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Imagine that deterrence fails and China succeeds in taking Taiwan. How would this affect the US economy and indicate whether the US should fight China for Taiwan freedom?
Losing Taiwan would be an irreparable blow to America’s strength and influence. An absorption of Taiwan’s GDP by China would give it increased market power. Taiwan’s centrality to the busiest sea lanes of international trade would give China an even greater launching pad to dominate Asia. Is China abusing its economic superiority and its new position at the strategic crossroads of Asia? Its current economic behavior suggests so.
First, the Chinese are already blatantly violating trade rules. A takeover of Taiwan would give Beijing greater leverage over its regional trading partners and give China more opportunities to bend or break the rules to its advantage. The United States has already set aside its commercial ambitions in Asia by abandoning the Trans-Pacific Partnership. A takeover of Taiwan further cedes ground to the Chinese alternative, the Regional Comprehensive Economic Partnership (RCEP). China could use RCEP to further define global trade rules and deepen its economic relations in Asia at the expense of the United States
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Second, a takeover of Taiwan would provide the Chinese with opportunities for hostile economic activity such as impeding or taxing ships in “its waters”. Would China abuse its new position? China is certainly capable of such audacity. Just consider the Chinese “land grab” in the South China Sea. Through a campaign of militarization and coercion over the past decade, China has built huge artificial island bases and actively sought to control virtually all waters, seabed and airspace in the South China Sea. southern. Additionally, in April 2020, a Chinese Coast Guard vessel rammed and sank a Vietnamese fishing boat. Taiwan would give China a new platform to engage in gray area activities to bully its neighbors for economic gain.
Third, a Chinese takeover would place Asia-centric supply chains at the mercy of the Chinese. Take for example the disruptions due to COVID-19. Thousands of unfinished cars and trucks await Taiwanese chips that are also essential for smartphones, computers and home appliances. Some reports say it cost the US economy $240 million. But that might be modest compared to China’s newfound leverage over Taiwan’s semiconductor manufacturing.
Taiwan manufactures 65% of the world’s semiconductors and nearly 90% of advanced chips. One study estimates that global electronics companies lose $490 billion over one year in the event of a one-year disruption. Chinese control of Taiwan’s semiconductor capacity is an unacceptable risk to the US economy considering that Taiwan accounts for about 70% of the world’s microchip supply.
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Finally, we can expect a China strengthened by Taiwan’s market power to exert economic coercion on its neighbors, many of whom are our allies. Let us take the example of their relations with Australia. China has made 14 infamous demands, including that Australia stop blaming China on human rights and other “internal issues”. As leverage, China has cut off some market access with astronomical tariffs on barley, beef and wine. Relations between Australia and China almost froze for two years and only recently normalized. China is already the main trading partner for around 130 countries, many of whom may conclude that they cannot afford to cross China.
A Chinese takeover of Taiwan is an unacceptably high risk to the US economy. But would the United States fight for Taiwan? For deterrence to work, China must believe that the American people will support it.
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President Joe Biden has on numerous occasions suggested that we would fight for Taiwan, but his staff are muddying the waters by insisting that US policy has not changed. While American distrust of China explains support for Taiwan in general, it falls short of public support for the fight against China for Taiwan’s freedom.
The potential economic harm from a Chinese takeover of Taiwan is very serious, and the President and members of Congress should explain the issues to the American people. Public support is fundamental to deterrence and without it, China could reasonably conclude that the American people would never wage war on a remote island thousands of miles away.
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