By Samantha Barnes, International Banker
On July 15, the US Pentagon announced that the State Department approved the potential sale of military technical assistance to Taiwan worth an estimated $108 million. It is the fourth such sale to Taiwan under the administration of Joe Biden, and the third sale in 2022 alone. And it further positions Taiwan as arguably the most volatile battlefront in the intensifying ongoing geopolitical and economic tussle between the world’s two biggest superpowers – the US and China.
“The proposed sale will contribute to the sustainment of the recipient’s vehicles, small arms, combat weapon systems, and logistical support items, enhancing its ability to meet current and future threats,” the Pentagon’s Defense Security Cooperation Agency stated. In response, China’s Defense Ministry stated its unequivocal demands for the US “to immediately withdraw its $108 million arms to Taiwan region. The Chinese military will take all means to safeguard national sovereignty,” a ministry spokesperson said on July 18. It is thus becoming crystal clear that Beijing does not view favourably the expanding US-backed military capabilities of Taiwan, an island which it and much of the world considers to be Chinese territory.
Indeed, the heart of this issue lies in the argument over whether Taiwan is considered part of China (also known as the People’s Republic of China (PRC)), or whether it is a separate sovereign nation state. This itself is a matter of historical debate, but either way, most countries around the world formally consider Taiwan – also known as the Republic of China – to be part of China. Former Chinese president Deng Xiaoping characterised the unique China-Taiwan relationship as being one of “one country, two systems” to describe the contrasting political systems of parliamentary democracy in Taiwan and the one-party rule that prevails in mainland China. As Deng also once clarified, “so long as Taiwan returns to the embrace of the motherland, we will respect the realities and the existing system there.”
Given this scenario, the overwhelming majority of countries around the world have eschewed formal diplomatic ties Taipei, in favour of dealing directly with Beijing. Peculiarly, this is also currently the official position of the US – after several months of negotiation, it was revealed in December 1978 that the US would establish formal diplomatic relations with China, with the final agreement stipulating that the US would recognise the PRC’s government as the sole legal government of China, and that diplomatic recognition of Taiwan would cease henceforth.
That said, the US congress also passed the Taiwan Relations Act in 1979 which detailed the United States’ policy of preserving and promoting extensive, close, and friendly commercial, cultural, and other relations between the US and Taiwan, as well as the China mainland and the Western Pacific area. Crucially, the policy also declared that the US’ decision to establish diplomatic relations with China “rests upon the expectation that the future of Taiwan will be determined by peaceful means and that any effort to determine the future of Taiwan by other than peaceful means, including by boycotts or embargoes is considered a threat to the peace and security of the Western Pacific area and of grave concern to the United States.”
Fast forward to today and it would seem that the US continues to expand its support to Taiwan. “Though the United States does not have diplomatic relations with Taiwan, we have a robust unofficial relationship,” according to a statement published by the US State Department’s Bureau of East Asian and Pacific Affairs. “The United States and Taiwan share similar values, deep commercial and economic links, and strong people-to-people ties, which form the bedrock of our friendship and serve as the impetus for expanding U.S. engagement with Taiwan.” Most crucial of all, however, is the statement’s clear acknowledgement that the US continues to “oppose any unilateral changes to the status quo from either side; we do not support Taiwan independence; and we expect cross-Strait differences to be resolved by peaceful means.”
And yet it continues to arms Taiwan at an alarming rate. “Consistent with the Taiwan Relations Act, the United States makes available defense articles and services as necessary to enable Taiwan to maintain a sufficient self-defense capability -– and maintains our capacity to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of Taiwan,” the statement adds. It would thus seem that the US’ expanding military support for Taiwan is based on countering a perceived danger from China. “In the face of the expanding military threat of the Chinese Communists, properly maintaining equipment is as important as newly purchased weapons and equipment,” Taiwan’s Defense Ministry said.
