By Victoria Holmes, Braumiller Law Group
President elect Lai Ching-te’s victory in Taipei ignited tensions across the Taiwan strait and now the geopolitical field waits to see if China will kick off World War Three. I’m only slightly joking, but Beijing has exerted diplomatic pressure on nations maintaining close ties with the island in the past and Taiwan’s decision to remain a democracy will no doubt ramp up China’s reunification process in the coming months. But how will that affect trade relations?
Economic Coercion
In the past, China has urged nations to realign their positions in accordance with Beijing’s stance, wielding the potential for diplomatic isolations and the withdrawal of economic support as powerful tools. One foreign policy expert gave testimony to Congress explaining the harm of these coercive tactics, saying that many countries “face discriminatory, non-WTO-conforming sanctions and embargoes” which have resulted in tens of billions in economic damage. The damage can be seen in one example when China instituted a five-year ban on Columbia Tristar Pictures after it released “Seven Years in Tibet,” starring Brad Pitt due to the movie’s inclusions of government suppression. We caught a glimpse of the power of China’s pressure when Filipino President Ferdinand Marcos Jr. walked back his congratulatory remarks on the election and reinforced his country’s One-China policy. China currently has 23 free trade agreements and several others in negotiations. These trade agreements have made China the main hub for manufacturing and given rise to its status as a global superpower. Efforts to include the island nation in other free trade agreements, such as Comprehensive and Progressive Trans-Pacific Partnerships, could lead to economic push back from China against many of its smaller, neighboring countries. China has already reduced Taiwan’s international recognition by pressuring countries to cut ties with Taiwan or not recognize it as a separate entity. Renewed pressure could severely impact Taiwan’s ability to engage in international trade independently.
Military Demonstrations and US Relations
China’s military demonstrations in the South China Sea are seen as a way to intimidate Taiwan and its allies, but it’s also causing regional instability and issues with trade. In November, Chinese President Xi Jinping reiterated their plans to have Taiwan reunite with Beijing. The President pushed back against claims that China will invade by 2025 and instead said they wanted to look for peaceful ways to reclaim the island nation. But military patrols by the US, Philippines and China are causing riffs in any diplomatic talks. The US has attempted to increase relations with global south countries as a way to maintain allies in the region, but it’s possible many of those countries have been reluctant to partner with the US due to their unwillingness to reform any global governance policies, such as the Investor-State Dispute Settlement (ISDS) system from existing U.S. trade and investment agreements. It would make sense that the smaller countries would partner with China if it meant advancing their countries own interests, leaving the US indebted to funding a war in the region. It’s possible that military aggression towards Taiwan could decrease if Beijing is serious about doubling the size of their economy by 2035, which war could blunt.
Trade Restrictions and Economic Sanctions
China could impose trade restrictions on countries supporting Taiwan, affecting their economic interests, and potentially discouraging them from continuing strong ties with the island. The country has already cut tariffs on chemical exports from the island in December of 2023. A spokesperson from China’s Taiwan Affairs Office said the “root cause” of the recent tiff is due to the Democratic Progressive Party’s (DPP) adherence to Taiwan’s independence position. In more extreme scenarios, China might resort to economic sanctions against Taiwan and its allies, impacting their economies and potentially forcing them to reconsider their positions. Already they have done so against US defense manufacturers over arms sales to Taiwan. According to a statement released by the Ministry of Foreign Affairs of the People’s Republic of China, the countermeasures consist of freezing the properties of those companies in China, including their movable and immovable property, and prohibiting organizations and individuals in China from transactions and cooperation with them. With a possible second-term for President Trump on the horizon, China could impose tariffs against the US, as already seen in 2018 when the Trump administration imposed tariffs on Chinese goods. President Biden has tried to economically disadvantage China when he signed an executive order restricting U.S. investments into Chinese semiconductor, quantum computing and artificial intelligence companies over national security concerns. These spats could lead to a significant drop in trade that could disadvantage both countries.
China has not wavered in taking steps to reunify with Taiwan, and no doubt the global economy will be impacted. We can see from previous instances that the country will yield economic coercion, trade restrictions and economic sanctions in order to economically damage countries but, its own power in trade could be curtailed by its ambitious goals to double its economy and right now, the Chinese economy isn’t in very good shape.
