Taiwan: The New Geopolitical And Economic Flash Point

Authored by Ethan Yang via The American Institute for Economic Research,

The island nation of Taiwan may be in the spotlight today for handling Covid-19 without a lockdown but it’s about to become one of the most contentious geopolitical flashpoints of the decade. On April 17, 2021, The South China Morning Post reported that,

“The United States and Japan called for “peace and stability across the Taiwan Strait” in a joint statement released after a meeting between US President Joe Biden and Japanese Prime Minister Yoshihide Suga who reaffirmed their commitment to counter China’s “intimidation” in the East and South China seas in wide-ranging talks.

It is the first time since 1969 that the top leaders of the two countries mentioned Taiwan in a joint statement, a move that is set to infuriate Beijing.”

The move did in fact attract hostility from the Chinese as Nikkei Asia wrote,

“Hours after Japan and the U.S. named Taiwan in a leader’s summit statement for the first time in more than five decades, China hit back at the communique that also highlighted the two allies’ concerns over Hong Kong and human rights issues in Xinjiang.

“These matters bear on China’s fundamental interests and allow no interference. We express strong concern and firm opposition to relevant comments in the Joint Leaders’ Statement,” a spokesperson at the Chinese embassy said in a statement on Saturday.

Taiwan, Hong Kong and Xinjiang belong to “China’s internal affairs,” the statement said.”

Xinjiang is a region in Northwest China where the Chinese Communist Party is reported to be engaging in horrendous activities such as ethnic cleansing, religious persecution, and slave labor. Hong Kong, which came under Chinese control in 1997, was promised to have its democratic norms respected in a slow reintegration period set to end in 2047. That promise has now been shattered as the CCP unleashed a brutal crackdown in response to the Hong Kong Protests starting in 2019. China’s treatment of Hong Kong subsequently eliminated any remaining intentions amongst the independent Taiwanese to even consider a peaceful unification with the People’s Republic of China.

Taiwanese President Tsai Ing-Wen, who is a staunch advocate of Taiwanese independence and national identity, was recently reelected with the greatest popular landslide in the island’s history. It has become abundantly clear to everyone, especially the CCP, that China’s unmoving ambition to annex the island can now only be accomplished with military force. This is frightening not only because of the damage this development will have for democracy, freedom, and economic prosperity not just in Asia but around the world, but the inevitable military conflict with the US and its allies will be catastrophic. Dennis Roy notes in The Diplomat that,

“Among these assessments, none carried more weight than that of Admiral Philip Davidson, chief of the U.S. military’s Indo-Pacific Command. Davidson opined before a U.S. Senate Committee in February that China might try to seize Taiwan by military means “in the next six years.”

Roy also notes that Chinese military assets have been conducting wargames with alarming frequency and Chinese officials have openly stated they are rehearsing for an invasion of Taiwan. Reuters even noted that recently the Chinese air force has intruded on Taiwanese airspace so frequently that Taiwan stopped scrambling jets to intercept in order to conserve resources. Instead, they are now tracking Chinese jets with ground-based missiles. 

The Strategic Importance of Taiwan 

The United States is bound by law to support the ongoing security of Taiwan through the Taiwan Relations Act, which is a bipartisan piece of legislation that has been instrumental in not only supporting the island nation but core US interests in the Asia-Pacific region. The strong bonds of US-Taiwan friendship are as self-serving for the US as it has been for the Taiwanese. Setting aside Taiwan’s fame as a bastion of freedom and prosperity, preventing China from controlling Taiwan is a core strategic concern for US security interests. China knows this as well. 

Whoever controls Taiwan, controls the Asia-Pacific. A crucial economic and strategic region in the world. 

Joseph Bosco explains Taiwan’s strategic importance in University of Nottingham’s Taiwan Insight when he writes,

“Drawing on historical experience, the question is whether Taiwan would be as valuable a strategic asset to a potential aggressor in Asia today as it was for Japan in the 1940s.”  

