What’s going on with Taiwan?

Author: Aidan Chan

BRB Bottomline: The One China Policy has currently put the Asia-Pacific in an awkward position. With Taiwan defending its sovereignty amidst the growing tensions of Sino-American relations, the prospects of war have become a bitter possibility.

More than half a century has passed since talks of the One China Policy came to fruition. For those unfamiliar with what it means to be “One China,” the People’s Republic of China (PRC) believes that Taiwan is an inalienable part of their society, bound by the blood of early civilization. 

The Formosa

So where did Taiwan come from? In the 17th century, Taiwan – known to European nations as Formosa – was under the rule of Dutch and Spanish settlers until the Qing Dynasty declared the region a province within their empire, forcing out European settlement. In 1895, Japan took control of the island during the Sino-Japan War resulting in the Treaty of Shimonoseki, which ceded land from China to Japan. It wasn’t until the end of World War II that Japan surrendered its sovereignty to the Republic of China (ROC) in 1945. 

It’s true that Taiwan and China are interrelated in many ways. Taiwan once belonged to China, and even its early founders were known as the Republic of China. However, the Taiwan we know today is the byproduct of a civil war between the Chinese Communist Party (CCP) and the Chinese Nationalist Party (CNP). Due to ideological divergence and differing political philosophies, the CNP retreated to Taiwan in 1949 and have since built the empire we see today under independent rule. 

One China, Two Economies

As such, it’s difficult to say whether or not China and Taiwan are two-sides of the same coin. Throughout the last century, Taiwan was able to develop a high degree of political and economic autonomy, but it is unclear whether it will be enough to fully gain its sovereignty from China. To confront this uncertainty, it’s important to understand what drives Taiwan’s economy. 

Throughout history, Taiwan has always been an export-driven country and is currently the United State’s ninth largest trading partner. As one of the top industries for semiconductors, 5G technology, and artificial intelligence (A.I.), Taiwan’s economic growth is heavily determined by their performance in these industries. But there exists a problem – they can’t do it alone. 

Back in 2010, Taiwan signed the Economic Cooperation Framework Agreement (ECFA), and this mobilized trade across the strait – with China being at the other side. Since 2005, China alone accounted for 17% of Taiwan’s trade flows, and, just last year, China accounted for 25%, and 20% of Taiwan’s exports and imports, respectively. 

Coming back to the topic of Taiwan’s political tension, this economic dependency upon China faces another issue at hand. Currently, trade between Taiwan and China works – and it works well relative to partnerships with other countries. Businesses are better able to communicate beyond linguistic barriers,  and there is a steady market between the two, since Chinese and Taiwanese companies are not necessarily competing with one another but working together in maximizing revenue. Alexander Huang, director of the international affairs department of the opposition Kuomintang Party, stated, “My hunch is that the large manufacturing sectors will try to stay in the Chinese market, even with harsh conditions.” 

A Finite Future

You may be wondering, what’s next? Taiwan seems rather dependent on China while China does not share the same tether. The obvious answer is to establish independence; however, that is easier said than done. When current President Tsai Ing-wen took office, Taiwan’s deputy minister of economic affairs C.C. Chen stated that President Tsai Ing-wen wished to maintain economic stability. “From day one, when President Tsai took office, China has been our largest trade partner. We don’t want to rock the boat. We want to make it stable.”

On the contrary, during the year of President Tsai’s election, Taiwan began their “New Southbound Policy” in 2016 which aimed to expand partnerships throughout Southeast Asia. Since 2023, the Southbound Policy has since resulted in 36% of Taiwan’s exports in the third quarter of 2023 and, to China, 21% – which is a record low since the global financial crisis. 

This could explain why President Xi and the People’s Republic of China have begun to mobilize their efforts in Taiwan’s takeover. Facing a multitude of structural issues, the Chinese economy has slowed down quite a bit. From real-estate bubbles, high-youth unemployment, and trade restrictions, China’s growth rate is projected to decline to 4.6% in 2024. In 2021, the growth rate was at 8.6% indicating a 45% decrease in GDP. 

Despite China’s efforts, they can’t keep Taiwan under their grasps. With a severing economy and growing independence, the People’s Republic of China’s momentum in actualizing the One China Policy reflects the fear of Taiwan’s growing autonomy. Currently, under economic pressures and facing many trade restrictions imposed by the European Union and United States, perhaps Taiwan is a piece of the puzzle to restore their economy. 

As such, the prospects of war are rather incongruous. From an economic standpoint, China is not in a good position to engage in hostilities with their neighbor. However, the possibilities still exist and have been widely acknowledged. As of late, Japan has fueled investments into military defense spending in fears of getting caught in the crossfire, and the U.S. is rapidly exporting weapons to Taiwan. Investors such as Warren Buffett have removed Berkshire Hathaway’s stakes in the TSMC due to the geopolitical risks

In the recent Asia-Pacific Economic Council (APEC) summit, President Xi was the man of the hour. All eyes and ears fixated on his deliberation with the council in addressing the issue at hand. President Biden acknowledged the persistence of the One China Policy, noting that cross-straight differences ought to be resolved by peaceful means – but, in the worst case scenario, U.S. intervention in the East would be inevitable. With the notoriety of war and its ability to ravage societies, the People’s Republic of China reaps no benefits from destroying and rebuilding two economies from the remnants of war. Though it’s hard to say what lies ahead, two things are certain: Taiwan’s growing independence is undisputed and China needs to recalibrate their plan of action to minimize further economic strain. 

Take-Home Points

  • Taiwan originated from the aftermath of the Chinese Civil War in the 1940s. 
  • China never exercised authority over Taiwan and its political body remains autonomous.
  • The One China Policy is currently at the heart of the controversy regarding Taiwan’s sovereignty, with President Biden urging China to rethink its implications. 
  • Taiwan’s economy is autonomous; however, it is reliant upon business transactions with China.
  • Taiwan is currently expanding their economy and lessening their economic dependence on China by developing partnerships throughout Southeast Asia. 
  • Amidst talk of war, the chances are unlikely due to China’s weakening economy; however, precautionary measures have been put in place.

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