While Taiwan and the world watch yet another Chinese military display around the island, the prestigious Foundation for the Defense of Democracies (FDD) warns of a different line of attack. It has produced a report outlining the many non-military ways communist China could harm the island, either to bend Taipei to Beijing’s will or in preparation for military action.
The report recommends that both Washington and Taipei prepare to fend off the many ways Beijing could sow economic and social disruption and confusion. It is unlikely that this information will come as news either to the Americans or the Taiwanese. In any case, a Chinese takeover will be much more complicated and risky than this report or much media commentary on the subject assumes.
The FDD’s report notes the source of Taiwanese vulnerabilities in the unavoidable connectivity implicit in today’s digital economics and finance. Each point of connectivity, the writers note, could serve as an avenue for Chinese coercion. Aside from the obvious vulnerability implicit in the some 1 million Taiwanese who live and work in China, the report points out the opportunities to spread disinformation among the island’s population that would erode public trust and make it difficult, if not impossible, for the government in Taipei to resist any incursion by China, military in nature or by other means. Cyber attacks on critical infrastructure, as well as Taiwanese business and financial arrangements, could do even more harm to the island’s economy and society. Beijing has other several options available, including imposing tariffs, boycotts, blockades, short-selling Taiwanese stocks, freezing cross-strait bank transfers, cutting fiber optic cables, and disrupting energy supplies, the FDD notes.
If the report’s specifics are alarming, it is also clear that both the government and the business community in Taiwan (intentionally or coincidentally) have already taken steps to reduce many of these vulnerabilities. The primary reason for this is the impressive steps Taiwanese businesses have already taken to reduce trade connections to mainland China.
Although China remains Taiwan’s largest trading partner, its share of Taiwanese trade has fallen steadily since 2021. That year, Chinese sales in Taiwan and Chinese purchases from Taiwanese producers amounted to the equivalent of $208.4 billion, which is about one-quarter of the island’s total. By 2023, the latest period for which complete data exist, that amount had fallen almost 20 percent to about $166 billion, barely over one-fifth of Taiwan’s total trade. At the same time, Taiwan’s total trade with Southeast Asia went from $117.5 billion in 2021 to $134.6 billion in 2022, almost a 10 percent gain in a single year. Taiwan’s export dependence on China has also shrunk. Even including Hong Kong, recent figures show it is lower than ever since 2018. Most of the difference has gone to Southeast Asia.
If this pattern were not enough to short-circuit some of the means for action from Beijing, the figures also show a dramatic redirection of Taiwanese investment monies flowing to China. These have been falling since 2010. In 2023 alone, they dropped almost 40 percent. At the equivalent of $4.17 billion, they were in 2023 less than one-third of their 2018 level. The difference in the flow is that some have gone to Southeast Asia, notably Singapore, Vietnam, Indonesia, Malaysia, and Thailand. These countries now get some 40 percent of Taiwanese investment outflows, a proportion that exceeds flows going to China.
As one Taiwanese tech executive pointed out, the advantages of his and other island tech firms lie in their ability to customize their semiconductors and other technologies in concert with their buyers. Even if the People’s Liberation Army were to take over the factories, it could never manage such negotiations. The value of these plants and businesses would simply disappear.
Beijing surely can see this potential problem. Perhaps it cares little about such matters. Chinese leader Xi Jinping certainly has given up economic advantages for political points in the past. But it is yet another cost for Beijing to consider before making a move on Taiwan in any way. In the meantime, Taiwan is clearly reducing at least some of the vulnerabilities the FDD has warned about.
