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Navigating the Crossroads: Rising China-Taiwan Tensions and the International Implications


By: Mallory Houlihan


Introduction

The dynamic of China-Taiwan tensions is constantly changing and has been since the colonization of the island of Taiwan. However, Taiwan was not originally colonized by China. More precisely, the current Chinese understanding of Taiwan as their territory wasn’t solidified until the late 1940s. Until 1662, Taiwan was controlled by Dutch colonists. Following the ousting of the Dutch from Taiwan in 1668, the Qing dynasty held power over the island until 1895, when the island was ceded to Japan following the First Sino-Japanese War. After the Qing Empire was overthrown by the Republic of China (ROC), the island of Taiwan was relinquished to the ROC through the Cairo Declaration in 1943. China and Taiwan operated as one prospering state for about a year until a civil war broke out in China. Mao Zedong’s 1949 victory and establishment of the People’s Republic of China (PRC) forced the ROC out of China and into their occupation of Taiwan, which has continued until this day. 


The Issue

It’s not just China and Taiwan that cannot decide on where the true claim on the island of Taiwan lies. Taiwan has 12 diplomatic allies that recognize Taiwan as the ROC, as opposed to recognizing the PRC as the sole government, and refuse official diplomatic involvement with Beijing. However, the United Nations, as a whole, does not recognize Taiwan – only 13 of the 193 UN member states recognize Taiwan. This sparse recognition is still constantly shifting, with Nicaragua just recently rescinding its recognition of Taiwan in 2021. The issue lies in the fact that the ROC took refuge in Taiwan, and had intentions to move back to mainland China and reinstate the ROC as the official Chinese government. The ROC, and the island of Taiwan, saw themselves as representative of mainland China, which caused tensions between the ROC and the PRC, who saw themselves as the true representative of the mainland. Taiwanese recognition dropped as countries realized the need for diplomatic relations with mainland China. 


Taiwan’s government elected Tsai Ing-Wen in 2016, who insisted on Taiwan’s independence so ardently that she saw no need to formally declare Taiwan as independent. This election greatly ruptured China-Taiwan relations, with Ing-Wen’s views differing greatly from her Kuomintang predecessor. The Kuomintang Party supported the one country, two systems idea proposed by Deng Xiaoping, a Chinese revolutionary who led the PRC from 1978 to 1989. William Lai Ching-te, Ing-Wen’s former Vice President, was just elected to the office of President of Taiwan and will be inaugurated on May 20. Lai Ching-te is a Democratic Progressive who advocates strongly for official Taiwanese independence. This is expected to heighten tensions between the two to a new, unprecedented level. 


On China

Although most UN member states recognize the PRC as China in a diplomatic context, more is needed for Beijing. Though typically speaking through CPC-sponsored messaging that promotes a peaceful process of reunifying China and Taiwan, Beijing has made it clear that they are not afraid of using force to take back Taiwan. Not only would the reclamation of Taiwan end a long-standing argument between the two governments, but it would also provide China with an immense gain of power. Taiwan is crucial to U.S. strategy in the South China Sea and powers the world’s technology with its computer chips. PRC President Xi Jinping has shifted his perspective to highlight how the reunification of China and Taiwan would achieve the “China Dream”, and the risks he is willing to take to ensure the execution of this dream are the most concerning piece of this debacle. The CPC claims that reunification is a “historical mission.” Former Chairman of the Chinese People's Political Consultative Conference, Deng Xiaoping, promoted the idea of “one country, two systems”, a tactic intended to entice Taiwan into reunification, promising them a high degree of autonomy. However, as the PRC approaches its 100th anniversary, Beijing is anxious to finally put these long-standing plans into action.


International Concerns

The China-Taiwan tensions haven’t just been raising concerns in the South China Sea. A conflict between China and Taiwan could have global economic implications. If Taiwan’s trade was halted, major chip-consuming sectors worldwide would be gravely affected. Approximately $565 billion in international trade would be at risk of disruption. A conflict between the two would also have an impact on China’s global trade. Economic sanctions from countries that express support to Taiwan are likely in the event of heightened conflict, but even without those sanctions, global trade finances would take a large blow. Many global investors are predicted to pull back their lending in the case of forceful conflict between the two, which would severely affect international trade. It is also likely that onshore Chinese bonds and equities would be quickly sold; the day Russia launched its invasion into Ukraine their MOEX stock index dropped nearly 30%.