From China’s perspective, meanwhile, Washington’s increasingly provocative behaviour through its activities with Taiwan has undoubtedly elicited much consternation. Perhaps most egregious of all to Beijing were the revelations in October 2021 that US troops had been deployed in Taiwan for at least a year. A Wall Street Journal report revealed that US officials had confirmed a special-operations unit and a contingent of marines had been secretly operating in Taiwan to train military forces there as part of efforts to bolster the island’s defenses against an expanding China.
“Taiwan does not seek military confrontation,” President Tsai Ing-wen said in response to the report. “It hopes for a peaceful, stable, predictable and mutually beneficial coexistence with its neighbours. But Taiwan will also do whatever it takes to defend its freedom and democratic way of life.” But it is such provocations that go a long way towards explaining why China is investing heavily in its own military capabilities, and why it has been carrying out more military drills in Taiwan’s vicinity. For instance, Taiwan’s defence ministry recently stated that China’s People’s Liberation Army had conducted 555 sorties into Taiwan’s air defence zone – 398 of which involved combat aircraft – during the first half of the year, compared with 187 in the same 6-month period in 2021.
Another formidable component to the China-US standoff over Taiwan is based in economics, specifically with regards to the island’s highly advanced semiconductor industry, on which both China and the US are heavily reliant. Indeed, an April report byBoston Consulting and the Semiconductor Industry Association found that Taiwan, mainly through its Semiconductor Manufacturing Company (TSMC), currently accounts for 92% of the world’s most advanced semiconductor manufacturing capacity, which is used to power most of the world’s consumer electronic devices including smartphones, computers and automobiles.
As such, the US fears that a China seizure of TSMC could propel it well ahead as the two nations compete for global technological supremacy. Its lack of domestic capacity to develop semiconductors would put it a distinct economic disadvantage, and would be a major blow to the capabilities of the US military which relies on semiconductors to field advanced weaponry, as confirmed by a congressionally commissioned study published in March 2021. “We are very close to losing the cutting edge of microelectronics which power our companies and our military because of our reliance on Taiwan,” said former Google CEO Eric Schmidt, who chaired the commission. Former deputy defence secretary and commission co-chairman Bob Work added in reference to the distance between Taiwan and mainland China that the US was “110 miles away from going from two generations ahead to maybe two generations behind.” Work added that were China to absorb Taiwan, “that would really be a competitive problem for us.”
As such, the US has been making attempts to boost its domestic capacity of semiconductor manufacturing. Most recently, a bill is making its way through Congress which assigns around $54 billion in subsidies for US semiconductor companies to develop plants within the US, along with a four-year 25% tax credit estimated to be worth about $24 billion. Should they accept this financial incentive, the proposed legislation would prohibit such companies from expanding their semiconductor manufacturing in China for a period of 10 years, however.
The US government has also been attempting to convince TSMC to open plants in the US that could manufacture advanced semiconductors. Not to be outdone, however, Beijing is also spending substantial sums on developing its own domestic chip industry, such that it can lower its dependence on Taiwan’s semiconductor exports, although experts suggest that China’s domestic industry in this area lags that of Taiwan’s by around a decade. Nonetheless, given that China accounts for some 60% of global semiconductor demand, and given that over 90% of semiconductors used in China are imported or manufactured domestically by foreign-owned companies, the loss of chips from Taiwan would inflict a devastating blow to China’s economy.
As such, it would appear it remains in the best interest of both China and the US not to disrupt Taiwan’s economic wellbeing as much as possible at present, and continue with the status quo. According to Taiwan Economy Minister Wang Mei-hua, the semiconductor industry is critical to the island’s ultimate destiny. “This isn’t just about our economic safety,” she told Reuters in September. “It appears to be connected to our national security, too.”
