Businesses Could Face New Pressure To Choose Sides In U.S.-China Competition — German Marshall Fund Scholar

Taiwan, one of the world’s 25 largest economies, is home to key suppliers to Apple and also manufactures many of the world’s most advanced semiconductors. For businesses, intensifying geopolitical and military risks among the U.S., mainland China and Taiwan were underscored when Warren Buffett’s Berkshire Hathaway recently bought – and then unexpectedly sold — a stake in Taiwan chip industry leader Taiwan Semiconductor Engineering; Buffett reportedly cited geopolitical tension as a reason.

Those risks aren’t likely to go away soon given that “the United States and China as locked in an intense and prolonged strategic competition,” according to Bonnie Glaser, co-author of a new book published by the Brookings Institute in April, “U.S.-Taiwan Relations: Will China’s Challenge Lead to a Crisis?” Glaser has followed U.S.-Asia relations for more than three decades with think-tanks including the Center for Strategic and International Studies; she is currently based in Washington D.C. as managing director of Germany Marshall Fund’s Indo-Pacific program.

“Businesses are facing a riskier environment. They are all looking for ways to reduce that risk. And depending on what sector they’re in and how much business they have in China or in Taiwan, they’re all thinking about ways to prepare for more challenges to their companies,” Glaser said in an interview this week. Going forward, she believes the mainland “could put pressure on foreign companies to choose doing business with either the mainland or Taiwan.”

I spoke with Glaser by Zoom to learn more about what’s next in ties among the U.S. China and Taiwan. She co-authored the new book with Ryan Hess, a non-resident fellow at the Paul Tsai China Center of the Yale Law School, and Richard Bush, a non-resident senior fellow at the Brookings Institution. Edited excerpts follow.

Flannery: Your book’s subtitle asks: “Will China’s Challenge Lead to a Crisis?” To what extent has China’s challenge actually changed of late?

Glaser: The challenges have increased dramatically. Militarily, China’s capabilities have expanded at a significant rate over the past decades. We’ve seen China exercise the implementation a blockade around Taiwan after Speaker Pelosi visited Taiwan last summer. And subsequently, the PLA erased the center line that they had tacitly observed for most of the past two decades. We now see PLA navy ships sailing up to the 24 nautical mile continuous zone and aircraft flying in Taiwan’s Air Defense Identification Zone on a daily basis. Chinese drones are circumnavigating Taiwan. So the military challenge is really significant, but that’s not the only challenge.

There are other threats, such as continuing diplomatic pressure. The number of countries that recognize Taiwan as a sovereign state is now down to 12 countries, plus the Vatican That’s nine countries that Beijing has flipped since President Tsai Ing-wen was elected.

We also see economic pressure increasing. This started with the restriction of Chinese mainland tourists going to Taiwan after Tsai Ing-wen was elected. And then we saw the Chinese stop importing pineapples and two different types of apples. Then after Pelosi’s visit, import restrictions were imposed on over 1,000 agricultural items. But the Chinese are not restricting imports of semiconductors and other ICT items, electronics that are important to them. They only ban products that they can easily find substitutes for.

So the challenges are growing. We see it really across a whole range of areas. I haven’t even mentioned the cyber-attacks. According to one (report), Taiwan is targeted by approximately 20 million cyber-attacks everyday. This pressure has been going on for many decades, though it has been increasing in the past few years. Most of the people who live in Taiwan have just grown accustomed to the threat.

I do think that the Russian invasion of Ukraine was a bit of a wake-up call for the government, for the military, and even for many of the average citizens in Taiwan. They are now taking the threats from China more seriously.

Flannery: To what extent would you say Xi Jinping and his ambitions have been underestimated over the years?

Glaser: I would say we can’t wind back the clock and replay it under a different leader. Hu Jintao developed a policy of peaceful development across the Strait. Xi Jinping inherited that, and he has adopted a somewhat tougher stance against Taiwan in part because the strategy has really not been working. For example, the incentives provided to people on Taiwan to support closer ties with mainland China really has not worked. As the older generation dies out, younger people who have never been part of China see themselves as Taiwanese and see Taiwan as their country. That’s the trajectory.

The way in which China has cracked down on Hong Kong has led the people in Taiwan to worry that the application of “one country, two systems” to Taiwan would have very bad outcomes for them and to question whether they could trust promises from Beijing that they might make to allow them to preserve their freedoms under some form of unification.

Regarding Xi Jinping’s policy toward Taiwan, I think many people misjudged him when he first came to power. In November of 2012. I remember some people in Taiwan said that because he had served in Fujian, the province opposite Taiwan, and had experience with Taiwanese businessmen that he might adopt a softer approach than Hu Jintao had. That clearly did not happen.

