For Taipei, last year was a particularly dangerous period, with China stepping up coercive pressures on Taiwan amid signs of US President Joe Biden’s cognitive decline, which eventually led his Democratic Party to force him to abandon his re-election campaign.
The political drift in the US bred uncertainty in Taiwan and elsewhere in the Indo-Pacific region about American strategic commitment and resolve. With America deeply involved in the wars in Ukraine and the Middle East, the last thing Washington wanted was a Taiwan Strait contingency, which is why Biden invested in personal diplomacy with China’s dictator Xi Jinping (習近平).
The return of Donald Trump to the White House is anything but good news for Xi’s regime. In his first term, Trump fundamentally changed America’s approach to Beijing by ending a four-decade-long US policy since the Richard Nixon era of aiding China’s economic rise, saying his predecessors “created a monster.” Trump’s national security strategy identified China as a strategic rival and threat.
Now, in his second term, Trump has fired a warning shot across Beijing’s bow by imposing new tariffs on imports from China.
The additional 10 percent US tariffs place Xi’s regime in a predicament. Any retaliatory Chinese measures would likely invite further rounds of American tariffs, resulting in Beijing exhausting US exports to target, as happened in the first Trump administration when tariffs were initially slapped on China in 2018. But doing little against Trump’s latest punitive action would make Xi look weak at home.
Given China’s sputtering economic-growth engine, a widening trade war with the US, with its likely international spillover, would seriously harm Chinese interests. China not only exports almost four times more goods to the US than it imports, but also its economic troubles at home have made it even more reliant on exports of excess industrial output that cannot be absorbed in the domestic market.
To make matters worse, China is running into long-term structural constraints, including a shrinking and rapidly aging population and slowing productivity growth, as well as a Western pushback against its neo-imperial ambitions. This may well explain why Xi seems to have concluded that China has a narrow window of strategic opportunity to shape the Asian and international order in its favor. Still, Xi is likely to think twice before seeking to provoke the US on Trump’s watch.
To be sure, Trump’s return is also set to create challenges for Taipei in its economic relationship with the US, given that Taiwan’s trade surplus with America has reached a record high. Trump is intent on wielding the tariffs card to close all of America’s bilateral trade deficits.
Many countries run trade deficits with China that they partly or wholly offset by running trade surpluses with the US. But Taiwan has large trade surpluses with both China and the US.
Trump views tariffs as a game-changing instrument to help fill the nation’s coffers and bring manufacturing back to the US. As he vowed in his inaugural address, “Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens.”
Taiwan’s growing trade surplus with the US puts it in the crosshairs of Trump’s tariff strategy. Trump has already lamented that chip production “left us and went to Taiwan,” while slamming his predecessor’s US$6.6 billion funding award to the Taiwan Semiconductor Manufacturing Company (TSMC) in November to establish three chipmaking facilities in Arizona.
While stepping up pressure on Taipei to boost its defense spending, Trump could use the tariff card against Taiwan as part of his broader plan to cut reliance on foreign suppliers for critical semiconductors by reversing decades of offshoring in the technology industry. Almost all of the advanced chips used in the US are currently imported from Taiwan.
Against this backdrop, Taipei may have little choice but to encourage its semiconductor companies to significantly boost investments in America for producing next-generation chips. That could help tame Trump’s tariff threat, given that tariffs alone cannot help the US to replicate at home Taiwan’s semiconductor model. Taipei could also seek to placate the Trump administration by offering to jointly establish an international semiconductor supply chain.
It is in Taiwan’s own interest to significantly boost its defense spending so as to deter a Chinese attack. Unfortunately, Taiwan’s opposition-controlled legislature recently imposed significant cuts to the defense budget, including programs for developing asymmetric capabilities like drones.
Diplomacy is in part transactional, and Trump’s predecessors gave precedence to national security and geopolitical calculations even if it meant ignoring human rights and democratic governance issues. One example was Nixon’s China “opening” of 1970-71. Another example was Jimmy Carter’s presidential memo to various US government departments instructing them to help in China’s economic rise.
What stands out about Trump is that he is first and foremost a dealmaker. To advance US interests, he is willing to cut deals with America’s friends and adversaries.
Trump’s new tariffs against China, however, seem to be part of an effort to turn the tables on a country whose foreign policy has long been driven by assertive mercantilism. The deal Trump may eventually offer is likely to be too unpalatable for Beijing.
Yet, with its economic slowdown deepening, China may be reluctant to escalate tensions with the US, let alone risk a military confrontation with a Trump-led America by launching overt aggression against Taiwan.
Brahma Chellaney, professor of strategic studies at the independent Center for Policy Research in New Delhi, is the author of nine books, including the award-winning Water: Asia’s New Battleground (Georgetown University Press).
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