Why you should care about Taiwan

·15 min read
Chang Kai Shek (CKS) Memorial Hall in Taipei, capital of Taiwan.
Chang Kai Shek (CKS) Memorial Hall in Taipei, capital of Taiwan.

What is it about Taiwan anyway?

Why does China care so much about this little island — and why should we in the U.S. give a flying hoot?

Further, why is Taiwan such a big deal right now? (And a focal point of the virtual summit held this week between Joe Biden and Xi Jinping.) The disputed status of Taiwan has been an issue for almost three quarters of a century. Now for some reason Taiwan has moved from a tolerable friction point between the U.S. and China to a potential flashpoint. And that’s not good.

Before we get to those questions, let me first acknowledge the almost endless sensitivity and nuance surrounding Taiwan. You will see that the situation with Taiwan is massively complex, (second only perhaps to the Israeli/Palestinian conflict) where understanding requires an extensive peeling-of-the-onion exercise. Two quick points: First, it’s extremely interesting, and second, don’t worry, I’ll boil it down for you.

Let’s start with a quick backgrounder.

First, I was a bit hyperbolic earlier. Taiwan isn’t really small, more like medium-sized. It has a population of 23.4 million, (56th biggest in the world), a GDP of $760 billion (21st biggest) and GDP per capita of $32,000, (29th). (Some have compared Taiwan and its situation to Puerto Rico, which is off for all kinds of reasons, starting with all those much bigger numbers.)

More than that though, Taiwan’s economy has grown sharply over the past half century, becoming a critical supplier of semiconductors, (20% global market share), especially made by Taiwan Semiconductor, (TSM), (which has a market cap of $631 billion). Even more important of course is that it has become a close ally of the United States. Or as the Washington Post puts it, “[Taiwan] is also among Asia’s most vibrant democracies, a rejoinder to Communist Party arguments that Western political structures are incompatible with Chinese culture.”

Chip market share
Chip market share

The main island of Taiwan, sometimes called Formosa, holds the great bulk of the population as well as the largest city/capital Taipei, but Taiwan writ large actually consists of 166 islands, some like Kinmen (164 square miles) fairly big, others tiny and uninhabited, spread out over thousands of miles some near mainland China. All those islands highlight just one facet of the complexity. For example, what would happen if mainland China seized some tiny rock somewhere? How would Taiwan and/or the U.S. respond?

To wit: Check out this massive multi-scenario war game piece by Reuters.

It is almost beyond-the-pale complicated, including what’s called gray-zone warfare being deployed by the Chinese (defined by Reuters as “...an almost daily campaign of intimidating military exercises, patrols and surveillance that falls just short of armed conflict.”)

Now let’s move on to what is often referred to as Taiwan’s status quo, or where Taiwan stands politically vis-à-vis mainland China and the rest of the world. To go deep here, check out this massive “Political status of Taiwan” Wiki page. But in a nutshell, the status quo refers to the fact that Taiwan is in political limbo and has been since 1949 when the Communists led by Mao defeated the Nationalists led by Chiang Kai-shek, who fled to Taiwan. (There’s salient history here with the Japanese and its occupation of Taiwan during World War II, but I’m going to skip over that for the sake of brevity.)

The Republic of China (the Nationalists or ROC) then declared itself the legitimate government of all of China and included a statement of intent to take back mainland China, (it has backed off that claim in recent years.) The People’s Republic of China (the Communists or PRC) declared itself the legitimate government of all China including Taiwan and noted that it intended to establish sovereignty over Taiwan.

Since then several realities have unfolded. First, the PRC has been almost universally recognized as the government of mainland China, highlighted by UN resolution 2758 approved in October 1971 which recognized the PRC as “as the only legitimate representatives of China to the United Nations.” (Check out this map of countries that voted for and against admitting the PRC — note that the U.S., Japan and Australia voted against.)

The U.S. cut diplomatic relations with Taipei in 1979, but, according to this State Department Bilateral Relations Fact Sheet, “enjoys a robust unofficial relationship.” In fact only 15 countries maintain diplomatic relations with Taiwan, (down from 22 five years ago), including Paraguay, the Marshall Islands and Honduras — or as one Chinese person said to me, "only countries Beijing doesn’t care about that rely on the U.S." (Ouch.)

Second, as noted previously, Taiwan has evolved into an independent, self-governing entity with a Democratically elected government and a thriving economy.

A third trend (leaving aside politics and militarism) is that Taiwan and mainland China have paradoxically grown much closer in terms of business, trade, education and culture over the decades. For instance in 2020, Taiwan’s exports to China hit an all-time high. And “China and Hong Kong combined now represent 34% of Taiwan’s overall trade, compared with 13% with the United States,” according to Brookings. (The U.S. Trade Representative notes that Taiwan is currently our 9th largest goods trading partner with $90.6 billion in two-way goods trade — during 2020.)