Very shortly after that in 2013, Xi Jinping created the Air Defense Identification Zone in the East China Sea. He started building artificial islands and then militarizing them in the South China Sea. Many people expected that Xi Jinping would take a harsher stance against Taiwan if the DPP (Democratic Progressive Party) came back to power. And that is what happened in 2016. Xi Jinping set the bar for (newly elected) President Tsai Ing-wen so high that really no matter what she did, unless she embraced the “1992 Consensus,” – which essentially is a verbal understanding between the Nationalist Party in Taiwan and the Chinese Communist Party in China that Taiwan is part of China — she was not going to satisfy Xi Jinping.

And so it was set in stone at that point that the communication channels would be cut by Beijing and relations would begin to deteriorate. And then the only question was, how far and how fast?

Flannery: How do you see Taiwan’s presidential election playing into the U.S.-mainland-Taiwan dynamic?

Glaser: I view the United States and China as locked in an intense and prolonged strategic competition. Tsai Ing-wen has pursued a policy of not caving into the PRC demands, but also not provoking China. And she’s been relatively successful. She’s prioritized the strengthening relations with the United States.

I expect that (incumbent Taiwan Vice President) Lai Ching-te if elected, will adopt a similar policy. How he will react to various policies by China that he sees as challenges or provocations remains to be seen. But we know he won’t accept that Taiwan and China are part of the same country, and again, that’s the core of the “1992 Consensus.”

Beijing will not likely resume any official cross-Strait channels if Lai becomes president. The Chinese are considering some new version of the “one country, two systems” planned for Taiwan, but nothing has been rolled out yet. I doubt what we would see eventually is anything that is fundamentally different. But the Chinese have recognized that they cannot equate it with Hong Kong, because that would surely fail.

Flannery: What do you make of the opposition KMT’s candidate, Hou Yu-ih, and his election prospects?

Glaser: It’s unclear what Hou’s position is toward Beijing. I have personally never met him; few Americans have. Since the local elections last year, he has focused attention on his constituency in New Taipei. He didn’t make clear that he was even willing to run for the presidency until very recently and is holding his cards very close to his chest.

Hou says he opposes Taiwan independence and that he doesn’t support “one country, two systems,” but he has otherwise evaded taking a position on this core question of “one China.” If elected, he may try to improve relations with the PRC while also continuing to strengthen relations with the United States.

That will be a very difficult path to navigate. The KMT slogan is that they will bring peace if elected, while the DPP will bring war. What Lai Ching-te has said is that this is not a race between peace and war, but rather is a competition between autocracy and democracy —autocracy being what would happen if Taiwan is integrated in some way into the People’s Republic of China.

My view is that this will be a very close election. It’s possible that no candidate will get more than 40% of the vote, because there is a third=party candidate from the Taiwan People’s Party — former Taipei mayor Ko Wen-je. In 2000, there were three candidates and Chen Shui-bian was elected with only 39%. It may be that whoever wins doesn’t have a strong mandate to rule, which would be very different than what we’ve seen over the last four years. Tsai last won reelection with a 25% edge.

Flannery: Why wasn’t Terry Gou picked for the KMT presidential election nomination this month? He’s a billionaire with fame and a lot of resources. (See related post here.)

Glaser: My understanding is that KMT Chairman Eric Chu conducted polls among KMT supporters, KMT legislators, and KMT mayors to determine the candidate with the best chance of defeating Lai Ching-te. The results of these polls showed that Hou had a slightly better chance in public opinion polls, though it was very close — just a difference of a percentage point or two in the gap between Lai Ching-te and Terry Gou compared with Hou.

But among the KMT legislators and the mayors, there was a significant difference. And it’s important what those people think — they want to ride on the coattails of the KMT presidential candidate. Terry Gou had said from the beginning that he would accept whatever the party decided. Some people doubted that he would because he hasn’t always in the past. But he graciously accepted the way Eric Chu conducted this review and presented the data to him, and has thrown his support to Hou. I give him credit for that.

Flannery: Why wouldn’t legislators be as supportive of Gou as the public?

Glaser: People believed that the DPP could paint Terry Gou as pro-China. It’s been reported about 80% of Terry Gou’s wealth comes from mainland China, and that would be risky. Hou does not carry that kind of baggage.

Flannery: As former presidents go, Tsai Ing-wen will be relatively young at about 67 years old, speaks English fluently and has a lot of U.S. goodwill. What kind of role would she play if Lai wins?

Glaser: President Tsai and Vice President Lai are not close, but they have a good working relationship. We have to remember that when she ran for reelection, he challenged her in the primary. That is very unusual in a democracy. I’ve been told that was in part because he believed Tsai was not managing the factions within the DPP very well. It was more about the party and less about policy. I do think that soured their relationship, and it was not easy for President Tsai to convince him to come into her government first as premier and then later as vice president. They have come to some kind of accommodation, and he will want to use her support to the extent that she can help him be elected.

But once elected, I’m not convinced that he is going to be looking to her for advice. She has enormous experience – she was a trade lawyer, negotiated Taiwan’s entry into the World Trade Organization, and has come to understand the defense component of the U.S.-Taiwan relationship very well. Lai Ching-te does not have a strong background on issues related to defense, or relations with the U.S. and the PRC, and he would benefit from Tsai’s counsel.

