What is the strategic importance of Taiwan?
Taiwan is located in the so-called “first island chain,” which includes a list of US-friendly
territories that are crucial for Washington’s foreign policy in the region. China’s increasingly
aggressive behavior in the South China Sea has made Taiwan more important in the
calculations of the United States.
The island, located about 160 km off the southeastern coast of China, has been home to
various indigenous tribes for centuries. Historical sources suggest that it first came under the
full control of a Chinese empire in the 17th century. It became a Japanese colony in 1895
after the Qing Empire lost the First Sino-Japanese War. Then in 1945, after Japan lost World
War II, China conquered the island under the nationalist government led by General Chiang
Kai-shek. This happened at the height of a decade-long conflict between Chiang’s forces
and Mao Zedong’s Communist Party. When the communists won in 1949, Chiang and what
remained of the nationalist party, known as the Kuomintang or KMT, fled to Taiwan, where
they ruled for several decades. They called it the Republic of China, a name that Taiwan
maintained.
The Chinese Communist Party refers to this history to claim Taiwan. But the Taiwanese refer
to the same history to argue that they were not part of the modern Chinese state formed for
the first time after the 1911 revolution – or of the People’s Republic of China founded under
Mao in 1949. Today only 12 countries (plus the Vatican) officially recognize Taiwan.
Military support
The United States’ decision to transfer diplomatic recognition from Taipei to Beijing in 1979
was a turning point. On the other hand, a richer and more powerful China is exerting
pressure for more and more countries not to recognize Taiwan or support it.
The United States remains its strongest ally. They have approved a $75 million arms
package for Taiwan, which includes the sale of the Link 16 communication system. This is a
key system in the US military communications arsenal. Specifically, it is the resilient tactical
data network for coordinating NATO weapon systems for joint operations in war.
Taiwan’s economy
Much of the world’s electronics, from phones to electric cars, are powered by
semiconductors made in Taiwan. In practice, a single Taiwanese company – Taiwan
Semiconductor Manufacturing Company or TSMC – holds over half of the global market. So
if China were to take the island, it could be freer to project its power in the western Pacific
and rival the United States. Beijing would also control an industry that drives the global
economy. But China insists that its intentions are peaceful and accuses the United States of
surrounding it with military bases stretching from Australia in the south to Japan in the north.
Meanwhile, TSMC closed deals with the US government in 2021 to invest $12 billion in a
new semiconductor factory in Arizona, which will be operational between the last quarter of
this year and the first quarter of 2025 and will produce 4-nanometer chips. While in the
second half of 2022, they announced an increase in investments, totaling $40 billion, for the
construction of a second facility where they will produce 3-nanometer chips, which will be
operational by the end of 2027.
At the same time, in August 2023, the company announced a commitment to invest up to 3.5
billion euros in the construction of its first factory in Europe, specifically in Dresden,
Germany, which contributed an additional $5 billion in subsidies, partly covered by the
European Chips Act (a program of $43 billion to double European semiconductor production
capacity by 2030), following in the footsteps of what Intel had allocated a few months earlier.
Another proxy war?
A problem with de-risking strategies by the EU and the US is that they can undermine
Taiwan’s key survival tactic as a crucial actor in the global supply of semiconductors. Due to
the persistent threat of Chinese invasion and the ambiguous position of the United States
regarding intervention in case of escalation, many Taiwanese see their significant role in the
global semiconductor sector as a compelling reason, for the international community, to
support the current status quo in the strait. It is unlikely that Taiwan’s leadership in
semiconductor production will change rapidly, but the attempts of the US and EU (and
China) to reduce their dependence on Taiwanese production are causing concern among
many in Taiwan.
With TSMC’s relocation to the US, Europe, and Japan, protecting the island may no longer
be considered an imperative for economic security.
This change, along with the recent election of the new president Lai Ching-te (who will take
office on May 20, 2024) – an ultra-progressive of the Democratic Party, who has always
pushed for greater autonomy for Taiwan from China. In a recent intervention, he said he was
ready to restart dialogue with China after nearly eight years of Beijing’s near-total refusal to
communicate with the leaders of the autonomous island. Lai also stated that he will continue
the current administration’s policy of maintaining Taiwan’s de facto independence, despite
threats from the Chinese Communist Party – questioning the fundamental logic of the
“Silicon Shield” and raising questions about Taiwan’s future.
