Taiwan complicates China-USA relations again at a time marked by multiple crises

Taiwan complicates China-USA relations again at a time marked by multiple crises
© EPA-EFE/DANIEL CENG   |   Taiwanese Vice President and ruling Democratic Progressive Party (DPP) presidential candidate William Lai Ching-te (C) and vice presidential candidate Hsiao Bi-khim (C-R) wave during a rally after winning the presidential elections in Taipei, Taiwan, 13 January 2024.

The victory of the pro-independence candidate in the Taiwan elections complicates once again China-USA relations. China’s economic difficulties, the elections in the USA and the crisis in Yemen can however prevent an escalation.

Thawing relations between the USA and China, threatened by the political developments in Taiwan

Bilateral relations between China and the United States have in recent years amounted to a trade war and countless political disputes. The trade war was triggered by Donald Trump amidst frustration in the USA generated, among other things, by technology thefts and certain commercial practices described as unfair, as well as by a growing trade deficit. Political disputes were tied to American support for Taiwan, the violation of the rights of the Uyghur minority and Beijing’s repression of the pro-democracy movement in Hong Kong, the South China Sea, the Covid pandemic and, to a lesser extent, the diverging positions of the two states on international matters such as the war in Ukraine. Incidents such as the Chinese balloon being shot down by the Americans after entering US territorial waters in 2023, or the large-scale military exercises China undertook in response to the visit to Taiwan of the then US House Speaker Nancy Pelosi, only made things worse.

Both sides went to great lengths to deescalate the situation, and a key moment was the Biden – Xi Jinping meeting in San Francisco. At the start of the year, Chinese diplomacy said that Beijing’s relations with Washington were finally stabilized in 2023. “With significant effort, the two sides have resumed dialogue and communication, and bilateral relations have ceased to deteriorate and stabilized”, the Director of the Chinese Communist Party Central Committee Foreign Affairs Commission said. Shortly afterwards, relations were again complicated after Lai Ching-te won the presidential election in Taiwan, and the United States congratulated him on his victory through the voice of Secretary of State Antony Blinken, after previously announcing they would send a special delegation to Taipei after the election. Lai Ching-te is a support of Taiwan’s independence, so it came as little surprise when Beijing was infuriated by this statement.

Taiwan, China’s red line in its relations with the United States

In China’s relations with the USA, Taiwan remains to this day a red line. Beijing is extremely sensitive to any action and statement expressing support or any form of acknowledgement of Taiwan as a separate entity. In fact, Xi Jinping reiterated earlier this year that reunification is unavoidable.

The Chinese leader seems to prepare for all possible outcomes, including the worst-case scenario. Why else would it build a 1:1-scale replica of the USS Gerald Ford American carrier, the jewel of the American navy? The giant model was photographed using satellite footage at the end of last year in the Taklamakan desert in the Xinjiang province. This is not the first time when satellite images reveal such replicas the Chinese are building in the middle of nowhere. The first were discovered three years ago. Experts say these mock vessels are used by Beijing to calibrate its long-range precision strike weapons. Moreover, military pundits say the mock-ups also help develop the procurement chain, providing information, surveillance and reconnaissance. Western secret services found out Beijing had developed an anti-ship ballistic missile called DF-21D, with a range of over 1,500 kilometers capable of descending from space at supersonic speeds. The weapon is however useless as long as it’s not equipped with a guidance system that enables the missile to identify targets and lock on. That’s how China is actually preparing to fight back.

We shouldn’t either rule out the possibility that Xi is simply bluffing, exposing himself to spying activities simply to turn up the pressure on Washington, which suggests that it is in fact working on a new piece of military technology. Wars are more than the mere development of military capabilities: they must also be economically sustainable.

Although that last couple of years have seen the outbreak of two large-scale wars, in Ukraine and the Gaza Trip, I don’t believe Beijing will jump at the occasion and use military force in Taiwan, simply because right now, the Chinese economy would not survive the same type of sanctions imposed on Russia in the wake of its invasion of Ukraine. China must have learned that lesson, although it has failed to secure its economy. China is reliant on advance foreign technology and on imports, and a potential series of economic sanctions would leave its economy in shambles, not to mention it has been in freefall for quite some time.

