August 9, 2022

Should Nancy Pelosi have gone to Taiwan? The question might preoccupy America for months ahead of the November mid-term elections. But the truth is her visit did nothing to alter China’s stance towards Taiwan. The Speaker of the House was merely playing a walk-on part in an unfolding geopolitical drama. Another event would have triggered Beijing’s hostile reaction. The pressing question is not about Pelosi — but about what China will — and can — do next.

The live fire military drills around Taiwan that China launched in response to Pelosi’s visit — which included the firing of ballistic missiles over the island — were scheduled to end on Sunday. But on Monday morning, this dress-rehearsal of coordinated manoeuvres for a potential future invasion had shown no sign of stopping. China also announced on Friday that it was cancelling high-level military consultative talks with the United States, and suspending cooperation talks on illegal immigrants, narcotics and climate change, among other things.

We can probably expect military matters to cool off in the coming weeks, ahead of the 20th Congress of the CCP in autumn. But for the moment we can be sure of only two things. First, China is bound to take further opportunities to put pressure on Taiwan using both commercial sanctions and military or diplomatic tactics. Second, for the time being, China is likely to avoid anything that might push its own faltering economy into a tailspin.

Any serious escalation of the tension could have grave implications for Beijing. Not only would it limit or cut off China’s access to semiconductors and Western technology, but it could see Chinese firms subject to further sanctions. It could also compromise trade with China’s biggest markets, namely the United States, the EU and developed Asia. China is dependent on the rest of the world for more than 80% of its semiconductor demand, three-fifths of which comes from the US, Japan and the EU. The Taiwan Semiconductor Manufacturing Company produces almost all of the most advanced varieties.

The Chinese economy, meanwhile, is in bad shape. The target for economic growth this year cannot be met, and the property market, which accounts for over a quarter of GDP, is in disarray. Youth unemployment has shot up to 20%, and the labour market is far weaker than official statistics portray. Zero Covid policies, rigorously pursued both for public health and social control purposes, are stifling demand and turning foreign firms away from future investment in China. The nation’s development model is failing, but the government has no plausible strategies to re-energise it — or at least, none that is politically acceptable.

Beyond its borders, China faces the most extreme challenges since Mao, partly due to the imposition of commercial controls, restrictions and sanctions by foreign governments, and partly because of its own policies of disengagement and self-reliance. Its “no limit” friendship with Russia has only made things worse, and its behaviour towards Taiwan could also go awry. China may end up alienating not just the usual suspects — Japan, India and Australia — but also nations that prefer to stay above the fray, such as South Korea, the Philippines and Vietnam. They could be drawn further into security alliances championed by the United States — which is exactly what China’s Global Security Initiative is meant to stop.

Given these circumstances, there’s little chance China will stage any form of assault on — or wage all-out war with — Taiwan anytime soon. But that’s not to say it will end the so-called “grey-zone” warfare that began before Pelosi’s visit. China could pressure or occupy any of the 100 islands that belong to Taiwan, especially the populated ones in the Taiwan Strait such as Matsu, Kinmen and Penghu, the first two of which are just 10km off the Chinese coast. It could from time to time warn off air and sea traffic in the form of a quarantine, trying to regulate the inflows and outflows of people and goods. In extremis, it might even try to blockade Taiwan, restricting its access to imported energy (which meets about four-fifths of the island’s demand for energy), LNG (which provides most of Taiwan’s electricity), or even certain foodstuffs and raw materials.

The aim would be to force the Taiwanese government to in some way cede autonomy to the CCP. The likelihood of this happening is about nil — and Beijing knows it. Local Taiwanese elections later this year, and national ones in 2024, may further strengthen the country’s backbone and remind Xi Jinping that bullying and coercion are leading China down a blind alley.

At every point, then, China runs the risk of incurring greater economic and political pushback by putting further pressure on Taiwan. As it is, global firms are starting to reconsider their supply chain structures and investments in China, and a deepening Taiwan crisis would create major strategy headaches for foreign firms. No company wants to be caught in the crosshairs of conflicts, sanctions, higher insurance costs and conflicted legal positions. Decoupling, and the rebuilding of global supply chains, are both likely to increase as a result.

For the same reason, China’s desire to de-Americanise its own supply chains, sanction-proof itself, and re-orientate markets towards domestic firms, will likely increase. But following this path would probably take China further away from its quest for higher productivity and undermine the nation’s lofty economic aspirations. Engagement with the global economy was the essential handmaiden of China’s economic eruption; disengagement is likely to reverse that process.

Besides, if China decided to introduce something as severe as a blockade, in an attempt to sap Taiwan’s political will and stifle its economy, it would almost certainly trigger not only sanctions but also resistance. Under the 1979 Taiwan Relations Act, the United States would consider boycotts and embargoes a threat to both global and domestic peace and security. This doesn’t guarantee American intervention to break the blockade, or tit-for-tat measures, but there is a strong chance that Washington would react — and that other Asian nations would fear for their security.

Short of outright invasion, therefore, it does not seem that China could really mount any campaign that would force Taiwan to capitulate. With every move to escalate tension, moreover, Beijing would confront political, commercial and perhaps even low-level military pushback — and significant economic consequences.

But what if circumstances changed? What if Xi went all in, and ordered an assault on the island? Even then, his chances of a successful occupation are slim. Whether China has the military capacity and logistics, now or in the future, is almost beside the point. The issue is whether it has the political will. As we know from Russia, the best laid plans can go awry, and in Taiwan an invading army would meet with spirited local resistance from 23 million people. Suppressing them would make China a pariah state for years, if not decades. The Chinese Dream would become a nightmare.

The CCP has placed huge importance on “reunifying” the renegade province of Taiwan with the mainland, but it would exhaust its political capital by mounting an invasion — successful or not. No one can dismiss the possibility that it might one day happen — especially if domestic pressures caused CCP rule to fray. But the party may well take a leaf out of the Western playbook by kicking this can down a long road, risking unknowable consequences at home.

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