During World War II Japan maintained control of Taiwan as a colony. From Taiwan, it was able to launch military pushes into the Philippines, Indonesia, and Australia while also servicing forces in Korea and China. That is because of Taiwan’s important position in the center of what is known as the First Island Chain which stretches from Japan down to South East Asia and Australia. This island chain then gives way to the Second Island Chain further east into the Pacific Ocean towards Hawaii. Controlling Taiwan would allow the Chinese military to cut the Asia-Pacific in half and conduct hostilities against major US strategic allies such as South Korea, Japan in the north, the ASEAN countries and Australia in the south. It can then start to expand its naval operations further into the Pacific Ocean much like Imperial Japan did during World War II. 

Taiwan’s deepwater ports would also give the Chinese navy the ability to not only dominate the Pacific Ocean and its trade routes but also exercise more leverage over the South China Sea. The South China Sea saw almost $3.37 trillion worth of global trade pass through in 2016 and 40 percent of the global natural gas trade in 2017. The current status quo maintained by the United States and its allies is one of a rules-based international order dedicated to human rights, trade, and cooperation. A Chinese-occupied Taiwan would allow the Chinese to follow through with their vision of turning the South China Sea, a region with numerous countries laying claim, into a “Chinese Lake.”

Chinese primacy in the region would plunge Asia as well as the world further into authoritarian darkness. China would be able to not only make more territorial demands to more countries but it can threaten to disrupt trade and free movement to any country in the world that questions its authoritarian practices. 

Economic Importance

Although Taiwan may be an island the size of Maryland, it’s one of the richest countries in the world with a GDP (PPP) of $1.3 trillion, an estimated 2021 nominal GDP of over $759 billion, and a population of 23 million. For comparison, that’s a population and GDP (PPP) similar to Australia and a nominal GDP just behind Turkey, Saudi Arabia, and Switzerland. Taiwan is also a critical trade partner for the US, being our 10th largest goods trading partner and 6th largest consumer of US agricultural exports. 

Even more important, however, is Taiwan’s place in the global economy. When the Portuguese discovered the island in the 16th century they gave it a name that is still used today: Formosa. That translates to “beautiful isle” to which Taiwan was and certainly is a scenic tourist destination. However, today it is also one of the most advanced producers of semiconductors in the world and a technology hub more generally. Semiconductors are essential for producing everything from data centers, cars, smartphones and other pieces of technology that are increasingly becoming more important to the basic functioning of society. At the moment, there is currently a global shortage of semiconductors which has only been exacerbated by Covid-19 lockdowns and the accelerated transition to a digital society. 

Furthermore, Taiwan has taken large steps in positioning itself as the Silicon Valley of Asia with massive investments in scientific research and startup-friendly infrastructure. Taiwan’s geographic location as a stepping stone to the rest of Asia and its relatively high economic freedom make this vision a decent possibility. As Taiwan emerges from Covid-19 with an economy relatively unscathed by lockdowns, its economic importance will likely only grow as it becomes a more popular spot for investment. That also makes it an even greater prize for the Chinese and an asset to the free world. 

Taiwan as a free and independent country makes it an active agent in making the world a more prosperous and technologically advanced place. Taiwan under Chinese control gives the CCP even more economic leverage over any country that speaks out against its authoritarian model. Not to mention that it will have removed one of the major alternatives to Chinese technology, which has been known to function as an arm of the CCP’s surveillance state. 

Key Takeaways

With the escalating tensions between Taiwan, China, and everyone in between, it is clear that once Covid-19 fades out of the picture, Taiwan will be one of the next global tension points. This seems even more likely as the Biden administration announces its intentions to withdraw troops from Afghanistan and with US-China tensions at an all-time high. During the Obama administration, the US foreign policy establishment announced a “pivot to Asia,” and the reasons cannot be more clear. 

Although Taiwan has always been an important US foreign policy interest for decades, current events will likely make it the most important. The island has been caught in the middle of a perfect storm of global geopolitical tension, radical economic change, and an existential ideological struggle between liberty and authoritarianism. The stakes could not be higher, as one false move could spark a devastating armed conflict between global superpowers. Failure to act sufficiently will jeopardize the future of freedom and prosperity not just in Asia but around the world.