Does economic interdependence increase or decrease the probability of peace across the Taiwan Strait? With bilateral trade between China and Taiwan hitting a record high of US$132.9 billion last year, according to the Bureau of Foreign Trade, this question holds great significance.
Liberals argue that trade creates vested interests in peace and that economic interdependence can lower the likelihood of war by making trade worth more than the option of aggression. According to this view, economic interdependence reinforces institutional constraints and spill-over effects by creating non-state actors and transnational ties that encourage cooperation rather than conflict.
A May 4 article by Daniel Rosen in the Wall Street Journal Asia, “Investing in Cross-Strait Relations,” takes this viewpoint.
“The reduced political risk of cross-Strait hostility is the most exciting economic dividend” of the third cross-strait meeting in Nanjing, Rosen writes.
A case in point is Taiwan’s recent admission — with Beijing’s agreement — to the World Health Assembly (WHA) as an observer. This was not only a major breakthrough in the nation’s persistent campaign for international space, but also a gesture of goodwill from China.
But realists dismiss the liberal viewpoint, arguing that economic interdependence increases rather than decreases the probability of war because asymmetrical dependence, political discord and vulnerability have a negative bearing on the politics of national security.
Some China specialists warn that economic overreliance by Taiwan on China will give the latter leverage to achieve unification. China could impose economic sanctions on Taiwan, potentially coercing it into making political concessions or suffering the military consequences for resisting. This constitutes an imminent threat to national security.
A Taipei Times article by John Tkacik (“An Obama TPR: Too little, too late?”, April 29, page 8) echoes this argument: “An Obama TPR [Taiwan Policy Review] will judge that the powerful momentum in cross-strait dynamics is pushing Taiwan rapidly into full economic dependence on China. It will conclude that Taiwan’s inextricable economic dependence on China — absent counterbalancing action — will quickly drive the country beyond its ‘tipping point’ toward political and, ultimately, security dependence on Beijing.”
But economic interdependence is Janus-faced — obfuscating our understanding of its complex processes and impact on cross-strait relations.
There are two outcomes of economic interdependence: zero sum and nonzero sum. In a zero-sum scenario, China wins, or gains as it may, and Taiwan loses — or vice versa.
In my view, this scenario is less likely today because globalization is making the world smaller and binding each country’s destiny within a worldwide network of mutual dependence. It is thus impractical to perceive recent cross-strait interaction as a zero-sum game.
Nonzero-sum scenarios, however, deserve closer analysis, including positive-sum and negative-sum outcomes.
A positive-sum game entails a win-win situation — everybody benefits.
A precondition for this is that China and Taiwan both see economic interdependence as an absolute gain that is mutually beneficial and do not stray from this view.
In his recent book, Charm Offensive: How China’s Soft Power Is Transforming the World, Joshua Kurlantzick writes: “China has drastically changed its image in many parts of the world from dangerous to benign.”
On Dec. 31, Chinese President Hu Jintao (胡錦濤) made six proposals concerning Taiwan. Hu said China would pursue a policy of “peaceful development” and look for win-win solutions to cross-strait matters.
President Ma Ying-jeou (馬英九), meanwhile, has since taking office promoted his “three noes” (no unification, no independence and no use of force); the concept of a “diplomatic truce,” or mutual non-denial; postal, transportation and commercial links; and an economic cooperation framework agreement.
Recent breakthroughs in cross-strait relations showed China’s flexibility on allowing Taiwan to observe the WHA and strengthened Ma’s argument that the best way to ensure Taiwan’s prosperity and security is to reassure and engage China.
In a poll conducted on April 28 by the Chinese-language China Times, 62.8 percent of respondents said they were satisfied with the third round of cross-strait negotiations in Nanjing, while 66.7 percent said they believed the talks would have a positive effect on economic development. The poll also found that 44.9 percent of respondents felt Ma was doing a good job.
If goodwill across the Taiwan Strait continues, economic interdependence could evolve into the “complex interdependence” state described by Joseph Nye and Robert Keohane, in which a decline is seen in the use of military force and coercive power in bilateral relations.
Hopefully, this vision will come to fruition. Only then can the traditional model of national security be broadened to include economic elements and market forces essential to Taiwan’s survival, development and stability. Perhaps cross-strait peace could thus be realized.
