Taiwan needs an economic shield

• By Juan Fernando Herrera Ramos

• • Add TT as Preferred Source

  • 

  • 

  • 

Taiwan and its partners have devoted enormous attention to deterring a Chinese military attack. Taiwan is increasing defense spending, acquiring asymmetric capabilities, expanding civil defense and preparing critical infrastructure for a potential blockade or invasion. The US, Japan and Australia are simultaneously strengthening their military capabilities across the Indo-Pacific region.

These measures are necessary, but China does not rely exclusively on military power to pursue its political objectives, and the coalition seeking to preserve peace in the Taiwan Strait should not rely exclusively on military deterrence either.

Taiwan needs an economic shield.

China has repeatedly demonstrated its willingness to use trade and access to its enormous domestic market as instruments of political pressure. Taiwan has experienced restrictions on agricultural products and the suspension of preferential tariffs. Australia faced restrictions affecting products including barley, wine and coal after relations with Beijing deteriorated. Lithuania encountered Chinese economic pressure after allowing Taiwan to establish a representative office in Vilnius using the name “Taiwanese.”

These cases demonstrate a fundamental advantage China possesses when exercising economic coercion: Beijing can concentrate economic pressure against one country while the target absorbs much of the disruption individually.

Taiwan and its partners could change that calculation by making economic coercion against one country a problem for many.

The US, Japan, Australia, the EU and Taiwan could establish a coordinated mechanism to support economies subjected to Chinese economic pressure. When Beijing restricts imports in response to a political disagreement, participants could increase purchases of affected products, accelerate investment, provide financing, facilitate access to alternative markets or temporarily reduce trade barriers.

The objective would not be to replace every dollar of trade lost with China. Nor should it be economic decoupling. China remains one of the world’s largest economies and an indispensable trading partner for many countries.

Instead, the objective should be to make it progressively harder for Beijing to individually isolate and punish countries.

Australia’s experience demonstrates why this could work. Chinese restrictions beginning in 2020 imposed significant costs on some Australian industries, but exporters redirected products toward other markets. Australia did not capitulate politically, and many restrictions were eventually removed as bilateral relations improved.

Lithuania provides another example. When it faced Chinese economic pressure over its relationship with Taiwan, the EU challenged China’s measures at the WTO and subsequently established its Anti-Coercion Instrument.

Economic coercion becomes less effective when its target has alternatives and external support. Rather than improvising that support after each confrontation begins, Taiwan and its partners could prepare it beforehand.

Beijing has spent decades reducing the number of countries formally recognizing the Republic of China. Countries switching recognition can subsequently develop commercial relationships, financing arrangements and political networks with China that increase the potential cost of reversing their decisions.

A government might eventually conclude that the economic benefits expected from relations with China have not materialized, that dependence on China has become excessive, or simply that restoring relations with Taiwan better serves its interests. Yet changing course could expose it to Chinese economic retaliation.

Beijing does not need to prove that retaliation would devastate a country considering returning to Taiwan. It only needs to make the potential costs sufficiently high and uncertain to discourage it.

A collective economic shield could weaken that deterrent.

If a former Taiwanese diplomatic partner independently decided to restore relations with Taipei, it would know that it would not necessarily confront the consequences alone. Taiwan could expand development cooperation and investment, while the US, Japan, Australia and European partners could help provide alternative markets and financing.

This should not become another form of checkbook diplomacy. Countries should remain free to maintain relations with Beijing if they believe doing so serves their interests. The purpose would be to ensure that recognition of China does not become economically irreversible simply because governments fear the consequences of reconsidering it.

The same architecture could become another component of deterrence across the Taiwan Strait.

A military coalition defending Taiwan would always face limitations. The US, Japan and potentially Australia possess military capabilities relevant to a Taiwan contingency, but many governments that would strongly oppose an attack would be unwilling or unable to send ships, aircraft or soldiers into a conflict with China.

Economic participation has a much lower threshold.

The EU could contribute through financial measures, technology restrictions, investment controls or alternative markets. Asian economies could help preserve supply chains. Pacific countries could provide diplomatic and economic cooperation. Latin American governments that would never contemplate military participation could contribute through trade and diplomatic coordination.

Taiwan’s deterrence coalition could therefore become much larger economically than it could ever become militarily.

That is important because deterrence depends on calculations made before aggression. Chinese leaders contemplating force against Taiwan must assess not only whether the People’s Liberation Army could achieve its military objectives, but also the economic and political consequences that would follow.

A prearranged economic coalition would make some of those consequences more predictable.

Participants would not need to promise identical sanctions. Instead, they could establish mechanisms for supporting countries subjected to retaliation, maintaining essential supply chains, providing emergency financing and coordinating responses to severe Chinese economic coercion.

This flexibility would allow countries to participate according to their capabilities. A government unwilling to promise military assistance might still commit economic assistance. Another might refuse sanctions but open its market to products excluded from China.

While military deterrence seeks to convince Beijing that conquering Taiwan would be extraordinarily difficult, economic deterrence could demonstrate that even military success would carry costs extending far beyond the battlefield.

China’s integration into the global economy is often described primarily as a source of Chinese influence. It is also a vulnerability. The more interconnected China becomes, the greater the potential consequences of a confrontation that causes other economies to coordinate against it.

Taiwan and its partners should not attempt to sever those connections. Instead, they should ensure that interdependence does not operate in only one direction.

China should continue benefiting from peaceful trade with the international community. However, Beijing should understand that using economic dependence to punish individual countries could cause those countries to support one another, and that attacking Taiwan could activate an economic coalition far broader than any conceivable military alliance.

Taiwan’s partners have spent years asking how many countries might help defend it if China attacks. They should also ask how many countries could help ensure Beijing never believes an attack is worth the price.

Juan Fernando Herrera Ramos is a Honduran journalist based in Taipei. His work on Taiwan-China-Latin America relations has been published in Nikkei Asia, The Diplomat and the Taipei Times.