Still, Taiwan really is a kind of never-never land. While the self-governing entity (be careful saying "country") isn’t recognized by the UN, it does participate in the Olympics competing as "Chinese Taipei.” Ditto for the World Trade Organization, where it is more formally referred to as “Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei.)” The name contorting is all about not offending you-know-which-country, which it does anyway.

'More or less content with the status quo'

Which brings us to a hugely fundamental question: Is Taiwan part of China? The answer depends on who you ask and what you mean by part of China. Let me explain.

In mainland China the answer would almost certainly be yes, Taiwan is part of China, meaning it is part of the People’s Republic of China, ruled by the Chinese Communist Party in Beijing.

As for Taiwan, its Mandarin-speaking population of course consider themselves to be Chinese, but as for Taiwan being a part of mainland China, there’s less consensus. For instance, some Taiwanese subscribe to the One China principle, which mandates that both Taiwan and mainland China are pieces of a single China, but are somehow separate. This is as opposed to the One China policy, meaning that there is only one China ruled by the PRC and Taiwan is part of that China.

Generally speaking, a slight majority of Taiwanese (54.7%), according to an annual poll by the Taiwan’s National Chengchi University, prefer the status quo, (which speaks to that One China principle.) Another 25% want to move gradually to become an independent country. Smaller numbers want unification, again according to the poll. To me all this suggests that the answer as to whether the Taiwanese consider Taiwan part of China is a definitive, "sort of."

This fascinating chart displays the polling going back to 1994, which shows the "gradual move to independence" choice has gained significant support in recent years. (Which may have Beijing worried, more on that below.)

The ambiguity afforded by this status quo has its pluses and minuses. Or as Wikipedia notes:

“The status quo is accepted in large part because it does not define the legal or future status of Taiwan, leaving each group to interpret the situation in a way that is politically acceptable to its members. At the same time, a policy of status quo has been criticized as being dangerous precisely because different sides have different interpretations of what the status quo is, leading to the possibility of war through brinkmanship or miscalculation.”

Whew! Got all that? OK, so let’s (finally) cut to the chase. Why has Taiwan become a front burner issue all of a sudden? Short answer: Unclear, but we can speculate, so let’s do that.

First, despite what some Chinese propaganda will have us believe, it is not because the U.S. suddenly has new designs on promoting a wholly autonomous, independent Taiwan. President Biden apparently said this quite overtly in his three-and-half hour conversation with Xi Jinping this week.

Chinese President Xi Jinping meets with U.S. President Joe Biden via video link, in Beijing, capital of China, Nov. 16, 2021. (Photo by Yue Yuewei/Xinhua via Getty Images)
Chinese President Xi Jinping meets with U.S. President Joe Biden via video link, in Beijing, capital of China, Nov. 16, 2021. (Photo by Yue Yuewei/Xinhua via Getty Images)

“It’s interesting that President Biden did tell Xi Jinping that the U.S. doesn’t support Taiwan independence,” says Bonnie Glaser, a Taiwan expert at the German Marshall Fund. “That’s a very important, longstanding part of the policy, but it isn’t often the president tells that to the Chinese leader.” So the U.S. has been and is more or less content with the status quo. Would it prefer that the PRC acquiesce and declare Taiwan an independent country and that Taiwan be admitted to the UN? Sure, but that’s not going to happen. So for now and for the foreseeable future, limbo is at least OK as far as the U.S. is concerned.

Of course Taiwan itself has been changing, which has brought the issue of its status and future more to the fore. Taiwan is more prosperous and more tied to the global supply chain than ever. And as mentioned, while ties to the mainland are increasing, a significant number of Taiwanese (going back to this survey) now want to “maintain the status quo, move to independence,” a category in the survey that has moved from 12.5% in 2018 to 25.8% this year. Why is that?

One clue, perhaps, is the spike in "move to independence" sentiment correlates with policy changes the PRC has made. “People in Taiwan — based on surveys I’ve read — are increasingly negative toward the PRC and disgusted with what China is like because Xi Jinping's China is hard to love,” says Shelley Rigger, a professor of political science at Davidson College and author of several books on Taiwan, most recently “The Tiger Leading the Dragon: How Taiwan Propelled China's Economic Rise." “These are people who are used to same-sex marriage and freedom of speech, looking at the mainland, Hong Kong, and saying we don’t want that.”

That’s not necessarily what mainland China will be like forever, says Rigger. But it is for now.

Which brings us squarely to the third actor here, the People’s Republic of China, which of course has also changed tremendously over the past decade. The PRC has a bigger economy, a stronger military and in Xi Jinping an increasingly powerful leader with nationalistic ambitions and a strong self-awareness when it comes to shaping his legacy.

Xi’s new muscular China certainly informs a changed Taiwan policy, but also consider how the historical perspective has evolved here.

“The Chinese Communist Party over the last 70 years has increasingly emphasized Taiwan as a kind of legacy of the civil war and of imperialism [and the Cold War] that has never been undone,” says Rigger. “So it hangs over China as this unfinished business. Why is Taiwan not under the PRC flag? Well, because the U.S. has interfered and prevented that from happening.”

