USA, China, and Taiwan: Post-Endemic Strategies for a New Global Economy

Written by Ian Inkster.

Image credit: Biden signing executive orders by The White House/ Wiki commons, license: public domain.

Joe Biden’s recent scooping up of the fog of ‘strategic ambiguity,’ the seldom re-specified policy of the USA towards China in the case of an overt attack on Taiwan, was made in haste but has set the tail of the cat alight and its very colour in doubt. In Japan, Biden warned that China was ‘flirting with danger’ and then admitted that the US would defend Taiwan against invasion by China as contra to the Ukraine case. He was then asked directly if the US would defend Taiwan militarily if China invaded, when it has not done so in the invasion of Russia against Ukraine, and he responded: 

“Yes… that’s the commitment we made … The idea that it can be taken by force… is just not appropriate. It will dislocate the entire region and be another action similar to what happened in Ukraine.” 

Elsewhere we have argued that Ukraine and Taiwan are vastly different cases when it comes to US action. Although the actions are parallel, the US response would be different. Remarking also that US policy towards Taiwan had not changed, the Biden statements are so ambivalent as to be interpreted at will by all sides of Taiwanese politics as well as within global diplomacy at large.

Particularly it is so in the case of Asian economic relations. Maintaining commercial ties between the two most populous nations on earth in the face of two years of conflict – especially following the Chinese expansion in the Ladakh region -along the shared border of India and China is itself an unlikely enough trick. But, whatever the meanings and their outcomes, this recent Biden turmoil is typical of a world system where diplomacy is weak, and the arrogant statements of leaders are increasingly sporadic, simplistic, and populist. This is not an easy time in which to be a diplomat anywhere.

The USA would dearly like to increase its trade with the East Asian nations during the next two or three ‘recovery’ years, but to do so whilst decreasing its dependency on the Chinese trade (presently the major exporter to the US) and increasing trade with India – presently the USA is the major market for Indian exports, but China is India’s major supplier of goods by far. Moreover, as the GDP growth rates of India and China are likely to be significantly higher than that of the USA, it does not take a deep analysis to forecast that behind the international political rhetoric stemming from the USA – and to a lesser extent in the west more broadly – there lies a deep malaise amongst American strategists and diplomats when politics and economics are viewed as twin forces for future growth, influence and welfare. 

The places where the USA can perform this balancing exercise whilst shearing up other economic defences must surely include the other significant strategic allies. Such allies have received much US aid, techniques, arms support, and trade agreements since 1945. Of course, three such places are Japan, South Korea, and Taiwan. Japan’s receipt of Marshall Aid and procurement contracts after World War II, as well as new regulations for governance and institutions of civil society (we easily recall the US-led occupying forces of SCAP, Supreme Command Allied Forces, instituting a weakening of the zaibatsu, aid to labour market improvement, large technical assistance and so on), were all positive inputs behind the nation’s ‘economic miracle’ of the 1960s-1980s period. In addition, the Korean War (1950-52) further boosted Japanese trade and investment and the military and commercial alliance with South Korea. 

By that time, the USA’s inability to maintain the notion of Taiwan as a proxy for China was, of course, illustrated in the Nixon changes of 1971-74 when the mainland replaced Taiwan in the UN. Still, the US compensations to Taiwan were extensive, for its East Asia policy became one of embracing the region through trade and technical exchanges. The latter, in turn, weakened the basic trading position of the USA, for it laid down a triangular framework in which American markets were in receipt of a widening range of the products of the new East Asian NICs and new technologies and machine components

This commercial structure was one of the major elements of the global economy that forged high growth rates in East Asia and eventually China whilst inhibiting economic dynamics in the USA. Cold War alliances cost the American economy a great deal. Moreover, this sparked popular support for Donald Trump’s boisterous rhetoric concerning the need to put America first. This entailed demands that NATO be increasingly self-sufficient on its European side and seek new forms of protection against efficiently produced goods from East Asia, and from China in particular.

This is one reasonably direct narrative of the overall context of current global developments, one that is now being lost in the crowded happenings of the epidemic and the present Ukrainian warfare.

