Taiwan’s economy has entered a challenging phase. The two pillars that have underpinned Taiwan’s growth for the last two decades, namely ICT/semiconductor centered industrial structure and deep integration with China, are increasingly unsustainable. Uncertainties created by the US-China economic rivalry and intensified competition from emerging countries have exacerbated the situation. In response to these tests, Taiwan’s President Tsai Ing-wen introduced the New Southbound Policy (NSP) to promote economic diversification and closer relationship with ASEAN and other Southeast Asian countries. The timing of the NSP might be perfect at this juncture, but uncertainties and challenges remain. This paper starts with a discussion on Taiwan’s economic difficulties, followed by an analysis on the current trade and investment relations with Southeast Asian countries, and offers thoughts on the success and challenging factors of a closer economic relation.

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