Foreign and Security Policy

A Taiwan Crisis Looms on the Transatlantic Horizon

A Taiwan Crisis Looms on the Transatlantic Horizon The coastline of offshore Cijin Island in the South China Sea, which belongs to the Taiwanese city of Kaohsiung. Photo: Wikimedia Creative Commons

The status of Taiwan is increasingly preoccupying the states of the democratic West. What are the current risks of escalation by China? And what could possible sanctions look like in response? This was the subject of a group of high-ranking experts at the Atlantik-Brücke.

by Robin Fehrenbach

The island of Taiwan and the People’s Republic of China have a tense relationship. China sees Taiwan as an integral part of its national territory, while the island strives for autonomy. Should these opposing goals develop into a conflict, this would also have far-reaching consequences for the transatlantic partners. On this occasion, a roundtable of high-ranking experts was organized by Atlantik-Brücke in cooperation with the Atlantic Council and the Rhodium Group in Berlin. The discussion took place under the Chatham House Rule.

From the perspective of the United States, the European Union, and the G7, the first thing to do with respect to Taiwan’s future is to consider the various risks and trigger points of an escalation. The focus of such considerations is basically an attack by China on Taiwan. It seems clear that this cannot only be an obvious military attack, for example in the form of a comprehensive invasion from the air and water. In the gray zone of types of attacks on the island, cyberattacks and other forms of hybrid warfare in particular may play a role. Quarantining Taiwan or imposing a blockade of the republic also falls within this range of the escalation ladder.

Even experts cannot accurately assess the specific ways in which China might attack Taiwan. This is due in part to the fact that decision-makers in the West are unable to comprehend the full range of the political dynamics of the Communist Party of the People’s Republic. What is certain is that China’s leader Xi Jinping needs economic growth to be as stable as possible in order to remain in power. But regardless of more rational considerations as to China’s economic performance, the future status of Taiwan represents a key issue for President Xi in his narrative of China’s future as a national entity.

The semiconductor industry as a silicon shield

Of outstanding strategic interest both for China and for the transatlantic partners is currently the position of the Taiwan Semiconductor Manufacturing Company (TSMC). Large parts of the global production of advanced technology are heavily dependent on the elaborate industrial production of semiconductors by TSMC. An attack of any kind on the Taiwanese company would hit this industrial sector very hard. However, since China would also be directly affected, TSMC’s strong position in the global market serves as a silicon shield for Taiwan, so to speak. One consequence, for both the United States and the EU, is to reduce existing dependencies in terms of supply chains and raw materials such as rare earths in particular. The U.S.-EU Trade and Technology Council (TTC) and the Indo-Pacific Economic Framework (IPEF), for example, offer an opportunity to make progress here.

The second important step in anticipating a Taiwan conflict is to consider possible sanctions by the G7, U.S. and EU in response to the crisis. To do this, it is important to keep in mind that the economic setbacks of economic and financial sanctions would be severe for the democratic West. After all, economic ties with China are extremely strong for most of the countries concerned – the German economy in particular is dependent on exports to China, on supply chains with the People’s Republic and on raw materials there.

It follows that punitive measures are always accompanied by costs and restrictions. Based on previous experience with sanctions, various approaches and objectives are conceivable, with each constellation having to be considered specifically in terms of the states, actors and resources involved. One objective could be to keep one’s own costs as low as possible. This can be achieved, for example, by imposing a price cap on a particular commodity from the penalized state, as can be observed in the case of Russia in response to its war of aggression against Ukraine in the case of oil. Furthermore, it is conceivable to target individuals, groups or organizations, but not the broad center of a society.

Tools and impact of “Economic Statecraft”

In addition to the sanctions already mentioned, other tools of so-called “economic statecraft” – i.e. foreign and security policy related to the economy – can also come into play. These include, above all, export controls and the screening of investments. Restricting and closing market access and imposing new or higher import tariffs on trade in goods and services are other important types of sanctions. The G7, U.S., and EU are attempting to bundle such measures into sanctions packages in the respective rounds to create both a targeted and effective impact. This also makes it clear that it is necessary to prepare and apply sanctions in a coordinated manner; it makes little sense for an individual state to push ahead with them on its own.

As far as the specific case of China is concerned, the People’s Republic is particularly vulnerable in the supply chains with lithium, and products of the chemical and pharmaceutical industry. These would be sectoral sanctions. Ultimately, sanctions should lead to a change in behavior on the part of the state subject to the sanctions. The fact that this does not always happen can currently be seen in the case of Russia. Even after eight rounds of sanctions by the EU alone, President Putin is still waging a war in Ukraine that violates international law. The logic of sanctions also includes the fact that the sanctioning states need patience and perseverance to achieve a change in the behavior of the sanctioned state. It is generally accepted in the West that China’s leaders are closely studying Russia’s reaction to the sanctions in order to draw conclusions for their own policy regarding Taiwan.

In summary, the key finding is that a deeper discussion among transatlantic partners on scenarios, risks of escalation, sanctions and planning on the Taiwan issue is of fundamental strategic importance. Transatlantic partners have a great need for scenario analysis in this context, and at the same time it is necessary for democratic industrialized countries to prepare for an acute crisis around the island and conceivable responses.

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