The escalation of US-China rivalry has normalised the use of economic means for the pursuit of security goals, with far ranging implications in the Indo-Pacific in recent years. Both China and the United States have engaged in coercive economics of this nature. For China’s part, a pattern has emerged: Beijing wields economic leverage to punish national industries in response to what it sees as a provocation. More often than not these sanctions are not primarily aimed at changing the decision of the targeted country, but serve to signal to onlookers – domestic audiences and other countries – that similar recalcitrance will be punished.
These tactics are by no means new, but the intensity of this economic statecraft has been broadened in aid of building national power. Take Australia, where 13 industries have been targeted in a systematic and broad sweeping range of trade sanctions over 2020. For historical precedents, most look to 2017, when in response to the joint deployment of a South Korea – United States missile defence system, Chinese group tours to South Korea ceased and the South Korean chain Lotte was forced to close over 100 outlets. In the early 2010s, China banned salmon imports from Norway after Liu Xiaobo won the Nobel Peace Prize and blocked rare earths imports and tourism from Japan after the disputed Senkaku Islands were nationalised.
But China’s economic coercion against Taiwan, a longstanding practice, is often underexamined in this debate. Taiwan provides a unique example as a country that has both been subjected to decades of economic coercion from China, while also continuing to have a closely integrated economy with China. In this article I argue that looking forward, the three key trends in geoeconomics in the Indo-Pacific are increased use of sanctions against companies and subnational groups, competition over technology and challenges for multilateral trade agreements. For each trend, the case of Taiwan offers important lessons for how to handle and what is coming next in this new era of geoeconomic competition.
Lessons from Taiwan
First, there appears to be increasing willingness on the part of Beijing to wield trade sanctions against companies that do not toe Beijing’s line. These kinds of sanctions are well known, such as when the NBA were cut out of the Chinese market after an executive shared a tweet expressing support for the protesters in Hong Kong in 2019. Other corporations such as Marriot and Qantas have been threatened into submission for listing Hong Kong or Taiwan separately in their websites or maps. But economic coercion of companies for political purposes in Taiwan pre-dates all of these cases. For example in 1999, Beijing removed Acer products from the shelves of major shopping malls due to the perception that the Taiwanese company was promoting Taiwan’s independence and was too close to Taiwan’s president. This was intended to signal to Taiwanese businesses that they could continue to profit from China as long as they were aligned with Beijing’s policy towards Taiwan.
Multinational companies, particularly those with large China operations, and publicly shareholdings, are increasingly likely to find themselves in the crosshairs of geoeconomics competition. Taiwanese companies are too familiar with this position – while many that are reliant on the Chinese market lobby for a softer approach towards China, they are also constrained by public opinion in Taiwan that has moved further away from China in recent decades.
China is also increasingly targeting subnational entities with its economic ‘carrots’ and ‘sticks’. In the Australian context, the Victorian government signed a Belt and Road agreement with China without consulting the federal government. This agreement is now facing additional scrutiny after Australia enacted a veto law over foreign arrangements. These measures have a long history in Taiwan. China substantially restricted group tours and entirely banned individual tourists from travelling to Taiwan after the election of President Tsai Ingwen between 2016 and 2019. From China’s perspective, one of the benefits of only allowing package tourists was to design and market itineraries that only sent Chinese tourists to counties and cities that elected pro-China politicians.
Second, the competition over technology is driving self-sufficiency and building a digital iron curtain – and nowhere is this clearer than in the semiconductor industry. As the United States has been tightening semiconductor export controls with stricter licensing policies, particularly towards Chinese companies, China has accelerated its indigenous semiconductor industry to diminish its reliance on the United States. The Taiwan Semiconductor Manufacturing Corporation (TSMC), which owns 51.5% of the world’s foundry market, finds itself caught between these two superpowers, supporting both American and Chinese firms.
There is significant concern about the unilateral economic measures imposed by the United States on segments of the supply chain, notably manufacturers such as TSMC. Similarly, China’s efforts to poach Taiwanese engineers and relentless cyberattacks on Taiwan indicate that China sees its reliance on the United States and Taiwan for semiconductors as a key vulnerability. Going forward, while the United States is motivated by security concerns, and China by the threat of US sanctions to its critical industries, both countries are likely to employ similar tactics in other industries that they view as a vulnerability.
Taiwan’s case also provides a clear example of the connection between geoeconomics and hard security.
Taiwan’s case also provides a clear example of the connection between geoeconomics and hard security. Taiwan’s semiconductor industry is both a powerful imperative for China to annex Taiwan and achieve its goal to be a technology superpower, and a limitation, as any military contingency to annex Taiwan would disrupt global supply chains and have devastating consequences for the stability of the nation and the region.
Third, negotiating and agreeing to multilateral trade agreements, already fraught, is becoming more difficult in the age of geoeconomic competition. Again, Taiwan’s case is instructive. As a medium-sized and developed economy, Taiwan has expressed interest in joining the CPTPP. In favour of Taiwan’s accession are Taiwan’s centrality to supply chains, and its dominant semiconductor market. While Taiwan has been able to join APEC and the WTO based on its status as a separate customs territory under international law, China’s growing efforts to isolate Taiwan may have changed this calculation.
China has also expressed interest in joining the CPTPP. This is a difficult ask for Beijing, as the reliance on state-owned enterprises is not compatible with the agreement’s regulatory provisions. But the suggestion could be sufficient to derail Taiwan’s bid, which had not yet received support from existing CPTPP signatories. Today, China aims to exclude Taiwan from multilateral forums and trade agreements. But in the future, China could demand countries like Singapore and New Zealand to roll back existing free trade agreements with Taiwan.
And the challenges for multilateralism aren’t restricted to Taiwan. As state-led industrial policy and economic protectionism has returned, the cause of multilateral trade liberalism is getting harder to pursue for all countries. This poses especially tough challenges for countries like Australia, which have for decades sought to liberalise global trade. Critical elements of the rules-based trading regime, such as the WTO Appellate Body, have been hamstrung by the economic statecraft of the great powers, The Indo-Pacific region will struggle to make substantial progress on multilateral trade goals as political instincts intrude further into economic calculations.
Taiwan and Australia have much in common, as democracies of around 25 million people with advanced economies, with a high level of interdependence with China, and security ties to the United States. And Taiwan is often described as a testing ground for China’s tactics – in areas from foreign interference to economic coercion. As competition over technology and trade agreements increases, and China is increasingly willing to use economic coercion, there is much to learn from Taiwan’s experience in building resilience to Chinese pressure. Increased attention on Taiwan’s experiences and situation could not only build more solidarity between countries affected by geoeconomics competition in the Indo-Pacific, but also equip nations in the region for increasingly difficult choices.
This article is published as part of a series of analyses that considers the key trend lines with the in region which see the regional order, critical technology and geoeconomics as arenas of competition and tools for strategic influence, and how they will influence regional security over coming decades.