A conflict would destabilize most countries, especially those in the South China Sea with a high degree of dependence on China. Global Guardian’s Taiwan Shock Index shows most countries, aside from Canada and most of Europe, as at a High to Extreme risk of destabilization. It is important to note that this Shock Index assumes that all bilateral trade would be impacted, China would be constrained to provide Foreign Direct Investment to 3rd countries and vice versa, and China would be less willing to provide regime stabilizing support. Assuming these three factors, South America would see a severe fallout from its heavy reliance on East Asian markets. The Middle East and North Africa have an amplified risk of instability, following the current state of fragility in the region exacerbated by droughts and famine. This is the same for Sub-Saharan Africa, with high current state fragility and exposure to China, requiring them to pursue a hypothetical economic pivot to find new markets to recover from this collapse. The Asia Pacific region would witness the most fallout from a China-Taiwan crisis, especially because of the overall reliance on both China and Taiwan for economic stability. The U.S. would be the most affected in North America, due to its globalized economy. Overall, the global macroeconomic impact of a Taiwan-China Crisis would be “the most extreme shock since WWII.”


U.S. Concerns

The U.S. has formal diplomatic relations with China but continues to have an unofficial relationship with Taiwan. This puts the U.S. in a unique position as the world approaches the possibility of a China-Taiwan conflict. The U.S. continues to sell defense equipment to Taiwan, much to the distaste of Beijing but maintains strategic ambiguity regarding defending Taiwan in conflict. However, the U.S. does not support Taiwanese independence, rather approaching the conflict with its One China policy, stating that Taiwan is part of China. Former U.S. President Donald Trump increased the depth of U.S. relations with Taiwan, even engaging with former President Tsai over the phone. This intricate relationship sets the stage for a large change in U.S.-China relations in the event of a Taiwan crisis. Taiwan is essential to the U.S. maintaining an asymmetric advantage over China. The potential economic downfall from a conflict is important to note, however, an even graver danger is posed by the fact that China and the U.S. are both nuclear-armed states. China has ramped up its nuclear production in the last few years, more than doubling its arsenal since 2020. China’s No-First-Use (NFU) policy has allowed its nuclear threat to slide past scrutiny surrounding Taiwan, but it is important to continue to consider what a worst-case scenario could look like.


The U.S. shows through its foreign policy its understanding that China, especially in times of crisis, is unpredictable. Considering China’s view of reunification with Taiwan, it is likely that a possible failure or setback in overtaking the island could be seen as an extreme threat to Beijing, which would provide a major stress test on their NFU policy. Nuclear use could seem plausible if Beijing decides that the consequences of failure are greater than the consequences of using nuclear weapons. The U.S. could see Chinese nuclear threats as an attempt to deter them from intervening in the conflict. The U.S. should be well-prepared for this, especially if there are intentions to intervene. An invasion of Taiwan would severely impede U.S. power over the region, but the U.S. must carefully weigh the risks and rewards in this scenario. China can act in unpredictable ways, but the U.S. must remain strategic in their deterrence efforts, and attempt to de-escalate the conflict without escalating US-China tensions. 


Going Forward

The China-Taiwan conflict is ever-changing, and the world must stay alert to be prepared for a possible invasion of Taiwan. The U.S. needs to consider the possibility of nuclear threats as U.S.-China tensions rise. The interconnectedness of this conflict, especially with the global economy, requires that the attention of all countries be focused on mitigating a possible conflict. In the event of a Taiwan invasion, the U.S. should not exploit the situation to gain a strategic advantage over China, but instead, keep world peace at the forefront. The U.S. has maintained strategic ambiguity regarding the possible defense of Taiwan, but the U.S. must remain extremely mindful of the consequences of intervention. It is important that global powers do what they can to reduce the risk of nuclear war. The China-Taiwan issue is rapidly unfolding and will only continue to grow in international importance through the next months and years. 

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