China’s military exercises around Taiwan after U.S. House Speaker Nancy Pelosi’s visit to the island surprised the world by raising the tension in the Taiwan Strait to a new level. But China’s retaliation for the visit also included now-familiar bans on the imports of selected Taiwanese goods, especially food products like certain fish and fruit. While these sanctions do not typically have a substantial impact on Taiwan’s overall economy, they are part of a larger set of economic coercion tools that China uses to undermine Taiwan’s economic security.
Economic security is a concept that encompasses an array of diverse issues. It includes supply chain security – not only the resiliency and diversity of supply chains, but also transparency and scrutiny of supply chain partners – as well as the protection of critical infrastructure for an economy’s functioning. The availability of and access to materials and technologies key to national security, such as steel or computer chips, also fall under the umbrella of economic security. Businesses can also affect the strength of economic security with their international partnerships, their investments and operations abroad, and their position within supply chains. Economic security touches every part of life in some way, and for an island like Taiwan, which depends on strong economic engagement in lieu of diplomatic relations with many partners, economic security is just as important – if not more – as traditional defense in shoring up national security.
In addition to trade sanctions, large and extensive cross-Strait trade opens Taiwan to other forms of economic coercion from China. China has fined Taiwanese companies with operations on the mainland that supposedly show support for Taiwan’s independence, a targeted intimidation technique. It has also recruited Taiwanese tech workers to mainland businesses with higher salaries, both bolstering China’s effort to strengthen its domestic tech industry and weakening Taiwan’s. Investments by Chinese companies in Taiwan also provide an opening to influence Taiwan’s business community. And cyberattacks targeting Taiwanese financial institutions, businesses, and infrastructure have the potential to disrupt the economy, though attribution for such attacks is difficult to verify.
With these tools of economic statecraft, China can damage Taiwan’s economy, but so far Beijing has refrained from a larger-scale effort. At this time, economic coercion towards Taiwan is primarily about making a political point: Beijing seeks to demonstrate that it possesses levers of economic coercion, and in the process, it can also try to erode voters’ confidence in Taiwan’s leadership. In this respect, scalable economic forms of retaliation are an outlet for Beijing’s political ire. For regional stability, this can be preferable as a short-term, low-stake reprisal that is less likely to escalate compared to a missile test or a PLA aircraft crossing the Taiwan Strait midline. But for the long-term, by periodically displaying how it can turn on and off certain flows of cross-Strait trade, Beijing is hinting at the full array of its capabilities in a worst-case scenario. Beijing could significantly restrict trade with Taiwan, as well as attempt to prevent the island from trading with other partners through a physical blockade. Laying siege like this would not only harm Taiwan’s economy but also prevent key imports – like energy and food – from reaching the island.
However, an important economic area where Taiwan has some measure of protection is its high-tech industries, especially semiconductor manufacturing – its “silicon shield.” Because the majority of the world’s semiconductors are manufactured in facilities in Taiwan, and Beijing depends on Taiwan’s production just as much as any other country today, Beijing has a disincentive to damage Taiwan’s factories. The importance of semiconductors for countries around the world is also a reason for the international community to support stability and peace in the Taiwan Strait, so as not to jeopardize this critical supply chain.
Nevertheless, there are unique economic security challenges facing the semiconductor and other high-tech industries in Taiwan. For instance, Beijing is striving to increase and innovate its own semiconductor design and manufacturing to reduce this reliance (and to deal with the effects of the October 7 U.S. export controls on semiconductors). Its efforts to hire talent from Taiwan’s industry in recent years have prompted Taiwan to tighten investment and recruiting regulations and prevent its tech companies from building foundries in China. Taiwan has also strengthened its ability to protect key technologies from unapproved transfers, whether by theft or a business arrangement, to cut off another method by which China attempts to erode Taiwan’s comparative advantage in sensitive and critical industries.
Taiwan’s approach to these various economic security challenges has been to diversify its trade relations, such as through the New Southbound Policy, which over the past six years has expanded economic ties with countries across South and Southeast Asia, as well as Australia and New Zealand. Taipei has also pushed for greater awareness among world leaders of Taiwan’s position in global supply chains in various industries, with Tsai Ing-wen discussing the importance of supply chain resilience in interviews and with various economic partners. Taiwan seeks to reinforce how the complexity of supply chains means that economic security is a shared challenge for the international community at a time when ongoing examples abound: The widespread supply chain disruptions during the pandemic, and more recently the impact on global food supplies of halted Ukrainian grain shipments, interrupted by Russia’s invasion of the country, provide a clear picture of how instability in one part of the world has ripple effects.
Taiwan’s economic security problem, therefore, is everyone’s problem. An import ban on select Taiwanese products may seem minor when compared to the kinds of military intimidation China carries out in the Taiwan Strait. But in the context of Beijing’s array of economic coercive tools against Taiwan, an import ban is better understood as part of a larger strategy with the potential for wide-reaching disruption. For Taiwan, and for its partners, strengthening economic security is critical for national security.
