The likelihood of China using military force to "reunify" Taiwan is growing.
Some believe the Chinese government could use military action to distract its population from troubles at home after China's economic growth fell to its second lowest level for decades in 2022.
There are numerous signals from Beijing about its intentions towards Taiwan, which the People's Republic of China claims jurisdiction over. During the 2022 Communist party congress, President Xi indicated that Taiwan is at the core of China's "rejuvenation" and that peaceful reunification is preferable but that China does not "renounce the use of force".
Simultaneously, tensions in the Taiwan Strait have been exacerbated by a series of events. The August 2022 visit of former US House of Representatives speaker Nancy Pelosi to Taiwan led to Chinese military exercises in the strait, and the cancellation of "military dialogues" and cooperation channels with the US.
In late December 2022, China conducted additional military strike drills near Taiwan, and several Chinese aircraft were detected into Taiwan's air defence zone. In early January 2023, a US warship transited through the strait prompting a reaction from the Chinese embassy in the US accusing the latter of flexing its military muscle and undermining peace and stability in the region.
Such heightened geopolitical tensions can put socio-economic and political pressures on Taiwan and the situation could have wider consequences for the self-governing island.
What to look out for
If China is to opt for the use of force in Taiwan, it is likely that it will increase production of munition, ballistic and cruise missiles and other military hardware.
In addition, China would move to protect relevant industries from disruptions and sanctions. These could include measures such as freezing foreign financial assets within China, the "rapid liquidation and repatriation of Chinese assets held abroad" and the suspension of key exports such as critical minerals.
Observers point out that when Ma Ying-jeou served as Taiwan's president between 2008 and 2015 his policies handed Beijing more power. He was conciliatory and promoted economic integration.
This increased economic dependence on China allowing the super power to exert financial or commercial pressure at will. Taiwan's economic prosperity has gradually become more dependent on China because of greater trade between the two. By 2021, trade with China amounted to 21.6% of Taiwan's total trade, making China its largest trade partner.
Studies indicate that in the last decade or so Taiwan has slowly recovered from the stagnation that resulted from the 2008 global financial crisis but has not reached the pre-crisis growth level and dynamism of its economy. The current context with its potential for military conflict could disrupt trade flows affecting employment levels, wages and productivity, bringing back a degree of economic stagnation.
Independence v unification
Taiwanese politics are largely intertwined with independence. The idea of being pro-independence is often employed by politicians as a diversionary strategy from other issues.
As the popularity of Taiwan's president - and approval - declines, the rhetoric about independence from China increases. The current state of affairs in the region will loom large in Taiwan's politics, especially in the 2024 presidential elections. During the national election periods, "candidates are compelled" to take a position about the independence-unification issue.
The possibility of conflict may lead to political polarisation among supporters of independence and pro-Beijing groups. This could occur along the lines of political parties with the pro-unification nationalist Kuomintang (KMT) which appeals to older voters. This is important because the older population seem to be more likely to support unification.
Taiwanese identity issues
Some commentators argue that identifying as Taiwanese (rather than Chinese) does not necessarily translate into support for independence. They point out that support only increased from 23.1% in 2008 to 23.8% in 2014 with an 80% to 90% of Taiwan's population preferring the status quo.
This is despite a strong increase in people identifying as Taiwanese from 20% of the total population in 1992, to 39% in 2000 and to 55% in 2010. Nevertheless, national identity and relations between China and Taiwan have in the past led to "bitter divisions".
Older voters are descendants of Chinese nationalist soldiers but were born or grew up in Taiwan during its brutal decades of martial law so they may be more sceptical about Taiwanese politicians' commitment to democratic values. By some accounts in 2022, support for unification with China was up to 12%, possibly because voters believed that China's economic strength and global power would benefit Taiwan.
Some politicians exploit the divide between the pro-China and Taiwan independence lobbies to advance their own interests, and in doing so ramp up public distrust in democratic processes and governance. This intensifies intolerance and increases the likelihood of violence by fuelling the public's anger and their division about specific issues.
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The younger population is more inclined to adopt pro-independence views which in the past led to "hostile" political attitudes toward China. The vast divide and emotions involved can even manifest in parents being against their children marrying people from "across the divide".
There may be other subtler effects of the current Beijing/Taipei tension, for example, those that can arise from responses to military pressure. In late December 2022, Taiwan announced that it was extending its compulsory military service from four months to one year - which previously had been reduced from more than two years - because of the increasing pressures from Beijing. Arguably, military conscription can have unintended consequences.
Studies (for example, in Sweden and Argentina) found that conscription has a negative social effect by significantly increasing the likelihood and the number of post-service crimes among people from disadvantaged backgrounds.
Conscription can also delay the entry into the workforce of some young people, thereby reducing their labour market opportunities. Such an effect, in the long term, can have significant implications for the wellbeing of the economy, for example, by lowering the development of skills necessary to sustain productivity.
All of these elements are providing extra pressure on the Taiwanese economy, which, in turn, gives China more power.
Author: Jose Caballero - Senior Economist, IMD World Competitiveness Center, International Institute for Management Development (IMD)