Taiwan, a key issue in historically tense U.S. China relations, is set to hold unusual elections next year. These may have direct implications for American politics and economics.
Taiwan’s two-party political system has been shaken by the unexpected rise of a third party in Taipei, last week.
Taiwan, an island that is self-ruled off the coast China, and which Beijing views as a runaway Province, is not recognized by the international community. Washington is its closest ally, and has been providing it with arms worth billions of dollar in case of an invasion by China.
Although the U.S. administration insists that its policy towards Taiwan has not changed, President Joe Biden has repeatedly said he will send troops.
Taiwanese politics is dominated by relations with China and the U.S. Taiwan’s semiconductor chips are at the center of Washington’s technology war with Beijing.
Beijing has been hampered by U.S. technology restrictions in its access to advanced chips. Biden’s administration is dominated by powerful people who argue that limiting Beijing’s chip access is not enough. To reduce its reliance on foreign countries, the U.S. must have its own chip industry. Beijing may even take it over.
Taiwan Semiconductor Manufacturing (ticker: TSM) is a Taiwanese company that produces about 60% of all semiconductors in the world, including the most sophisticated ones. These semiconductors are the heart of many high-tech military, communications, and supercomputer devices. Their role is becoming increasingly important in AI.
Taiwan Semi’s sales to China are restricted by the U.S. partly because of strong U.S.-Taiwan Democratic Progressive Party (DPP) relations and because it uses a limited amount of American components. Taiwan Semi, however, has tried to avoid these restrictions by manufacturing chips in Arizona where it currently has a small facility that it wants to expand.
The restrictions, however, have had a negative impact on U.S. Chipmakers like (NVDA) which receives significant revenue from China. Recently passed legislation to help American chipmakers aims to counteract that damage. China has taken retaliation by banning the purchase of memory chips made by U.S. company Micron Technology (MU).
Last week, when U.S. State Secretary Antony Blinken met with Chinese President Xi Jinping in Beijing, Taiwan’s significance to Sino-American relations came into focus. He addressed a wide range of topics, including his displeasure at China’s recent aggressive militaristic maneuvers around Taiwan as well as its violation of Taiwan’s airspace.
He repeatedly reminded top Chinese leaders that the U.S. does not support Taiwan independence. Blinken’s statement was in line with decades of U.S. foreign policy. However, Republicans were not happy, even though they also oppose Taiwan independence.
John W. Garver is a professor emeritus at Georgia Tech, and a specialist in U.S. China relations. He told Barron’s that “Xi Jinping can smell weakness.” He pointed to China’s larger and more advanced navy than the U.S.’s, the crumbled alliances of former President Donald Trump and the revival in isolationism within the Republican Party as evidence of China’s seizure of an empire on the decline.
The campaign for Taiwan’s legislative and presidential elections in January is already well underway. Recent polls show the DPP ahead by a few percentage points of the Beijing-friendly Kuomintang or KMT. Last week, something unprecedented in Taiwan’s bi-party system happened. As the DPP, KMT and other parties deal with scandals, a third party is gaining momentum. Taiwan People’s Party (TPP), a once obscure party, currently leads the KMT by two percentage points. This is within the margin for error of the incumbent DPP.
Rory Green is the chief China economist for Lombard Green. In a client note, he wrote that while it was too early to predict the result of the elections, a DPP victory would likely “increase tensions across the Strait” whereas a win for the KMT or TPP could “slow down the pace of U.S. Taiwan’s engagement”.
The TPP and DPP are both considered to be far more accommodating towards Beijing. This means that there are two parties with high polling numbers who could reduce tensions between Beijing and the United States, as well as lessen the sales of chips. That could have a range of implications–politically, militarily, and economically.
The U.S. ban on chips will fail if the TPP or KMT win in 2024. China will increase its influence on Taiwan,” said Austin Wang. He is a professor of Political Science at the University of Nevada in Las Vegas and an expert in U.S., Taiwan-China relations.
“U.S. “High-tech companies that still invest in China might benefit temporarily, but in the end it’s likely China will develop their own products.”