Pelosi’s Taiwan visit meant to ‘burnish her legacy,’ expert says

Council on Foreign Relations research fellow David Sacks joins Yahoo Finance Live to discuss the expectations for Nancy Pelosi’s visit to Taiwan, American companies operating in China, and U.S.-China tensions.

Video Transcript

JULIE HYMAN: House Speaker Nancy Pelosi expected to land in Taiwan imminently. It's the highest level visit to the nation since 1997. The trip has proven highly controversial. It comes amid deteriorating relations between the world's two biggest economies.

China has warned the US that it will quote, "pay the price" for any visit. Joining us to weigh in is council and Foreign Relations research fellow David Sacks who has written extensively about this topic and about China topics, generally. David, thank you so much for being here.

We've been trying to sort of piece out what Pelosi's visit is trying to achieve. Is it legacy burnishment? Which you suggested in a recent article could have waited until after the midterms. What do you think she's trying to achieve? And what do you think she will achieve?

DAVID SACKS: Yeah, I mean, I think a lot of it is trying to burnish her legacy. You know, if the polling that we see is correct, she won't remain the speaker after the midterm elections.

Her position on China has been consistent. She's considered quite hawkish on China, going back to when she unfurled a pro-democracy banner at Tiananmen Square decades ago. And so this is largely consistent with her criticism of China and support for Taiwan over the years.

I think she likely also felt a sense of urgency to do it, given what's happened in Ukraine. A lot of analysts have drawn comparisons between Ukraine's position vis a vis Russia and Taiwan's position. There are certainly some similarities there. And I think that she felt it was important to show solidarity with Taiwan, and that the United States supports Taiwan as China increases its aggression and coercion towards the island, and as we remain focused on Ukraine.

BRAD SMITH: And so additionally here, this comes as there is going to be the party congress for Xi. So discuss the timing there for us and the implications that could also come as a result of that timing.

DAVID SACKS: Yeah, so Xi Jinping is going for an unprecedented third term as leader of the Chinese Communist Party this fall. Basically, every analyst expects that he will receive that third term. But there's still a lot of negotiations happening behind closed doors within the Communist Party over whether he can promote certain allies or whether he has to take certain rivals with him to the top decision-making body.

And so I think at this time, he is obviously trying to set a narrative that he's not weak, that he's fully in control, especially in control of China's most important relationship, which is with the United States. And so in my view, a lack of a Chinese response right now is not really in the cards because Xi Jinping doesn't want to risk looking weak. And so I think China will err on the side of overreacting to Pelosi's visit, rather than under-reacting, just for domestic political consideration.

We also know that there are significant economic headwinds right now in Beijing. There's pushback to Xi Jinping's signature zero COVID policy. So he could also find it useful to kind of rally the Chinese people around the flag, around a shared threat, or a shared challenge to China by the United States and Taiwan.

BRIAN SOZZI: David, that overreaction response that you mentioned, what would the implications be to American companies operating in China?

DAVID SACKS: So we've already seen the beginning of a Chinese response. Taiwan, so far, is bearing the brunt of that response. The PRC announced, overnight, that it is barring over 100 Taiwanese exports of the agricultural and food space. They also announced a significant military exercises opposite Taiwan. And are challenging the median line, a line in the middle of the Taiwan Strait where generally speaking China and Taiwan do not operate militarily over that line. And there was a significant cyber attack as well on Taiwan's government websites this morning.

So I would expect that to continue with China, trying to squeeze Taiwanese businesses operating on the mainland. I think that will be a major thrust of their campaign. There will be economic coercion. It will be reducing market access. It'll be making lives more difficult for Taiwanese businessmen on the mainland.

But in terms of what it means for US companies, I think everybody, of course, is going to be focused on semiconductors, focused on Taiwanese exports to the United States. And one thing that I would say is if the PRC does significant missile tests, for instance, in the Taiwan Strait, essentially closes down the Taiwan Strait to international shipping because of military exercises, then of course, that will ripple through global supply chains, given how reliant companies around the world are for Taiwanese inputs, above all, semiconductors.

JULIE HYMAN: So David, obviously, some really far reaching implications of all of this. Fast forward six months from now, where do you think this relationship is going to stand between the US and China, with of course, Taiwan as a part of that? And then what are the implications of that?

DAVID SACKS: Yeah, I don't think that the US-China relationship is going to get better in the next six months. I also don't think that we've seen the bottom of the relationship yet. President Biden did hold over a two-hour conversation with Xi Jinping. But according to reports, it was quite a tense phone call. And so I don't think that we have found the bottom here.

You know, the US is going to continue to show support for Taiwan. I also think that the Chinese reaction will in the long run be counterproductive to its interests because it will only prompt the US Congress to do even more to show its support for Taiwan. So I think that we could be in for a crisis.

And the other thing that I would say is that I don't think that we will know the full implications of this visit on Thursday or Friday of this week. I think this will play out over a course of months. So China will unveil a response this week. And as I said, we've already seen the beginning of that response.

But I would expect that China continues to respond to this visit well into the fall and winter. And there are certain things that it will announce, certain measures it will take coming out of the party congress that we will eventually trace back, I think, to this visit as well.

BRIAN SOZZI: David Sacks, research fellow at the Council on Foreign Relations, good to see you. Thank you.