Combating China with economic deterrence

by Rep. French Hill
The Hill
May 17, 2023

A democratic and prosperous Taiwan is clearly in the interest of the free world, including here at home in America. While on a recent Congressional Delegation with House Foreign Affairs Committee Chairman Michael McCaul (R-Texas) and colleagues in Taiwan, we assessed American efforts in support of the island’s government and their desire to maintain the status quo — their successful market economy and vibrant democracy remaining intact, rather than subsumed by the Chinese Communist Party.  

A country of roughly 23 million, Taiwan is equivalent to the size of the state of Maryland. The island’s location is fundamental to global commerce and is the top ten trading partner of the United States. Over the past 30 years, Taiwanese entrepreneurs and manufacturers have pioneered success in high-speed semiconductor chips. In fact, Taiwan is responsible for 92 percent of the global supply of critical chips.  

Similar to the Strait of Hormuz in the Persian Gulf and the Strait of Malacca off Singapore, both are critical to oil markets; 88 percent of the largest seagoing container ships transit the Taiwan Strait between Mainland China and the island. Billions of dollars of laptops, bikes, apparel, and Taiwanese famous bubble tea are bound by ship for families in America, Europe and Japan.  

For decades through diplomacy, regional allies to the United States such as South Korea, Japan, and the Philippines have fought mightily for free and open sea lanes in the international waters surrounding Taiwan. In recent years, the Chinese Communist Party regularly attempts to militarize the Taiwan Strait and construct outposts to harass Japanese and Philippine commerce — which is being uniformly rejected by their neighbors and international tribunals.  

News reports from around the world are filled with how to best deter Chinese Communist Party leader Xi Jinping from using military, cyber, and physical force to compel the freedom and peace-loving Taiwanese people to submit as vassals of Beijing. Most of the proposed strategies revolve around defense and military, as well as equipment and enhanced training of Taiwan’s Armed Forces. Since the passage of the Taiwan Relations Act in 1979, America has remained committed to such desired and effective support.  

In my view, we must have an equally well articulated, multilateral economic policy deterrence for China’s potential malign activities. Recently, the Rhodium group assessed the economic costs of China’s provocative military threats either from a “blockade” or outright invasion. Either would produce a global economic catastrophe for Taiwan, China and the world.  

Rhodium also estimates $270 billion of trade between China and the world would be disrupted — China’s manufacturing of automobiles, mining equipment, and critical information and communication (ICT) goods would be crushed.  

In short, China risks everything: the remains of its tattered reputation, massive unemployment in its cities, collapse of its already teetering commercial residential real estate market, default of its over leveraged provinces, and huge losses on its gargantuan portfolio of predatory “Belt and Road” loans.  

Unlike Russia, as a global supply chain chokepoint, China will pull down the rest of the world. The negative impact on oil, agriculture, and fertilizer markets as a result of Russian President Vladimir Putin’s illegal invasion of Ukraine have made it look like child’s play in comparison. 

Countering this selfish, ideological mania of Chinese Communist Party President Xi should be top of mind for the leaders of the globe’s largest economies when they gather in Japan for the G-7 summit this month.  

Risk to global prosperity and public health hinge on the clear and present danger of the leaders in Moscow and Beijing. Deterrence of military coercion across the Taiwan Strait and ejection of Putin from Ukraine should not just be at the top of the agenda — they should be the whole agenda. During the G-7 summit, the world’s largest democratic economies should jointly craft an economic deterrence plan to counter the CCP. 

First, G-7 leaders must make it clear that use of force to attempt to change the status quo between Taiwan and the mainland will result in immediate, punishing multilateral economic trade sanctions and full encouragement of accelerating supply chain diversification away from Mainland China. 

Second, they should reiterate that the Taiwan Strait is in international waters, and we are each committed to a free and open South China Sea and Indo-Pacific region. 

Third, each of our countries should enact revised inbound and outbound foreign investment laws, like CIFUS in the United States, in order to counter malign Chinese activity. 

Additionally, in America, we must design ways to enhance the trade relationship and remove tax or regulatory barriers for a greater bilateral cross-border trade and investment relationship with Taiwan, a remarkable, prosperous democracy.  

Recently, CIA Director Bill Burns said that he believed “President Xi and his military leadership have doubts today about whether they could accomplish that invasion.” With our allies, we must ensure that those doubts extend well beyond military capabilities and include Xi’s own regime’s certain collapse in the face of a domestic depression if he were to, in any way, change the status quo with Taiwan. Together, we can send the right message of economic deterrence to accompany Taiwan’s growing military might.  

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