Taiwan's presidential elections: A tipping point for global economic stability amid China's reunification threats

The presidential elections in Taiwan will be held on January 13. XTB analysts remark in their commentary that despite polls suggesting a likelihood of maintaining the status quo, election results could incite a response from China.

Attention is drawn to the recent statement by a Chinese leader. NBC News reports that Xi Jinping proclaimed the impending elections as a "choice between peace and war". Xi reportedly informed U.S. President Joe Biden that China will annex Taiwan - a decision apparently already made, while no deadline was specified.

Taiwan dominates the global market as a semiconductor manufacturer, suggesting that "any military actions in Taiwan would set off a technological crisis resulting in grave impact on global economic stability", the analysts outline.

Taiwan Semiconductor Manufacturing Company (TSMC) holds the title of the largest semiconductor manufacturer. "As per TrendForce data, TSMC possesses around 58% of the semiconductor market share, a progression from previous quarters. Samsung only claims a mere 12.4% market share", they recount.

TSMC caters to major companies such as Apple as well as other key players in the chip market, like AMD and Nvidia. Although TSMC supplies a significant amount of chips to China, military operations on the island could result in a worldwide technological crisis - as per the commentary.

The analysts recall that numerous tech companies, like Acer, Asus, and Foxconn, also have strong ties to Taiwan.

Vice President of Taiwan, Lai Ching-te from the DPP party, is up for elections. President Tsai Ing-wen has been in office twice since 2016 during a time of escalated tensions between China and Taiwan. A victory for Lai Ching-te could signify a continuation or even worsening of the existing situation. The DPP emphasizes that during its rule, Taiwan has fortified its autonomy and security through closer diplomatic relations with countries like the United States and other democracies - note the analysts.

The second-ranking candidate is Ko Wen-je, member of the TPP (Taiwanese People's Party), and previous Taipei mayor. The current mayor of the capital and Kuomintang party leader, Hou Yu-ih, is also in the race. The commentary notes that Hou Yu-ih, who was previously a police chief, conducts his political campaign under the shadow of potential war. The Kuomintang has roots in Mainland China, claiming rights to control over the entire state.

The candidates all express support for maintaining the current status quo while avoiding a call for independence that might prompt China's response. Simultaneously, China employs disinformation campaigns aimed at convincing voters to chose less anti-Chinese parties like KMT and TPP - XTB reports.

The newest ETtoday poll has DPP candidate Lai Ching-te leading with 38.9%, having dominated since the start of the campaign. Election practices in Taiwan differ from Poland or the US with the winner decided solely based on the most votes achieved in the first round, eliminating the need for a 50% approval rate.

As per XTB analysts, there might be a rise in tensions following the elections. An upsurge in military exercises near the Taiwan Strait is plausible if the DPP retains power.

Xi Jinping announced that the moment of reunification is imminent without specifying any actions. It is essential to recognize that an attack on Taiwan would disrupt essential global semiconductor supplies and risk up to 50% of the world's container freight. If China were to take action against Taiwan, it would face substantial issues with its lack of semiconductor production - XTB underscores.

Taiwan's election result will be instrumental in predicting Beijing's next move. "If DPP maintains its rule, China is unlikely to cooperate internationally. A KMT victory would not lead to lasting improvement since this party opposes unification while China will continue to strive for it. A DPP victory would most likely strengthen ties with the US while a KMT win could loosen these relations," the analysts explain.

A scenario leading to exacerbated US-China trade war over Taiwan election results cannot be dismissed, potentially triggering inflation rebound and slowing global economic recovery - they assess.

The election results might also affect TSMC quotations and the Chinese yuan. As per XTB experts, "Though the election itself should not alter the current market situation, a conflict escalation could severely impact Taiwan's stocks and create further yuan issues, notwithstanding the currency's limited mobility."

Positive effects might also result from the election. "An improvement in the supply chain and subsequent decreases in technology product prices could ensue from dialogues between Taiwan and China after the election. This could potentially stimulate a resurgence of TSMC stock growth, which has remained stagnant throughout the past year, while retaining high margins for companies."

The long-standing conflict between China and Taiwan dates back to the 17th century, when China laid claims over the island. Around 1900, Taiwan fell under Japanese control due to the war at the time. Taiwan returned to Chinese rule after World War II in 1945. Yet, mainland China's authority under Kuomintang's rule sparked widespread unrest among Taiwan's population, eventually leading to riots. China's civil war victory under Mao Zedong drove the fleeing Chinese authorities to Taiwan. Taipei does not recognize these mainland authorities. While Taiwan has not declared independence, resulting in an inability to maintain proper diplomatic relations with both Taiwan and China.

China follows a unity policy and aims to achieve national unification by 2049. Chinese authorities stress that a declaration of independence by Taiwan would invite military intervention, XTB concludes.