Commentary

China said that the United States is “playing with fire” after Washington recently announced $866 million in defense aid to Taiwan, including tactical radio systems and gun mounts.

Beijing’s implied threat, made on Dec. 22, is an attempt to dissuade such aid. But the U.S. aid is making Beijing’s plans for an invasion of Taiwan all the more difficult. The aid will more likely deter the regime in Beijing than “provoke” it, as the Chinese Communist Party (CCP) would like us to think. The CCP threat of “fire” is what game theorists call “cheap talk.”

In an attempt to give more bite to its bark, the regime is plowing ever more of the Chinese people’s hard-earned tax money into a military disaster that, even in the planning stages, is making their lives more difficult. The United States’ and European Union’s tariffs, sanctions, and export controls are constricting China’s economy and employment opportunities. They are in direct response to the regime’s plans to invade Taiwan, as well as its other similar aggressions.

If that invasion ever occurs, economic countermeasures will go into overdrive. Chinese exports to the United States, Europe, and Japan—the world’s biggest economies in addition to China—could dry up almost entirely.

Where would these exports go?

For whom would China’s export-oriented factories then produce?

The two major options are 1) what Beijing calls the “Global South” and what used to be called the “Third World” or “developing countries” and 2) production for domestic consumers within China itself.

Could China maintain its defense spending if it turned its current export economy into one that focused on domestic consumers and exports to the Global South?

There would certainly be substantial transaction costs as these poorer consumers tend to purchase less luxurious goods than we do in the West. The mean disposable per capita income in China is 39,218 yuan, according to the regime. That is less than $5,400 per month. The true number is probably lower, and the median is lower still. China’s monthly minimum wage is perhaps a better indicator of how the poor in China actually live. It differs from province to province but is within the range of $211 in Xinjiang to $370 in Shanghai.

Forcing the Chinese economy to retool itself for relatively poorer consumers would entail major costs—either Chinese-manufactured luxury goods for export would have to be sold to relatively poor workers at a fraction of the cost, factories that make luxuries would have to be retooled to make simpler items for cheaper, or most likely, a bit of both. China’s GDP would experience negative real growth, and the regime’s tax revenues would suffer. Real wages would likely decline, which would increase social instability. Salving this would require higher social expenditures by the regime, which would decrease the revenues available for military spending.

Chinese military spending is currently as high as $319 billion annually, according to the International Institute for Strategic Studies. This budget comes from central government taxes of 10.24 trillion yuan ($1.4 trillion). These taxes are, in turn, dependent upon China’s GDP of $18.3 trillion. A lower Chinese GDP means less tax revenue, less military expenditure, and, therefore, a lower probability of war.

Targeting China’s GDP thus makes sense if the world wants to remain at peace. We should not only pursue tariffs, sanctions, and export controls in response to the regime’s unfair trade practices. The goal of these economic countermeasures should be to force China into negative economic growth until it starts following the international rules that the United States helped found after World War II.

The message to the Chinese people should be that we want to support them in their economic development, but not if that development results in the kinds of CCP threats now common against Taiwan and other countries that neighbor China. Getting out of the CCP trap will require the Chinese people to, at the very least, take some control of their future and force the regime to end its overseas aggression.

This could require a Chinese Gorbachev who can steer China’s ship of state away from a disastrous collision with the West. That would be encouraged through more nonviolent protest from the people themselves, both within and outside of China. Ideally, these protests should be in a form by which the protesters themselves escape punishment.

The movement for a Chinese market democracy does not need more martyrs. In this way, elites in China and large numbers of regular people can steer the country toward democratization and market reform with minimal sacrifice on their own part.

More than 440 million Chinese people have already renounced any association with the CCP, according to the Global Service Center for Quitting the Chinese Communist Party, a volunteer organization that assists individuals in withdrawing from the Party and tracks the number of such withdrawals. That’s a remarkable 31 percent of China’s population. These people, who together are more than four times the number in the CCP, could make up the world’s largest political party. They are arguably leading China toward democratization and market reforms that will elicit the kind of enthusiastic economic opening by the West that will entail the best outcomes for the Chinese people’s pocketbooks and freedoms.

If China can prove its good intentions to the West by becoming a market democracy, the West will almost certainly prove its good intentions toward China through economic opening.

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