Multidimensional economic and strategic risk: China, Taiwan, US

Entering the geopolitical crisis… While Pelosi’s visit to Taiwan brings the tension between China and the US to a multidimensional point, we evaluate that the focus will shift from the Russia-Ukraine war to a multilateral strategic front in the Asia/Pacific region. The conjuncture is changing very quickly and the soft policy of the US seems to be eroding and turning into a more serious superpower struggle. The coming period may cause the South China Sea to become more active.

The economic power race and the Thucydides trap… It is clear that a possible Sino-Taiwan war will make much more noise than the Russia-Ukraine war. There is a serious economic power grab race between the US and China in recent years, and the situation of China against the US is called the Thucydides trap in the literature. The Thucydides trap is the violent structural tension that occurs when a rising power threatens to replace another dominant power. A total of sixteen times in the last five centuries there has been the threat of one rising power to displace another. In twelve of these sixteen cases, the outcome was war.

Chinese military aircraft sorties reported by Taiwan, violations Reported to Taiwan’s AirDefence Identification Zone… Source: BBC, Taiwan Ministry of National Defense

 Why is Pelosi’s visit important? The United States made a promise when recognizing China in 1979. It would maintain cultural, commercial and “unofficial” relations with Taiwan. Let’s take a look at some important articles of this communiqué;

The United States of America and the People’s Republic of China agreed to recognize each other and establish diplomatic relations as of January 1, 1979.

The United States recognizes the Government of the People’s Republic of China as the sole legal Government of China. In this regard, the people of the United States will maintain cultural, commercial and other informal relations with the Taiwanese people.

The United States and the People’s Republic of China reaffirm the principles agreed upon by the two sides in the Shanghai Declaration:

The United States Government accepts its position that China is one China and Taiwan is part of China.

Both believe that the normalization of Sino-American relations is not only in the interest of the Chinese and American peoples, but also contributes to peace in Asia and the world.

The United States of America and the People’s Republic of China will exchange Ambassadors and establish Embassies on March 1, 1979.

Violations of a visit by a couple of US diplomats to Taiwan in the 1990s were tolerated, calling it “a domestic policy difference, not an official government move.” In 2018, the US enacted legislation allowing officials to travel to Taiwan. In 2020, Trump’s Minister of Health and Human Services Alex Azar traveled to Taiwan. This was the highest level visit to the island since 1979.

The most important aspect of the business is that the US, including the Patriots, has piled billions of dollars in weapons on the island. China does not want US-backed missiles right next to it. In response, China is constantly launching warships and defacto surrounding Taiwan, citing rules of engagement.

Geopolitical and economic interests… China has a stronger and more voluminous army than Russia. The Taiwanese army is also much more powerful and modernized than the Ukraine, but also reinforced with US weapons. The region, on the other hand, is not a closed area like the Black Sea, it is perhaps the most strategic nodal point in the world, and there are many countries that can be affected. If China invades Taiwan, it will consolidate its power in the region. Plus, Germany and Japan now want to launch their armies and militarize beyond the borders drawn after the Second World War. Russia and China threats are the reasons for this, another effect is to break the US influence as an armed force.

This is not the main issue. For the sake of holding an economically important corner, the United States and NATO cannot remain passive in such an invasion attempt as in Ukraine. The trade war that started under Trump had to continue under Biden as well, because the US’s global and economic interests are at stake.

Global chip market share by country and company, 2021… Taiwan dominates global production of computer chips. Source: BBC, Trendforce 2021

The reason is the world chip market. The US is no longer the main power driving the chip market and Taiwan is the world’s largest chip maker. Today, chip production is at the center of computers, smartphones, automobiles, and all kinds of electrical/electronics production. So a Chinese invasion or blockade (which is much more likely, navigating around the island of Taiwan with warships and planes, or occupying a few small connected islands) will hit both production and logistics. The United States, on the other hand, cannot allow such a large chip market to fall into the hands of China. Given the South China Sea’s commercial hub location, chips aren’t the only markets hit, many product supplies and shipments suffer.

Conclusion? Strategic analyzes indicate that in the event of an invasion, it will be difficult for NATO and the US to start defending Taiwan before 2027, and the logistics and shipping required to bring military aid and build-up to the region are challenging. In this context, analyzes are made that China may attempt an invasion in 2024-25. We currently assess that if it does, it would be a very bold move and there may be some distraction moves in the context of China’s deteriorating economic growth. However, economic warfare is long-term and requires serious strategic planning. It seems that the formation process of the Sino-Taiwan war will depend on the results of the Russia-Ukraine war.

Kaynak: Tera Yatırım
Hibya Haber Ajansı