Taiwan is a dynamic polity and cross-Strait relations are volatile. And broader US–China relations are in flux, if not at an inflection point. The dynamic changes in politics and foreign relations that we have discussed in the preceding chapters are an indication that nothing can be taken for granted. It is therefore difficult to predict Taiwan's future. Nonetheless, having evaluated some of the major issues surrounding Taiwan, we conclude by looking to the future and highlighting key questions and uncertainties.

THE POST-TSAI ERA

Tsai Ing-wen's two-term presidency concludes in 2024 with great uncertainty about her possible successor and the direction Taiwanese politics and cross-Strait relations takes next. Reflecting on the Tsai era, we see a consequential leader who made a significant imprint on Taiwan's trajectory. Domestically, she made a number of difficult policy reforms that were not universally well received. A volatile first term saw the passage of necessary labour and pension reforms that damaged her approval ratings. At one point it was not even certain that she would stand for re-election. Her second term was largely defined by Covid-19 and national security. Taiwan's pandemic policy response was globally lauded and led to some of the best Covid-19 outcomes in the world. Tsai's effective leadership led to strong approval ratings until subsequent economic slowdown began to be felt in Taiwan.

The verdict on Tsai coming out of western capitals was more unanimously positive. Tsai was praised for her pragmatism and moderation, her caution with regard to Chinese red lines and her preference for substance over symbolism. The same moderation toward China was criticized by some of the DPP's more radical supporters. KMT supporters meanwhile decried the same policies as futile and needlessly antagonistic toward the PRC, jeopardizing Taiwan's security and economy. Despite these dual critiques, Tsai persevered and was rewarded with a high level of trust in the western international community. The scale of Tsai's feat in securing Washington DC's approval, and rehabilitating the DPP's reputation after the Chen Shui-bian era, should not be underestimated. Furthermore, she set a high new standard for Taiwan's leadership internationally.

On the eve of the Taiwanese presidential election in 2016, Chinese cyberspace erupted in fury when footage emerged of 16-year-old Chou Tzu-yu of K-pop girl group TWICE holding a small ROC flag on a Korean television show. Chou, known by her stage name of Tzuyu, is a Taiwanese citizen, and held the ROC flag along with the other TWICE members who held flags from their own home countries. But in China, Tzuyu became an object of righteous nationalistic anger for her purported promotion of “Taiwan independence” (Buckley & Wang 2016). Accusing Tzuyu of promoting Taiwanese independence over an ROC flag is deeply ironic. She was not holding up any of the flags or symbols associated with “Taiwan independence”, usually green and white, but the ROC's “blue sky, white sun and wholly red earth”, something with deep Chinese resonances. Advocates of independence in Taiwan see the ROC flag as a symbol of unification and Chinese control over Taiwan and would likely never be seen flying it.

At the time, the PRC still advocated the 1992 Consensus, a concept that permitted the existence of the ROC through the notion of “One China, respective interpretations”. The fact that the ROC flag could prompt such controversy, when ROC symbols within Taiwan were more likely to be associated with the KMT and openness to close relations with the PRC, is symptomatic of the confusion, complexities and sensitivities involved in cross-Strait relations. These nuances may have been lost on JYP, TWICE's record label, which was compelled by the threat of losing access to the Chinese market to film a “hostage-style” apology video. In it, an abject Tzuyu dressed in all black, affirmed the existence of One China and her undying adherence to it (Ahn & Lin 2019).

We could add dozens of other examples of Chinese anger being directed at individuals or companies whose actions were interpreted as an act of recognizing Taiwan: an American airline with Taiwan as an option on drop-down menus for online bookings (Wee 2018); a former WWE wrestler turned Hollywood actor who inadvertently implied Taiwan was a country (Victor 2021); a European state that allowed the use of “Taiwanese” to be applied to Taiwan's representative office, and so on (Lau & Momtaz 2021).

This chapter discusses how the government uses policy instruments to stabilize the economy. We first study automatic fiscal stabilizers. Then we discuss discretionary fiscal policy. Next, we introduce the monetary policy framework. We cover both conventional monetary policy and unconventional monetary policy after the 2008 global financial crisis. Finally, we discuss macroprudential policies that may lend robustness to the financial system and the whole economy.

Contemporary Taiwan is a democracy with strong institutions, an independent judiciary, free media, and routine free and fair elections. Political participation is high, with keenly fought campaigns and intense political debates. There are features in the operation and practice of democracy in Taiwan that older democracies could learn from. Every citizen has the right to vote, ballots are counted efficiently and publicly to ensure accountability, and civil society is bustling with watchdog organizations to track parties and politicians during elections. The institutions that make up Taiwan's democracy were forged through decades of authoritarian rule and subsequent democratization processes (Rigger 2002), and in some respects democratic reforms are still incomplete and ongoing (Mattlin 2011). In this chapter, we will summarize the main features of Taiwan's democratic transition, discuss how Taiwan's democracy works today, and explore the unique political spectrum that defines everyday politics.

THE CAUSES OF TAIWAN's DEMOCRATIZATION

Democratization in Taiwan was a gradual, generally peaceful and multi-faceted process extending over a prolonged period and marked by electoral milestones (Tien & Chu 1996). It generally followed a cycle of opposition demands for reform, concessions by the KMT, followed by further demands from civil society. Democratization is not simple anywhere and Taiwan was no exception. The extent of the KMT's authoritarian rule under martial law was so ubiquitous that every sector, every institution and the entire bureaucracy required liberalizing reforms.

What led to Taiwan's democratization? What were the necessary conditions that allowed for Taiwan to democratize after decades of authoritarian rule? There is no singular cause or single answer. Instead, there are a host of important factors that together led to Taiwan's democratic transition. While many different theories of democratization may emphasize the role of the KMT or the role of grassroots activists, it was a combination of these different variables that pushed Taiwan to democratize. We summarize these conditions here.

First, physical infrastructure established during the Japanese colonial era and KMT authoritarian era. Despite relegating Taiwanese people to second-class citizens, Japanese colonial rule was responsible for beginning Taiwan's industrialization process. Physical infrastructure like railroads, wells and irrigation for agriculture were constructed across Taiwan.