In that sense Taiwan is seen as connected to the partly-resolved imperialistic intrusions, Macau and Hong Kong. Portugal returned Macau, the British returned Hong Kong, yes both as semi-autonomous entities, but everyone sees where that is headed. At some point, the thinking in Beijing may go, it will be time for Taiwan to be returned like those other two — even though the circumstances are very different.

'Taiwan became this little capitalist powerhouse'

But what about Xi himself?

“[There is a] sense of personal mission and personal role in history that was not felt in that way under Hu Jintao or Jiang Zemin,” says Margaret Lewis, professor at Seton Hall Law School who focuses on human rights in China and Taiwan, who currently lives in Taiwan. “The question I can’t answer but it is something I want to know: How much does Xi Jinping personally care about getting Taiwan under effective control of Beijing as part of his personal legacy?” Good question.

China hawks point to another possibility related to the Chinese leader. That economic and social woes are rife in China and Xi is using Taiwan through a drumbeat of rhetoric in Chinese media and military exercises to distract from those problems, a classic page from the authoritarian leader's playbook.

Or maybe Xi’s ambitions are more benign.

“I think the priority is to deter independence,” says Glaser. “They seem to be quite confident they can deter independence as long as the U.S. doesn't push the envelope. They’ve been a little worried, and they hoped Biden would go back to the Obama policies rather than inherit Trump’s policies.”

It’s all remarkably opaque, isn't it?

How about that other question: Why is Taiwan so important to us?

Some say weapons sales. In fact since 2010, the U.S. has announced more than $23 billion in arms sales to Taiwan. “Military sales are important to the U.S. for two reasons,” says Rigger. “One is that American military planners want to see that Taiwan is investing in its own defense and not just assuming that the U.S. will defend Taiwan if it gets into trouble. And also because U.S. arms manufacturers make a ton of money selling weapons to Taiwan.

“Actually those military sales are kind of controversial in Taiwan because a lot of people in Taiwan are asking the question: Are we being taken advantage of here?” notes Rigger. “Do we need to spend so much of our tax money on weapons systems from the U.S.? So the military sales are politically important on all three sides. Of course, the PRC wants them to stop altogether; they’re controversial in Taiwan; but they are something that the U.S. pushes hard for.”

There’s also that point that Taiwan is this shining beacon of democracy within spitting distance of Beijing. “How many different ways can Taiwan validate the U.S. narcissistic sense of its own greatness?” asks Rigger. “After the misadventures of the Cold War, Vietnam, all that stuff, Taiwan stands out as an example of how U.S. power can actually help people in other countries have the life they want. Taiwan became this little capitalist powerhouse — another kind of ideological victory for America.”

It goes even deeper, according to Bonnie Glaser

“Taiwan is one of the few places in the world where an authoritarian government has peacefully transitioned to democracy,” she says. "It’s also a daily reminder to mainland China that yes, the Chinese can have a successful democracy too. They don’t have to only live under authoritarian rule. Another point I would make is there are countries like Japan that see U.S. support for Taiwan as a barometer for what the U.S. would do if there were a crisis involving Japan. If we come to Taiwan’s aid in the event it’s attacked, we’re a more credible partner, our extended deterrence has more credibility. Countries like Japan, Korea, Australia can heave a sigh of relief.”

And so where do we go from here? At Bloomberg’s New Economy Forum in Singapore this week, all manner of leaders from Singapore Prime Minister Lee Hsien Loong to former U.S. Treasury Secretary Hank Paulson to Henry Kissinger all opined that the immediate risk of war over Taiwan was low but that the possibility of a military miscue was increasing and needed to be addressed. Chinese military exercises, and ours too, in the region are central to that calculus.

That’s the thing about building a giant military apparatus. Generals who build them eventually want to use them, which doesn’t bode well given China’s recent ramp up. It’s chilling, quite frankly. Not long ago I spoke to a senior state department official who told me that if China simply invaded Taiwan, hundreds of thousands would die.

There are those who say if we "lost" Taiwan, the Philippines and Japan would be next to go — the Domino Theory redux. Or that "losing" Afghanistan makes it now impossible to "lose" Taiwan. They say a country forfeits prestige when its empire or a sphere of influence declines. Not to sound like an appeaser, but I’m not sure I buy that.

Four hundred years ago or so, Portugal and Spain were the two most powerful nations on earth. Then came centuries of imperial decline. And yet I was just in both countries for a visit and all seemed pretty copasetic there today. Are the citizens of Portugal any worse off now that Macau is back with China? Nope.

Same for England. While the decline of the empire has been the subject of a 1,000 poems and songs—from Rudyard Kipling to Johnny Rotten — in the end, the Cotswolds are still lovely.

Here’s what Joe Biden had to say on the subject this week after meeting with Xi Jinping: “I said that they have to decide — Taiwan, not us. Let them make up their mind. Period." I completely agree, Joe. The question is if only China, yes the U.S., and the rest of the world too will let it.

This article was featured in a Saturday edition of the Morning Brief on November 20, 2021. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter: @serwer

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