Born in Taoyuan County, Taiwan, Hsu attended now the Hsinchu Senior High School and received his bachelor's degree in Political Science from the National Chengchi University in 1967 and his KMT-sponsored master's degree from the University of Edinburgh in 1969. He began his political career in the Kuomintang as a member of the Taiwan Provincial Assembly from 1973 to 1977, but broke ranks in 1977 when he ran and won as an independent in the election for Magistrate of Taoyuan County.
Deeply involved in the Kaohsiung Incident, Hsu was forced into exile in the United States in 1979. In 1986, he tried to return to Taiwan but was turned back upon arriving at the Chiang Kai-shek International Airport. Three years later he was arrested while slipping into Taiwan aboard a mainland Chinese fishing boat and was jailed for sedition until being pardoned in 1990.
He later joined the Democratic Progressive Party and served as its Chairman twice, from 1991 to 1993 and 1996 to 1998. He attempted to transform the party from a radical pro-Taiwan independence party to a more moderate and electable political group that no longer supported immediate independence. Having failed twice in gaining DPP support for his presidential bid, first in 1996 when he lost the party primary to Peng Ming-Min and second in 1999 when the party threw its support behind the widely popular former mayor of Taipei City, Chen Shui-Bian, Hsu decided to withdraw from the DPP in 1999.
Hsu ran in the as an independent with legislator Chu Hui-liang as his running mate. During the campaign, he promoted unification based on 'one country, two systems'. After the election Hsu became more critical of the Chen Shui-bian government and its various policies. Hsu believes that maintaining a good relationship with the People's Republic of China is vital for Taiwan's survival and growth, and there is no hurry to negotiate with mainland on political issues at the present. Instead, establishing a closer economic relationship across the will help Taiwan's economy.
Hsu publicly supported Lien Chen and James Soong in the . In March 2004, Hsu and a dozen other prominent politicians involved in the Tangwai movement published ''The Joint Declaration of the Tang Wai participants'', in which they reprimanded Chen Shui-bian of betraying the ideals of democracy and freedom that they once pursued. Criticising Chen of being "corrupted by power" and close with Lee Teng-hui and , Hsu and others urged voters who once supported DPP for its ideals not to vote for Chen, to give him a chance to "reflect on himself".
After the 2004 presidential election, Hsu, in protest of what he saw as an unfair election, arrived at Ketagalan Boulevard on the night of March 24 and staged a 3-day hunger strike. He believed firmly that Chen Shui-bian cheated in the election and thought he was now fighting for democracy, just like what he did two decades ago.
He founded the Taiwan Democratic School in July 2004 which is aimed at "promoting a new democratic movement to sustain Taiwan's young democracy." It has advocated unity within the Pan-Blue Alliance.
In December 2004 he made an unsuccessful run in the as an independent in the Taipei City South constituency. His platform opposed a NT$610.8 billion arms purchase from the U.S. and supported opening three direct links.