This study analyzes several of the major challenges that the Taiwanese government will confront during President Chen Shui-bian's second term of office. These include serious strains in relations with the US, a continued deterioration in ties with the People's Republic of China (PRC) and increased political polarization, ethnic division and gridlock at home. The author suggests that, while these problems are certainly formidable, they should not be exaggerated. Nor should they be attributed solely to one politician or political camp.