The Chinese National Bank reports that last year’s loans reached a record-high level, because the Central Bank preserved its flexible monetary policies, it lowered the reference interest rate to encourage loan-taking. In 2023, loans hit an all-time high, although the estimate for 2024 is not as encouraging.

Experts expect the People's Bank of China to soon announce new fiscal relaxation measures designed to stabilize the economy. It will take more than just liquidity injections and another slash of the reference interest rate, all the more so as last year’s loans fall due. The problem for the year ahead is that, instead of focusing on consumption, loans are headed towards production, which could fuel deflationist pressure and thus considerably diminish last year’s flexible monetary policies. Besides, the demand for loans is on the wane. Problems linked to public debt have determined Chinese banks from releasing liquidities into the system, thus reducing reserve requirements in order to avoid any potential funding crisis.

From the South China Sea to the Red Sea – tensions rise on key routes of maritime global trade

Earlier I was saying Chinese diplomacy hailed the stabilization of relations with the USA. In this context, it’s worth mentioning the bilateral military talks held recently in Washington. According to a press release published by the Chinese Defense Ministry, Beijing called on the USA to observe the “one China” principle and stop arming Taiwan. In the same document, China called on the Americans to reduce their presence in the South China Sea and cease what they term “provocations” in the region. Of course, from the Americans’ point of view, the problem has a completely different approach: ​​it is a matter of supporting allies and partners who have territorial disputes with China, but also a matter of freedom of navigation in a region extremely rich in mineral resources that also happens to play a key role in global maritime transport.

Meanwhile, things are turning sour in another region of critical importance to global shipping: the Red Sea, after Yemen's Houthi rebels began attacking civilian ships transiting the Red Sea and the United States responded by bombing targets in Yemen. The most important trade route between China and the European Union passes right through the Red Sea, which connects to the Mediterranean via the Suez Canal, so the Houthi crisis is the last thing Xi Jinping needed right now. It is true that Beijing, like Moscow, has not shown its support for Israel, and China has very good relations with the Houthi's main supporter, Iran. There have even been reports that, to protect themselves, several ships transiting the regions announced they were operated by Chinese crews and are in no way connected to Israel. However, this does not guarantee that Chinese exports following these routes cannot be strongly affected by a possible deterioration of the situation (especially since not all ships to and from China have Chinese crews or are operating under the Chinese flag). It doesn't even guarantee that Chinese-flagged ships won't be hit.

There are also alternative routes for goods to reach Europe - by sea, via the Cape of Good Hope or through the north, via the Arctic, and by rail on the so-called East-West corridors. Trade on these corridors is growing, but goods transported by rail still represent an insignificant percentage of trade. As for maritime alternative routes, it takes longer for goods to reach Europe, and at a higher cost too. So, at least for the time being, the Red Sea remains vital.

It is therefore no wonder that Beijing called on all parties to prevent the escalation of the conflict in Yemen and stressed that “the Red Sea region is an important passage for international logistics and energy trade”.

“We hope that all parties involved can play a constructive and responsible role in maintaining the security and stability of the Red Sea, which is in line with the common interests of the international community,” said the Chinese Foreign Ministry spokeswoman.

And against this complicated backdrop, tension is also rising in the East China Sea around islands claimed by both China and Japan. The Senkaku Islands, as Tokyo calls them, have blocked bilateral relations for a long time.

China may stand to gain by waiting to see how the political situation in Taiwan and the United States evolves

Back in Taiwan, Lai Ching-Te is not expected to take office until May, so Xi Jinping still has a few months to decide whether he intends to use force once Lai is in power. In addition, the structure of the future parliament will set the tone for Taipei’s policy-making. In this respect, Lai's Democratic Progressive Party has lost its majority in Parliament, which will complicate things for the future president.

In turn, the US election could change things. Burdened by the wars in Ukraine and Gaza and his campaign for a new term at the White House, Joe Biden may bow to Chinese pressure over Taiwan despite his repeated promises to defend the island. On the other hand, there is also the risk that Joe Biden will overreact to Chinese provocations in the region, in an ostentatious show of force designed to put him in the lead in the electoral race, where relations with Beijing, especially regarding Taiwan, will be a key topic of foreign policy.

If we accept that Donald Trump could get back in the White House, then things will be even worse for Taiwan. On more than one occasion, the former Republican president has stated that he will not defend the island because “Taiwan took away our semiconductor business.”

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