CvT: Sept. 9, 2020

Stay in the know on US-China relations

Taiwan’s Dangerously Successful Outbreak Response

Written by: Zoe Roth

Taiwan has done an exemplary job in dealing with the coronavirus. Despite having a population of nearly 24 million people, Taiwan has yet to reach 500 cases, fewer than some US states with a fraction of Taiwan’s population. The island’s success can be attributed to its experience with the 2004 SARS outbreak and the hard lessons it learned from viral pandemics. With a 124 action-item plan, the island imposed strict travel bans and stay at home orders. But how does Taiwan’s coronavirus success affect the US-China relationship?

Two sets of keys to the Forbidden City

During the Chinese Civil War in the early-to-mid 20th century, China’s ruling Nationalist Party (Kuomintang, KMT) was expelled by a growing Chinese Communist Party (CCP), ultimately fleeing to the island of Taiwan. From there, the KMT continued to make claims to the Mainland, though the governing body largely retreated into building its own society across the strait. Fast forward half a century, and Taiwan (Republic of China, ROC) and China (People’s Republic of China, PRC) both stake claims as the legitimate ruling body over the Mainland.

This complex relationship has been previously addressed in US foreign policy, namely with the 1979 Taiwan Relations Act under President Carter. This Act formally ended diplomatic relations with the island, and recognized “One China” that comprised a unified ROC and PRC. This approach has since been the official stance of US Presidents, but the pandemic has seen unprecedented developments in the US’ diplomatic approach to Taiwan.

Trump throws a wrench in longstanding China policy

Trump’s approach to Taiwan has broken protocol since day one: from calling President Tsai Ing-wen on the phone weeks after being elected, to publicly flip-flopping on the “One China” protocol that was established by Carter. The PRC was quick to respond to the break from precedent, condemning Trump for meddling in what it saw as “internal affairs” and increasing military drills in the Taiwan Strait.

Amid spiraling US-China relations and citing Taiwan’s accomplishment in outbreak containment, the US sent Health and Human Services Secretary Alex Azar to the island to learn from their incredibly effective response to the pandemic. Azar’s three-day trip with Taiwanese President Tsai Ing-Wen was also the first time since 1979 that a high-level US government official has visited Taiwan. This diplomatic gesture has high potential to ignite geopolitical tensions between the US and China in an already conflict-filled year.

Washington rewrites the rules to a dangerous game

In sending a Cabinet member to Taiwan, the US has not only in a way recognized the island as semi-independent, but also praised its democratic values. While this particular visit is unlikely to stir trouble, it is symbolic of a dangerous shift in the US-China dynamic that places Taiwan at the center of the chessboard.

Export Controls: Washington Goes Medieval on the New World Order

Written by: Archit Oswal

In the wake of World War II, there was widespread opposition by US presidents and regulators towards placing export controls on a rising USSR. Although export controls enjoyed broad popular support, Presidents Truman and Eisenhower worried that they could damage the US economy, alienate allies, and potentially accelerate the USSR’s pursuit of a self-sufficient economy.

Nonetheless, the rise of McCarthyism and growing calls for trade action by the American public made export controls on goods of military value practically unavoidable. Truman and Eisenhower ultimately relented, initiating sanctions that laid the foundation for the export control system currently engaged by the Trump Administration on China. Washington is quickly learning, however, that modern-day China is more technologically advanced and integrated into the global economy than its Soviet predecessor was. Faced with the first near-peer adversary in decades, Washington is struggling to adapt an outdated export control framework to the current world order.

American export controls against Huawei

In 2019, the US Department of Commerce prohibited the sale of chips manufactured by US semiconductor companies to Huawei. Although Beijing has invested heavily in the domestic semiconductor industry to reduce its reliance on foreign suppliers, its efforts have had limited results.

Part of the difficulty in building a homegrown semiconductor industry from scratch lies in perfecting both design and precision manufacturing technologies. Although China has vastly improved its design capabilities, its manufacturing capabilities still lag behind those of foreign competitors. In response to the loss of its American suppliers, Huawei’s chip design unit, HiSilicon, outsourced manufacturing to TSMC, a Taiwanese chip manufacturer.

The workaround consequently motivated the Department of Commerce to tighten its grip on Huawei with a new rule that prohibited companies from using US technology to manufacture chips for Huawei, effectively isolating Huawei from TSMC and other foreign suppliers in a move reflective of the changing attitude in Washington towards export controls as a tool in its arsenal against China. Recent volatility surrounding Huawei has also impacted the group’s relationship with other sovereign clients, with several European countries reversing course and banning Huawei from taking part in future 5G networks.

Weakening efficacy of export controls in today’s world

Having declared in its 2017 National Security Strategy that “economic security is national security,” the Trump Administration has turned export controls from an arcane backwater of trade policy into the frontline of US-China decoupling. However, Washington faces a modernized global landscape that renders export controls less effective. Not only have other countries – friend and foe – developed domestic high-tech industries that offer alternatives to American technology firms, China’s interconnectedness within the global economy significantly increases the price of US alignment towards China’s rise within the West.

Effective trade controls require multilateral cooperation to succeed. On an industry level, in order to isolate Huawei from the global semiconductor industry, the US had to persuade foreign manufacturers like TSMC into cutting ties with Huawei. Had the US failed to do so, Huawei could have found alternative suppliers and the American semiconductor industry would have needlessly ceded market share to global competitors. Furthermore, from a macro perspective, different countries rely on economic engagement with China to different degrees. Germany, for example, exported US$109 billion of physical goods to China in 2018. France, by comparison, exported a meager US$24 billion. Because countries like Germany and France would have a hard time agreeing on a common set of export controls, coordinating a multilateral agreement on the matter would be a slow and lengthy battle for the US.

The bottom line

The damage to high-tech US industries like chip design and manufacturing could be permanent. After all, export controls and tariffs incentivize Chinese companies to diversify their supply chains to the current detriment of American companies, a reality made possible by the global diffusion of technological know-how.  As President Xi’s recent promise to invest an eye-popping US$1.4 trillion in technology independence by 2025 demonstrates, decoupling also incentivizes China to pursue self-sufficiency. Furious lobbying by the semiconductor industry, which earns over a quarter of its revenue in China, softened the impact of last year’s ban on chip sales to Huawei by easing select restrictions on chips sales. However, as Washington’s stance hardens, American technology companies may have to prepare for a short-term hit to their bottom lines while preparing for a future that does not include China.

Further Reading

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