles and the elasticity of the built-in ambiguity in the language of the Taiwan Relations Act.

That ambiguity has provided a high degree of flexibility for relationship managers on both sides to apply based on the needs and circumstances of the time. As such the TRA has remained enduring and fit for purpose in maintaining the deep and abiding interest of the United States and the people for a democratic Taiwan and a stable cross-strait environment.