Rising Tensions: China’s Economic Sanctions on Taiwan

21 April 2023

Despite openly criticizing the use of unilateral sanctions in international affairs, China has recently been increasing its own use of such measures on Taiwan, Hong Kong, Xinjiang, Tibet and other disputed areas in the South China Sea. Citing their “historically contested status,” China classifies these sanctions as “domestic” affairs.

In response to US Speaker of the House Nancy Pelosi’s controversial visit to Taiwan last August, China placed new restrictions on the island, including suspending the imports of Taiwanese fish, fruit, biscuits and pastries as “punishment” for the meeting.

“In the past, China hit single products from the primary sector such as specific fruit or fish — that way, they kept the overall macroeconomic impact on Taiwan limited but could target regions where the Democratic Progressive party is strong,” said Chiu Chui-cheng, deputy chair of Taiwan’s policymaking Mainland Affairs Council. “But now they are broadening this immensely as they are targeting processed foods,” he added.

In February, China imposed new fines and sanctions on two major United States military contractors, Lockheed Martin and Raytheon, for supplying weapons to Taiwan. These sanctions, which were largely a symbolic measure in response to new US restrictions placed on Chinese airship and balloon companies, has heightened concerns for the economic relations between the world’s two largest economies.

In the past few weeks, tensions have continued to rise on account of a meeting between US Speaker of the House Kevin McCarthy and Taiwan’s President, Tsai Ing-wen, which took place in California on 5 April 2023. At the conference, President Tsai expressed concern about China’s reaction to the meeting and its potential repercussions for Taiwan. “The peace we have maintained and the democracy which we have worked hard to build are facing unprecedented challenges,” said President Tsai.

Responding to her concern, McCarthy stated: “The friendship between the people of Taiwan and America is a matter of profound importance to the free world. And it is critical to maintaining economic freedom, peace and regional stability.”

Following the meeting, the Chinese military began a three-day series of drills around Taiwan, which included taking measures to “seal off the island.” On 8 April, China sent eight warships and 71 planes toward Taiwan, 45 of which crossed the middle line of the Taiwan Strait, which splits Taiwan from mainland China.

Expressing his evident disapproval of the drills, Taiwan’s Defence Ministry stated: “We condemn such an irrational act that has jeopardized regional security and stability.”

In addition to this military response, China also announced new political sanctions on Taiwan’s ambassador to the United States, Hsiao Bi-khim, forbidding the representative and her family members from entering China or accessing any Chinese financial assets. Although these sanctions “will have little practical impact” on the ambassador, they provoked an angry response from Taiwan’s Foreign Ministry, which accused China of overstepping its rights by interfering in Taiwan’s foreign affairs.

Political Status of Taiwan

Although Taiwan has its own constitution and democratically-elected leaders, China considers the island “a breakaway province that will eventually be under Beijing’s control.” Among its own population, “most Taiwanese people seem to fall somewhere in between” supporting a formal declaration of independence and desiring an eventual reunification with China. On the international stage, Taiwan’s legal status remains unclear.

Since the 2016 election of President Tsai Ing-wen, who represents Taiwan’s pro-independence Democratic Progressive Party, China has strongly opposed all political interactions between Taiwan and the US.

Although the US officially continues to recognize its “longstanding ‘one-China’ policy” and maintains a “strategic ambiguity” on the matter of Taiwan’s sovereignty, it has also made clear that it “would intervene militarily if China were to invade Taiwan.”

Shortly before the meeting between McCarthy and Tsai, Taiwan’s Ministry of Foreign Affairs issued a statement insisting that “Taiwan, the Republic of China, is a sovereign country, and has the right to make its determination in developing relations with other countries in the world.”

The Ministry also made clear that Taiwan will “not accept interference or suppression by any country for any reason and will not limit itself because of intimidation or interference.”

Importance for the Global Economy

Since the Russian invasion of Ukraine, fears about China invading Taiwan have put many nations on high alert, especially because of the economic ties between China and the West.

Taiwan’s critical role in the global economy makes maintaining stability in the region a major international concern. Currently, 50% of the world’s commercial traffic passes through the Taiwan Strait, and Taiwan also dominates the semiconductor industry by an overwhelming margin. When it comes to the “most advanced semiconductors,” Taiwan currently accounts for 92% of production worldwide.

By far the most influential company in Taiwan’s semiconductor industry is Taiwan Semiconductor Manufacturing Company (TSMC), whose “chips are installed in most global technologies including computers, cell phones and other smart devices, automation systems and vehicles.” As of October 2022, TSMC is considered “the most valuable company in Asia and the tenth most valuable company in the world.”

Many global leaders fear that a Chinese invasion of Taiwan would bring “a grinding halt to the electronic supply chains that make the modern world run.” US Secretary of State Antony Blinken publicly expressed his fear while warning of the destructive impacts that would result if China took military action against Taiwan.” If there was some kind of crisis as a result of something that China did, that would have disruptive effects on the global economy, which is why countries around the world look to everyone to behave and act responsibly,” said Blinken.

While recognizing that these dangers are both real and terrifying, most foreign policy experts doubt that China would risk its access to Taiwanese chips. “I think China is unlikely to use sanctions against the semiconductor industry while it is still dependent on Taiwanese companies for manufacturing,” said James Lee, an assistant research fellow at Academia Sinica in Taiwan.

In light of China’s dependence on their semiconductors, many in Taiwan call TSMC their “sacred mountain, protector of the nation,” and other countries echo this idea by calling Taiwan’s semiconductor industry its “silicon shield.” While the difficulty of making semiconductors has left the world vulnerable if China does decide to invade Taiwan, it is also one of the main reasons that Beijing is so reluctant to attack.

Article by Fatima Abuzar.
Editing by Anrike Visser.

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