Taiwan’s thriving democracy triumphed over the looming threat of Chinese Communist Party (CCP) coercion this month, as Taiwanese voters elected a new President and Legislative Yuan. The months leading up to Taiwan’s general election included simulated blockades of the island during People’s Liberation Army (PLA) training exercises, People’s Republic of China (PRC) economic pressure on the Taiwanese with the elimination of tariff concessions on imports from Taiwan, and Beijing’s attempts to besmirch the leading presidential candidate by labelling him a “destroyer of peace.” Taiwan’s electorate stared down these threats from Beijing and elected sitting Vice President William Lai, the candidate from the Democratic Progressive Party (DPP), as the next President, while the Taiwanese national party, Kuomintang, won the most seats in the parliamentary vote.
While Taiwan’s democracy is vibrant, its ability to remain self-governed is imperilled due to a fragile cross-Strait status quo between Beijing and Taipei. CCP General Secretary Xi Jinping maintains unification between the PRC and Taiwan is “inevitable”, and Beijing predictably rebuked Washington and London for congratulating Lai for his victory. More concerning for hopes of a free and open Indo-Pacific moving forward, however, were Beijing’s comments towards Taiwan’s regional neighbours, with Australia chastised for commenting on what CCP officials called “China’s local provincial elections,” Japan reprimanded for interfering in “China’s internal affairs,” and the Philippines warned “it should refrain from playing with fire on the Taiwan question.”
Forced reunification by PLA invasion, or grey zone tactics meant to intimidate Taipei into submission, would have a ruinous impact on the global economy and Indo-Pacific security. While a PRC invasion of Taiwan is not imminent, US Central Intelligence Agency (CIA) Director William Burns indicated Xi has ordered China’s military to “be ready” for a Taiwan invasion by 2027. Xi has previously vowed to “take resolute action to utterly defeat any attempt towards ‘Taiwan independence’” and could use the election of Lai, deemed by Beijing as a “troublemaker through and through,” as an excuse to pre-emptively strike while US attention remains focused on crises in Ukraine and Israel.
Pentagon estimates indicate as many as 500,000 deaths could be expected if war broke out in the Taiwan Strait. Hundreds of thousands could require evacuation from the region. Economically, a war or a blockade of Taiwan would close sea and air trade routes in the Indo-Pacific, the region with 60% of the world’s population and accounting for 36% of global gross domestic product (GDP) in 2022. Supply chain disruptions to the semi-conductor manufacturing sector, based in large part in Taiwan, would lead to an economic contraction by as much as 10% of GDP. Equity markets would crash and pension savings would plummet, according to the US House of Representatives Select Committee on the CCP.
If the PRC were to succeed in unilaterally changing the cross-Strait status quo, Indo-Pacific countries would likely question existing security commitments with the United States and United Kingdom, while Beijing would have the ability to interdict support from Washington and London to other partners in the region. Ultimately, the CCP would exert hegemonic influence over the entirety of the region, from its ability to forward position naval assets past Taiwan and the First Island Chain to leveraging economic interdependence with regional partners and, therefore, maintaining an ability to coerce regional policymaking.
As outlined in a recent Henry Jackson Society report, “A Vital Partnership: How Strengthened UK-Taiwan Ties Can Help Maintain Stable Cross-Strait Relations,” Taiwan’s continued self-governance, and, by extension, the continuation of the existing cross-Strait status quo, can help shape a free and open Indo-Pacific. Taiwan’s partners and neighbours should resist pressure from Beijing not to pursue trade cooperation with Taipei and warn Beijing against PRC escalation towards Taiwan following the election of Lai.
The United States, United Kingdom, and partners in the Indo-Pacific should pursue a dual-pronged denial strategy to deter the CCP from forcing reunification with Taiwan. Economically, there must be a realization that outbound investment to the PRC, particularly to companies linked to the PRC’s Military-Civil Fusion program, ultimately helps fuel the PRC’s military modernization and the PLA’s ability to invade Taiwan if ordered to do so. Policymakers should restrict capital outflows to the PRC, particularly from pension funds and endowments.
Taiwan’s partners also can counter the influence of the PRC’s Belt and Road Initiative (BRI) throughout the region, by encouraging private sector investment for Indo-Pacific infrastructure projects. The Blue Dot Network, which includes the United States, United Kingdom, Japan, and Australia, should work cooperatively with other large Indo-Pacific partners, including India, to certify infrastructure development projects in the region, which will help attract investments from private equity, pension funds, and other investment vehicles. In addition, the Blue Dot Network, along with India and other partners, should encourage Taipei to invest its excess foreign currency reserves into a sovereign wealth fund (SWF), for investing in regional infrastructure. Investing just 10% of Taiwan’s excess foreign currency reserves in an SWF could inject an estimated $53 billion into regional development finance and present a challenge to the influence of BRI and Beijing’s ability to use its regional investment as leverage.
Finally, regional partners should form policies to help ensure there is no disruption to global supply chains of semiconductors, the brains of all modern electronics. Taiwan should be encouraged to help preserve its semiconductor industry by enacting export controls on chips to the PRC which could be used for PLA military modernization. Governments also can work to implement investment controls, to restrict China’s ability to invest in and secure semiconductor manufacturers. Deregulation on mining and processing rare earths is also needed, particularly for those minerals needed to manufacture high-end chips, as the PRC recently restricted the export of gallium and germanium, both key semiconductor components.
Militarily, the US remains the principal security guarantor of Taiwan. While Beijing has sanctioned US defence manufacturers which sell weapons to Taipei, the US transfers weapons to Taiwan through commitments made in the Taiwan Relations Act. While the sale of such US weapons does generally lead to some sabre rattling from the CCP, it has not yet crossed any Beijing redlines. Since the risk of severe PRC economic retaliation exists only if other countries helped arm Taiwan, it is important that other governments provide regional security through other means. For example, the United States, along with Quadrilateral Security Dialogue (“Quad”) partners Australia, India, and Japan, plus the United Kingdom, should conduct freedom of navigation operations through the Taiwan Strait, and throughout the Indo-Pacific, to ensure that commercial sea routes remain free from coercion and aggression.
In addition, the Quad and its partners should encourage Taipei to end what a former Pentagon official has deemed “lassitude” vis-à-vis Taiwan’s national defence. Recent studies of Taiwan’s defence spending and preparation indicate the government’s policymaking does not reflect the existential threat it faces from the PRC. Taiwan’s defence spending does not yet exceed 2% of its GDP and its combat units number only 60-80% of what is needed for the island’s defence. It is estimated that only half of Taiwan’s fighter aircraft are “fully mission capable,” according to the Washington Post.
Ensuring that the cross-Strait status quo endures, will require political will. Just as Beijing considers Taiwan declaring de jure independence a redline, Taiwan’s partners must discretely communicate to CCP officials that forced reunification, through an invasion or grey zone coercion tactics, would be considered the same. Policymakers should make clear a unilateral end to Taiwan’s self-governance would result in a reassessment of relations with Beijing and lead to severe policy consequences. Taiwan must continue to be viewed as a key focal point of the Indo-Pacific, both economically and strategically, and forming enhanced relations with Taipei—through economic, security, and cultural partnerships—should be viewed as a national interest for the entire region.
Darren Spinck is an associate fellow in the Henry Jackson Society’s Centre for Indo-Pacific Studies and the author of “A Vital Partnership: How Strengthened UK-Taiwan Ties Can Help Maintain Stable Cross-Strait Relations.”