Economic

West must remind Xi of the economic consequences of threatening Taiwan

The writer is a former British diplomat who specialised in China. He is now a fellow of the Council on Geostrategy, the Royal United Services Institute and the Mercator Institute for China Studies

The question most commonly asked by businesses about China is whether Beijing will invade Taiwan. It remains extremely unlikely. But if it did, it would be a global economic and political disaster.

There are plenty of good military reasons why the People’s Liberation Army will not invade. The 100 nautical miles of rough seas, only 14 beaches on which to land men and materials and Taiwan’s mountainous topography all favour the defence. After a slow start, Taipei is moving towards a “porcupine” defence, which acknowledges Chinese superiority in conventional arms and relies on small, mobile platforms. These are difficult to knock out and would inflict considerable casualties. Then there is the fear of American intervention.

Xi Jinping appears to be a rational leader, neither deluded nor desperate like Vladimir Putin. To risk invasion would be to imperil his entire “China dream”, his ambition that China should replace the US as the pre-eminent global power and redraw the world in line with its interests and values. It is an unnecessary risk, if he is indeed convinced by his own slogan that “the east is rising, the west is declining.” Better to wait.

Nevertheless, ever since the Delphic oracle warned Croesus that, if he invaded Persia, an empire would fall, leaders have succumbed to the blindness of hubris. It therefore makes sense to advocate for military deterrence, as William Hague did in May and to entertain a willingness to supply Taiwan with the sorts of nimble weapon systems that would help rebuff Beijing’s advances.

It also makes sense for the US to remind China that, in the event of an invasion, it could block the Malacca and Sunda straits through which China’s oil arrives from the Middle East. Even the threat of interdiction would be sufficient to discourage ship owners.

But military deterrence is the smaller part of the story. There are good economic reasons why the Chinese Communist party will not invade. The Taiwan Semiconductor Manufacturing Company produces the majority of the world’s advanced semiconductors. Its CEO has declared that it would not be allowed to fall into Chinese hands. This could be achieved with a well-aimed US missile, but that might not be necessary: banning the sale of the materials, machinery and parts needed to keep TSMC’s plants going would be sufficient. Chinese dependency on foreign semiconductors looks to continue for a decade, perhaps longer.

If that were not enough, most of Taiwan’s nearly $200bn exports to China are components in China’s own exports. Their disappearance would reduce Beijing’s exports by trillions. Other countries’ trade and investment would dry up. Shipping and insurance costs would rise enormously.

Deterrence means magnifying existing restraints. The governments of free and open countries need to make it clear to the CCP that invasion or an extended blockade would trigger sanctions. This threat needs to be believable (it is worth noting that even Switzerland has said that it would follow whatever sanctions the EU imposed on China if it invaded). Governments need to convey this message to the CCP quietly and now.

The CCP is not good at reading foreigners. But sanctions would happen — and not just in the form of spontaneous boycotts of Chinese goods led by civil society. The clamour from ordinary people, the press, parliamentarians and others, many of whom may not understand the consequences of sanctions, will be irresistible for western governments. The US will lead and expect its allies to follow.

This is MAD — mutually assured destruction, the basis of cold war deterrence. The global economy would crash. The consequences for all would be horrible, but especially for China and the CCP. Resources, supply chains and components would dry up. Unemployment, already at around 20 per cent among young people in China, would boom. And in the absence of a meaningful social security system, the resulting poverty and desperation would lead to protests and riots.

“The party leads everything”, as Xi says. It claims credit for all good things. The corollary is that it cannot avoid blame when things go wrong. Protests and riots would be aimed at the CCP. These are not uncommon, but hitherto the party has been able to corral them at the local level. Economic collapse would bring suffering on an unprecedented scale. The likelihood is that protests would coalesce, crossing county, city and even provincial borders. This would present the CCP with challenges of a different order.

The party has been here before, in 1989. That look into the abyss was scarring. Xi knows all this — but there is no harm in reminding him.

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