Don't Invade, Just Blockade
Nancy Pelosi’s trip to Taiwan was a major strategic blunder in our view. It has strengthened nationalist sentiment within China and provided Beijing with a perfect opening to demonstrate what a full scale blockade of the island might look like. This new, but pre-planned, phase of Chinese policy will be costly for the Taiwanese economy and very tricky for the west to counteract.
Most of America’s allies in Asia were dismayed by Pelosi’s trip to Taiwan, at this particularly sensitive moment. So was the US State department, though they tried to make the best of it when it became clear she couldn’t be stopped. On the other hand one member of the more nationalist wing within the Chinese Communist Party is reported to have quipped “Thank you, Comrade Pelosi”.
That just about says it all.
Within China, her visit has reinforced the idea that America cannot be trusted and is hell bent on preventing China’s legitimate ambitions and development as a global power. There is little doubt that President Xi will be elected for an unprecedented third term at the Party Congress in October, the only question being how many loyal supporters he can get appointed to the central committee. Pelosi’s visit will likely help his cause, after a year in which there have been more than a few reasons to (discreetly) question his judgement on both domestic and foreign policy. By next year the system of internal checks and balances put into place decades ago to prevent the rise of another Mao will have all but vanished.
As for Beijing’s Taiwan strategy itself, the goal has always been clear but the path to that goal has been anything but.
Taking the island by force has always been a last resort because of the risks and potential costs involved. They come in two forms: the risk of failing to achieve a complete and swift takeover of the island, and the potential isolation of the Chinese economy that would likely follow any armed invasion. For simplicity let’s call that the military risk and the economic risk, and add to that the observation that China’s political leaders are generally very stability oriented and highly risk averse.
For what it is worth, and despite the massive military and naval build-up of the past decade, we think that China is quite far away from the overwhelming military capability that would make the risk of military failure negligible and acceptable to the Chinese leadership. There are those who argue internally that China can’t afford to wait, because the longer they do the more help Taiwan will get with defensive military hardware, organisation and preparations for civil resistance. But the fact remains that a military invasion would be enormously risky now, and that it’s by no means certain that the position will swing drastically in China’s favour within the next few years.
But even if the military risk was acceptably small, the economic risk would be colossal, for China itself and for the world economy. Sanctions of the sort imposed on Russia, freezing of Beijing’s US Dollar and probably euro de-nominated reserves, isolation of the Chinese banking system, cutting off all access to western capital markets for Chinese companies, potential confiscation of Chinese assets abroad, banning exports to China of important technological components and so on.
(No wonder China is so vocal in its opposition to Western sanctions on Russia and indeed is desperate to see Putin get away with annexing territory within Ukraine that he can claim to be historically Russian. If the chance comes along to broker a negotiated de facto legitimisation of Russian territorial gains and end all or most of the sanctions imposed so far, China would jump at it).
So, even if President Xi thought he had the military dominance to overwhelm Taiwan’s defences in hours or days, the time needed to prepare the domestic economy and his public for the west’s most likely economic and financial response to an invasion is probably much longer. Especially perhaps the time needed for China’s to catch up with the west in terms of the ability to design and produce the high end chips that future leadership in AI and quantum computing will require.
So our view has been that it will take time, at least 5 years and probably nearer 10 for China to be in a position to withstand the economic fallout from invading Taiwan. Or to put it differently, without building an alternative network of trade, raw material supplies, and high tech components first, an invasion of Taiwan could end up doing to the Chinese economy (and indirectly it’s global political power) roughly what the Cultural Revolution did under Mao. That would be an epic failure of leadership, and far from making China great again, would most likely impoverish it and diminish it for decades. (The only and crucial difference with the Cultural Revolution being that it would also impoverish the world as a whole and mark the true end of globalisation). Hence our working assumption that it would only be in Xi’s fourth term, somewhere between 2027 and 2031, that China might actually risk an outright military takeover of the island.
So what to do in the meantime?
Long before Pelosi’s arrival in Taipei, China had been preparing for the next phase of its campaign to return Taiwan “to the motherland”, which was to demonstrate to the Taiwanese people and everyone else just how easy it would be for them to impose a partial or total blockade on the island.
The main objective is to gradually turn the tide of public opinion within Taiwan itself, by making them confront the prospect of long, slow, on-again, off-again but ultimately inexorable economic strangulation, while Xi prepares China for potential isolation from western trade and finance. There are Taiwanese elections in 2024, and Beijing will probably leave no stone unturned to try and engineer a defeat of President Tsai-Ing-wen and her party at those elections, and help install a more China friendly government.
A secondary but very important objective would be to deter the US from supplying Taiwan with advanced defensive capabilities of any sort, whether hardware, strategy advice or high level intelligence, and to demonstrate how, unlike in Ukraine, the US and the West would not be able to supply and re-supply weapons to the Taiwanese if a prolonged battle for the island did indeed take place. The message will be very clear: the more you help Taiwan the more we will blockade them.
The third objective, which we will no doubt see in the months and years to come, is to have the Chinese air-force and navy make more and more incursions into Taiwanese “territory” and to periodically stage exercises in which they fire missiles directly over Taiwan. Such that if they ever did decide to bite the bullet, so to speak, and go for an all-out invasion, the Taiwanese would find it virtually impossible to distinguish the real thing from the thousands of more minor incursions that had happened in the past.
Before Nancy went to Taipei, China lacked a plausible excuse to put this plan into action.
Well she walked right into that one and the minute she left the island, the plan was triggered.
So now we have a new reality on the ground, the next phase of the long campaign to get Taiwan back in the fold: don’t invade, just blockade..
Until the Taiwanese people give in, or western resolve to help them weakens.
In risk/reward terms it beats an actual invasion by miles, and both Taipei and the West will find it hard to come up with an effective counter.