The present Biden Asian tour certainly shows that in this context of instability and possible recovery, Indo-Chinese trade may be under threat despite an existing strong relationship; for India, China is its main source of imports. On the other hand, the USA is the lead destination of Indian exports, taking almost three times the value taken by China. But from an American point of view, India is only a minor trade partner, whilst for the USA, China is her major source of imports for many consumer goods and industrial supplies. Also, India is not a major trade partner for China compared to Taiwan, South Korea, and Japan, which lead easily as importers into China, especially of electrical machinery, metals, and high-tech instruments. But, of course, for Taiwan, China is a major importer and exporter, with Japan, Hong Kong, and South Korea as leaders among her next major traders. So, the USA wants to strengthen its footing in an existing complex commercial nexus centred in East Asia. 

Thus, whatever the political rhetoric, we cannot doubt a more aggressive attitude to East Asian trade as part of an attempt by the USA at post-epidemic recovery, which is at the heart of the Biden mission in Japan and elsewhere. Of course, the extent or success of this strategy will depend as much on Chinese recovery and trade as upon US policy. It is far too early to see the potential future growth of China, but several crucial factors must be considered before the Taiwanese government, or its advisors allow international political rhetoric to crowd-out reasonable regional economic analysis.

What matters here is to identify a better route for Taiwanese diplomacy and commercial policy that permits the continuation of a balance of understandings between Taipei and Beijing alongside maintenance of very positive Taiwan-China economic relations on the one hand and the need to survive the coming turmoil associated with what will be a highly differential global recovery process.

This premise valorises the economic elements of potential strategies from a Taiwanese rather than a US or Chinese perspective. The obvious elements relate to growth statistics, foreign trade patterns associated with such growth statistics, underlying structural features determining foreign trading, and recent and likely impacts of Covid and the Ukraine war. This is complex enough to be going on with. Here, this can only be considered en passant.

First, GDP growth performance tells the basic story. China’s real GDP growth before Covid was 6.7% (2014-19), the EU area was 1.9%, and the USA stood at 2.4. So other things being equal, hitching to high growth makes sense at this juncture.

Second, the complementarity of trade between Taiwan, China, India, and Japan is high because they span the range of both income levels and industrial structures. In particular, China’s consumer goods flow out because of low-cost production, much based on earlier imported technologies.

Third, industrial structures are equally complementary. Approaching middle incomes, with a huge growing middle class and with a large manufacturing sector, China will continue to need higher technology production from nations such as Taiwan and Japan. In contrast, slower US economic growth is based on a mature economy that has shifted from manufacturing.

Fourth, the world is not constrained only by the Ukraine war and its present constrictions on grain and other supplies, for the world shall be conditioned by the continuation and economic echoes of the Covid epidemic. Taiwan, alongside the rest of East Asia – I would still include South Korea despite its more recent setbacks – has been far less affected by Covid than has Europe and the USA. The difference remains significant despite differential vaccination. Covid cases per million since the inception of the virus until today (26th May) is 255,923 for the USA, but only 159,134 for Hong Kong, 68,635 for Taiwan, or 30, 693 for India.

Fifth, Taiwan falls naturally into a global recovery system based in Asia, including China. For all the reasons given above, the US-Europe Atlantic-based system shall surely recover more slowly than the nations of Asia. 

When all is said, surely the most crucial task is to avoid the potential dangers at the level of geopolitics. Friction centred around Taiwan and Hong Kong at this time could easily worsen the already difficult relations between China and India at a time when close economic ties could vitalise the world economy. A continued commercial alliance between China, India and Japan is especially important to Taiwan and potential world growth and the spread of wealth effects through a wider section of our world’s population. Maintaining global trade and investment relations despite the malignity of the pandemic and the highly unwise and vicious military intervention of Putin’s Russia is the best of two problematic pathways into the longer-term future. More immediately, robust growth in East Asia and its other Asian trading partners may become a vehicle for western nations to attach themselves to in the face of present pessimistic projections of their own immediate economic futures. Taiwan is potentially very well situated.

Professor Ian Inkster is a global historian and political economist at the Center of Taiwan Studies, SOAS, University of London, and a Senior Fellow in the Taiwan Studies Programme and China Policy Institute at the University of Nottingham, UK.

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