Under a different scenario — the negative-sum game, in which everybody loses — China and Taiwan enjoy no mutual trust and view economic interdependence as a competition or relative gain. Each side will look for opportunities to cheat and gain the upper hand over the other.
If each side doubts the other’s intentions, they will adopt policies based on fear rather than hope. Future objectives will influence present behavior and a spiral of negative actions and reactions will hasten an armed conflict.
In his book, Kurlantzick says: “In addition to cultural tools ... trade, investment, aid, and the appeal of China’s economic model ... make up the second potential weapons in China’s arsenal.”
But, “China could overplay its hand, making promises to other nations that it cannot fulfill,” he writes.
At first, the public had high hopes for opening up to China. When Chinese tourists and exports of agricultural products to China fell short of the great benefits that had been promised, their attitude turned upside down and Ma’s approval ratings plunged to a nadir.
Kurlantzick says: “Despite Beijing’s rhetoric of cooperation, when it comes to core interests, China, like any great power, will think of itself first.”
As examples he cites China’s dam on the Mekong River and says that despite “signing a deal with the Philippines and Vietnam for joint exploration of the disputed South China Sea, Beijing has not retracted its claim to large swaths of the water.”
Cross-strait interactions have begun by focusing on more easily attained, economic goals. Sooner or later, however, developments will lead to the elephant in the room: sovereignty, the pivotal interest for both sides and the most controversial question.
Taiwan must exercise caution to avoid any negative impact on its long-term interests.
Will China eventually drop its “win-win” rhetoric and present Taiwan with aggressive, unilateral demands? Are its goodwill gestures a disguise? Is China playing a game of go with Taiwan, in which it seeks to entrap its opponent? Fear can raise many specters.
Many people fear that Beijing’s cross-strait trade policies are politically motivated, with the goal of making Taiwan economically dependent on China. China’s political dominance and its absolute military supremacy require peace to develop — as it must accumulate wealth through economic growth.
Much to the government’s chagrin, China has not only increased the number of missiles aimed at Taiwan by more than 100 since Ma took office last May, it has also increased its military spending this year by 14.9 percent, showed off its naval forces on the 60th anniversary of the People’s Liberation Army Navy, and plans a military drill with 50,000 troops this year.
China has no right to criticize Taiwan and the US over sales of state-of-the-art weapons systems: Beijing has more than 1,000 missiles deployed across the Strait, compelling Taiwan to arm itself out of fear for its safety.
After US arms sales to Taiwan, China tends to become more determined to boost military spending to deter Taiwanese independence. This vicious circle results in a security dilemma that is negative for both sides.
Under this negative-sum scenario of economic interdependence, there is potential for China to coerce Taiwan’s political concession by manipulating the imbalance in power. Economic factors would, in other words, bring about an armed conflict in the Taiwan Strait rather than stability.
From the perspective of a nonzero-sum game, Taiwan must take short-term influence and long-term vulnerability into account.
The immediate effects of dependence on China must not be overlooked. Any changes in cross-strait policy that could have a wide-reaching impact in a short period of time should be approached slowly to prevent a backlash or political discord.
No policies should be carried out in haste simply to achieve short-term gains. A long-term engagement has the potential to encourage greater cooperation and produce greater profits.
Vulnerability, on the other hand, concerns the nation’s flexibility and access to alternative sources of various resources. In the face of an imbalance in power, Taiwan must look for strategies to minimize its vulnerability.
Two lessons come to mind.
“In Singapore, China’s growing diplomatic assertiveness has suggested to some Singaporean officials that China’s charm is merely a facade. Fear of China, along with mistrust of Chinese charm, in fact, explains in part why Singapore has boosted defense cooperation with the United States in recent years,” Kurlantzick writes.
In an article in the Wall Street Journal Asia on May 6, “Australia Bulks Up,” Andrew Shearer writes that Australia, with China firmly in mind, “lays out a grandiose vision for a stronger Australian defense force” that “would have enhanced maritime capabilities, Joint Strike Fighters, a larger army, big amphibious ships to transport it and at least three air warfare destroyers.”
“Australia’s six existing conventional submarines will be replaced by 12 larger and more capable boats. And in a first for its immediate neighborhood, Australia would acquire land-attack cruise missiles,” he writes.
Yu Tsung-chi is a senior fellow of the Atlantic Council of the US.
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