The biggest problem for Taiwan, however, is that very few countries today recognise it as being separate to China, and those countries that have made the decision to switch allegiance from Taipei to Beijing have been rewarded handsomely for doing so. “We are convinced this is a step in the right direction that corresponds to the principles of international law of international relations and the inevitable trends of our time,” said Salvador Sánchez Cerén, who was the Salvadorean president in August 2018 when the decision was taken by the Central American nation to officially establish ties with Beijing – and thus sever relations with Taipei. And after Cerén’s successor Nayib Bukele visited Beijing in 2019, China gifted El Salvador with a new $40 million national library and cultural centre, which began construction in the capital city of San Salvador in February of this year.
Bukele also managed to agree a further $500 million in infrastructure investment projects including a sports stadium, a tourist pier, an upgrade to water treatment facilities, and development of a “Surf City” project to create a major beach vacation destination running along El Salvador’s Pacific coastline. El Salvador then became a signatory to China’s massive global infrastructure investment project, the Belt and Road Initiative, (BRI). “President Xi Jinping has just granted El Salvador gigantic, non-refundable cooperation, completely managed by our government,” Bukele tweeted in December 2019.
With the number of countries who formally recognise the sovereignty of Taiwan set to continue dwindling, as China’s economic might – and its astonishing ability to boost economic development in other countries – continues to grow, the end-result for Taiwan would appear to be its diplomatic isolation globally. “Given the Chinese Communist Party’s intense focus on isolating Taiwan, it is likely to continue investing in Central America and the Caribbean. After all, Beijing likely sees these countries as relatively cheap to buy off, and it has enjoyed a string of diplomatic victories,” Benjamin Gedan, deputy director of the Wilson Center’s Latin American Program, explained to US state-owned radio news outlet Voice America in February.
That said, it seems only inevitable that the US will at some point announce official recognition of Taiwan which, given its global influence, could in turn prompt a number of its allies to follow suit. Indeed, given the way the US has operated over the last few years, it has all but given this recognition. “It is my steadfast view that our government should immediately confer diplomatic recognition to Taiwan, for it is a free and sovereign country,” Mike Pompeo, former director of the Central Intelligence Agency from 2017 to 2018 and former secretary of state from 2018 to 2021 under the administration of Donald Trump, recently asserted. “Our recognition of Taiwan should not hinge on what will occur. Taiwan is already an independent country. Our government should simply reflect that fact.”
And even as recently as July 19, the Financial Times was reporting that Speaker of the US House of Representatives, Nancy Pelosi, would visit Taiwan along with a delegation in August, having already cancelled a planned trip to the island in April. By doing so, Pelosi would be the most senior US lawmaker to visit the island since 1997. And as expected, China confirmed it would respond resolutely should the visit go ahead. “If the US insists on going down the wrong path, China will definitely take resolute and forceful measures to firmly defend its national sovereignty and territorial integrity,” ministry spokesperson Zhao Lijian added. “The United States must be fully responsible for all the consequences caused by this.”
China has also made clear its intentions that it would go to war should Taiwan attempt to declare independence. In June, the defence minister Wei Genghe warned his US counterpart Lloyd Austin that “if anyone dares to split Taiwan from China, the Chinese army will definitely not hesitate to start a war no matter the cost”, according to defence ministry spokesman Wu Qian who quoted the minister during the meeting between the two. The Chinese minister also promised that Beijing would “smash to smithereens any ‘Taiwan independence’ plot and resolutely uphold the unification of the motherland”, according to the Chinese defence ministry.
But what about Taiwan itself? Polling within the island suggests that the local population is not only largely against immediate reunification with China, it is also against declaring independence. Research recently conducted on core political attitudes in Taiwan by the National Chengchi University’s Election Study Center (ESC) found that only 1.3 percent of respondents want unification with mainland China “as soon as possible.” But only 5.1 percent of respondents are seeking immediate independence for Taiwan. Both results are near all-time lows for the study, which has been carried out for nearly 30 years, suggesting most prefer keeping this as they are for the time being. Indeed, a record 28.6 percent of those polled said they preferred to “maintain the status quo indefinitely,” while 28.3 percent said they would “decide at a later date.”