Flannery: I interviewed then Taiwan President Lee Teng-hui and Tsai Ing-wen in the 1990s, and always have seen him as helping to clear her path in life. Who might be a vice presidential candidate for Lai?

Glaser: There are two strong candidates, both female. One is Cheng Li-chun, a former minister of culture, and the other one is Bi-Khim Hsiao, Taiwan’s current representative to the United States. Bi-Khim Hsiao would be particularly strong because of her support and experience in the United States, though I don’t know if she would attract more votes than Cheng.

Flannery: How does the business community figure into the triangular relationship among the U.S., the mainland and Taiwan?

Glaser: The U.S. business community is mostly keeping its head down, trying to avoid becoming the target of Chinese punitive actions, which are obviously expanding. Micron is the most serious so far – China has recently imposed a partial ban on Micron’s products as an act of retribution in response to U.S. export controls last October on semiconductors. China has also conducted raids and taken other harassment measures against consulting companies Bain, Mintz and Capvision.

It’s possible that U.S. companies will get caught more in the crosshairs going forward. We’ve already seen Beijing impose trade and investment sanctions on Lockheed Martin and Raytheon Technologies. If companies inadvertently take positions that suggest Taiwan is a country or has sovereignty, China imposes punishment.

Going forward, China could go further. It could put pressure on foreign companies to choose doing business with either the mainland or Taiwan. It could interfere with shipping in the Taiwan Strait. When the meeting took place between Speaker Kevin McCarthy and President Tsai in the United States recently, China for the first time threatened to inspect vessels that were sailing in the Taiwan Strait It didn’t carry out that threat, but I think laid down a marker.

So businesses are facing a riskier environment. They are all looking for ways to reduce that risk. And depending on what sector they’re in and how much business they have in China or in Taiwan, they’re all thinking about ways to prepare for more challenges to their companies. Companies that are in Taiwan are all conducting tabletop exercises, thinking about how to de-risk and planning ways to evacuate their citizens in the event that there is a PRC use of force against Taiwan. In more than 40 years of paying attention to the relationship between China and Taiwan, I’ve never seen the business community so worried about possible crises that could be harmful to their businesses.

Flannery: So finally then let’s come back to the question posed in the subtitle of your book: Is a crisis inevitable in relations among the U.S., Taiwan and the mainland?

Glaser: I believe that conflict is neither imminent nor inevitable. Xi Jinping carefully assesses the costs and benefits of use of force against Taiwan, and understands that the costs are too high. The Russian invasion of Ukraine has likely only further underscored that war is not a cakewalk. It doesn’t always go as you plan. A failed invasion could undermine Xi Jinping’s top priority of putting China on a path toward national rejuvenation by the middle of the century or even threaten the legitimacy of CCP rule.

There is no evidence that Xi Jinping has made a political decision to use force. His policy continues to be peaceful development and peaceful reunification—although that increasingly means the use of various kinds of coercion including. “united front” tactics, disinformation, cyber-attacks, economic, political, and military pressure. These serve the goal of instilling a sense of psychological despair among the Taiwanese people so they conclude that the only hope they have for a positive future lies in some kind of integration with mainland China. That’s what I really think China’s strategy is and what we describe in the book as “coercion without violence.” It’s the pursuit of unification without actually using force.

The United States and Taiwan have to strengthen defense capabilities. Taiwan must have a robust capability to defend itself. It must demonstrate the will to defend itself. It would be tragic if China miscalculated and believed that Taiwan would surrender, as Putin and many believed Ukraine surrender.

We were somewhat asleep at the wheel while China was amassing its anti-access, area denial capabilities over the last decade plus. We are now scrambling to catch up and diversity our force posture in the region. The Defense Department is making important strides to create more mobile, lethal, and diversified posture throughout the Indo-Pacific region, all the way down the “first island chain” and going all the way to the Pacific islands and Australia.

And in addition, we are working with the international community and convincing a growing number of countries that they have a stake in the preservation of peace and stability in the Taiwan Strait, and they too have to put some skin in the game to raise the cost to China so that Xi refrains from making a decision to use force. This is a work in progress.

Again, I don’t believe that conflict is imminent or inevitable. I think it is not helpful when people talk about the possibility of an invasion by a specific deadline because Xi Jinping himself has not established a deadline or timeline for unification. But we should take the threat seriously nonetheless and be prepared for all possible outcomes.

See related posts:

Tech Billionaire Terry Gou Loses Taiwan Presidential Election Bid Again

Marcum Asia To Expand In Hong Kong As U.S.-China Tech War Shifts IPOs

U.S. Business Group Seeks Clarity On Rules, Warns On New Investment After Reported Raids

One Of These Seven People Is Likely To Win Taiwan’s High-Stakes Presidential Vote In 2024 — Gallup Pollster

@rflannerychina