Will China Invade Taiwan? For Semiconductors, Not Likely

The US’ House Speaker Nancy Pelosi touched down in Taipei, Taiwan’s capital on Tuesday, on an official visit that has riled up the rivalry between Beijing and Washington.

Taiwan, a small island country in East Asia with a population of about 20 million people, has been a bone of contention between China and the United States. Taiwan’s located in the “first island chain”, an area that covers a list of US-friendly territories that are crucial to US foreign policy. It became a Chinese territory in 1945 by conquest, after Japan, who had ruled the island from 1895 surrendered during World War II.

Taiwan has been fighting to completely break away from China to freely practice a democratic government, while China is poised on keeping her under the control of its communist government.

Pelosi’s visit to Taiwan is significant because it portrays Washington’s defiance to China’s push to retain Taiwan. Beijing had, prior to her visit, warned that there will be serious consequences if Pelosi visits Taiwan.

“We are fully prepared for any eventuality. The People’s Liberation Army [PLA] will never sit by idly. China will take strong and resolute measures to safeguard its sovereignty and territorial integrity,” Chinese foreign ministry spokesperson Zhao Lijian had said.

China immediately embarked on military drills around Taiwan as soon as Pelosi touched down in Taipei, signaling a possible military conflict between the two countries. But earlier on Monday night, authorities in Mainland China had placed embargo on imports of some 100 Taiwanese food products, sparking concern that the conflict could yield both military and economic wars, which will be disastrous for both countries. Taiwan’s exports to the Mainland and Hong Kong topped $188 billion last year while China depends on Taiwan for some high value goods like semiconductors.

China’s President Xi Jinping has said “reunification” with Taiwan “must be fulfilled” – and he did not rule out military action as a means to achieve his aim. China has taken to threats to ward off US’ interference and possibly intimidate Taiwan to return.

But Taiwan has been defiant. The country’s perspective has been to uphold its relationship with the US.

Vincent Chao, former director of the Political Division, Taipei Economic and Cultural Representative Office in the United States, said Pelosi’s visit is welcomed as it follows an already established precedent of Newt Gingrich’s visit to Taiwan as Speaker in 1997.

“In that respect, Pelosi’s visit is not ground-breaking & nor should it be treated as such.” he said.

“If we allow Taiwan-US relations & established precedent to be rolled back due to PRC’s intimidation campaign, very soon all aspects of the relationship will come under challenge. This is consistent with past PRC practice of (give an inch & they’ll take a mile).

“So the buck has to stop here. We cannot give PRC leeway to chip away at the Taiwan-US relationship, or very soon we won’t have much of a relationship left. Showing weakness in the face of PRC resolve will almost certainly backfire, with longer, more serious consequences,” he added.

Apparently, Taiwan anticipates both economic and military response from China, but doesn’t think the Asian giant will launch an attack since it will hurt its economy. China’s economy depends a great deal on Taiwan Semiconductor Manufacturing Co. (TSMC) that the country currently accounts for about 10% of the company’s revenue.

In an interview with CNN’s Fareed Zakaria on Sunday, TSMC Chairman Mark Liu said that a Chinese invasion of Taiwan would render TSMC’s factories “non-operable” and create “great economic turmoil” on both sides of the Taiwan Strait.

Liu said there would be no winners if China were to invade Taiwan. While he admitted that he viewed the TSMC as more of a deterrent to war than a risk, he also acknowledged that the impact of a conflict would go well beyond semiconductors, and would bring about the “destruction of the world’s rules-based order” and “totally change” the geopolitical landscape.

Currently, China is in dire economic strains that were orchestrated by its crackdown on its tech industry, its troubled real estate sector, covid-induced lockdowns and logistics challenges. Thus, an economic or military fight with Taiwan, which is likely going to escalate involving possible retaliation from the US, will only compound China’s economic troubles.

For President Xi who is seeking a third term, caution means avoiding decisions that will further hurt China’s economy and in turn infuriate members of the Communist Party. Although in Mainland China, a throng is rising in demand for a strong military response from Beijing, it is a risk some analysts believe that China wouldn’t take for its own good.