How Taiwan’s Economic Security Impacts Its National Security
By Pamela Kennedy
China
An import ban on select Taiwanese products may seem minor when compared to the kinds of military intimidation China carries out in the Taiwan Strait. But in the context of Beijing’s array of economic coercive tools against Taiwan, an import ban is better understood as part of a larger strategy with the potential for wide-reaching disruption.
China’s military exercises around Taiwan after U.S. House Speaker Nancy Pelosi’s visit to the island surprised the world by raising the tension in the Taiwan Strait to a new level. But China’s retaliation for the visit also included now-familiar bans on the imports of selected Taiwanese goods, especially food products like certain fish and fruit. While these sanctions do not typically have a substantial impact on Taiwan’s overall economy, they are part of a larger set of economic coercion tools that China uses to undermine Taiwan’s economic security.
Economic security is a concept that encompasses an array of diverse issues. It includes supply chain security – not only the resiliency and diversity of supply chains, but also transparency and scrutiny of supply chain partners – as well as the protection of critical infrastructure for an economy’s functioning. The availability of and access to materials and technologies key to national security, such as steel or computer chips, also fall under the umbrella of economic security. Businesses can also affect the strength of economic security with their international partnerships, their investments and operations abroad, and their position within supply chains. Economic security touches every part of life in some way, and for an island like Taiwan, which depends on strong economic engagement in lieu of diplomatic relations with many partners, economic security is just as important – if not more – as traditional defense in shoring up national security.
In addition to trade sanctions, large and extensive cross-Strait trade opens Taiwan to other forms of economic coercion from China. China has fined Taiwanese companies with operations on the mainland that supposedly show support for Taiwan’s independence, a targeted intimidation technique. It has also recruited Taiwanese tech workers to mainland businesses with higher salaries, both bolstering China’s effort to strengthen its domestic tech industry and weakening Taiwan’s. Investments by Chinese companies in Taiwan also provide an opening to influence Taiwan’s business community. And cyberattacks targeting Taiwanese financial institutions, businesses, and infrastructure have the potential to disrupt the economy, though attribution for such attacks is difficult to verify.
With these tools of economic statecraft, China can damage Taiwan’s economy, but so far Beijing has refrained from a larger-scale effort. At this time, economic coercion towards Taiwan is primarily about making a political point: Beijing seeks to demonstrate that it possesses levers of economic coercion, and in the process, it can also try to erode voters’ confidence in Taiwan’s leadership. In this respect, scalable economic forms of retaliation are an outlet for Beijing’s political ire. For regional stability, this can be preferable as a short-term, low-stake reprisal that is less likely to escalate compared to a missile test or a PLA aircraft crossing the Taiwan Strait midline. But for the long-term, by periodically displaying how it can turn on and off certain flows of cross-Strait trade, Beijing is hinting at the full array of its capabilities in a worst-case scenario. Beijing could significantly restrict trade with Taiwan, as well as attempt to prevent the island from trading with other partners through a physical blockade. Laying siege like this would not only harm Taiwan’s economy but also prevent key imports – like energy and food – from reaching the island.
However, an important economic area where Taiwan has some measure of protection is its high-tech industries, especially semiconductor manufacturing – its “silicon shield.” Because the majority of the world’s semiconductors are manufactured in facilities in Taiwan, and Beijing depends on Taiwan’s production just as much as any other country today, Beijing has a disincentive to damage Taiwan’s factories. The importance of semiconductors for countries around the world is also a reason for the international community to support stability and peace in the Taiwan Strait, so as not to jeopardize this critical supply chain.
Nevertheless, there are unique economic security challenges facing the semiconductor and other high-tech industries in Taiwan. For instance, Beijing is striving to increase and innovate its own semiconductor design and manufacturing to reduce this reliance (and to deal with the effects of the October 7 U.S. export controls on semiconductors). Its efforts to hire talent from Taiwan’s industry in recent years have prompted Taiwan to tighten investment and recruiting regulations and prevent its tech companies from building foundries in China. Taiwan has also strengthened its ability to protect key technologies from unapproved transfers, whether by theft or a business arrangement, to cut off another method by which China attempts to erode Taiwan’s comparative advantage in sensitive and critical industries.
Taiwan’s approach to these various economic security challenges has been to diversify its trade relations, such as through the New Southbound Policy, which over the past six years has expanded economic ties with countries across South and Southeast Asia, as well as Australia and New Zealand. Taipei has also pushed for greater awareness among world leaders of Taiwan’s position in global supply chains in various industries, with Tsai Ing-wen discussing the importance of supply chain resilience in interviews and with various economic partners. Taiwan seeks to reinforce how the complexity of supply chains means that economic security is a shared challenge for the international community at a time when ongoing examples abound: The widespread supply chain disruptions during the pandemic, and more recently the impact on global food supplies of halted Ukrainian grain shipments, interrupted by Russia’s invasion of the country, provide a clear picture of how instability in one part of the world has ripple effects.
Taiwan’s economic security problem, therefore, is everyone’s problem. An import ban on select Taiwanese products may seem minor when compared to the kinds of military intimidation China carries out in the Taiwan Strait. But in the context of Beijing’s array of economic coercive tools against Taiwan, an import ban is better understood as part of a larger strategy with the potential for wide-reaching disruption. For Taiwan, and for its partners, strengthening economic security is critical for national security.
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