The Looming Taiwan Disaster
Posted February 18, 2021
The Biden administration is pretty well determined to undo most of the successes of the Trump administration. That’s no surprise and I suppose we can live with it. Although their betrayal of Israel will jeopardize America’s most valuable technological and national security assets.
We survived the tax, spend, and regulate orgy of the Obama years, whose rallying slogan was immortalized in the words “you didn’t build that” directed at the nation’s entrepreneurs and small businessmen.
To the extent Biden makes the US inhospitable to business, our entrepreneurs will venture elsewhere. The US will lose jobs and opportunities; but our information resources, learning curves and creativity can be preserved for the future.
Here’s the thing, though. If we are going to have to put up with all that again, can we at least hope that Biden will reverse Trump’s biggest mistake: probing China’s most acute nationalist sore by throwing down the gauntlet on Taiwan.
Blocking a Business From Its Biggest Buyers
As part of its ludicrous campaign against Huawei, Trump forbade Taiwan Semiconductor Corporation (TSM) from exporting chips to Huawei, or most Huawei suppliers or affiliates (which just about covers the field of Chinese chip-buyers).
Practically speaking, the United States has forbidden a company located in one part of China (as we have long recognized Taiwan to be) from exporting to the rest of China.
Even as an economic policy this is a disaster. TSM is a foundry, not a design house; it manufactures chips designed by other firms. There is no design IP transferred when Taiwan ships a chip to China.
But by cutting TSM exports to China, we will be exporting decisive IP of a different sort.
TSM became the world’s greatest foundry courtesy of the learning curve, which predicts a 20% to 30% drop in costs per every doubling of accumulated unit volume.
Forbidding TSM to sell to mainland China transfers those learning curve advantages to mainland foundries, which are far behind TSM, but now will catch up all the quicker.
But the economics, for once, are the least of our concerns.
Poking the Dragon
By imposing an embargo on a crucial resource within China itself, the U.S. is perpetrating the single greatest provocation to war since the early 1940s when we embargoed oil exports to Japan. With barely two years supply in storage for its navy, Japan believed its only remaining option was to seize the oil-rich Dutch East Indies. These had also restricted exports to Japan, under pressure from the US and its allies.
The attack on Pearl Harbor was the direct result.
Thank heaven, unlike Japan in 1941, the Chinese can retaliate for our extraordinary provocation without striking US territory. What China can do is seize Taiwan. Though essentially every nation in the world is against China’s taking Taiwan by force, essentially every nation in the world has conceded her right to do so.
Assuming the Chinese push with everything they have, short of nukes, and refuse to give in (as they refused in Korea despite overwhelming odds), we will lose. Every major US warship we bring into the theater will be sunk. This includes all our aircraft carriers which are vulnerable in fighting any nation with access to both satellites and missiles.
The day after the likely US defeat, the world will have one superpower. Then it will be China imposing chip embargoes on us, if they choose. They probably won’t; Chinese Communist pols have a far better grasp of Capitalism than ours do.
The anti-China hawks who screech about Chinese aggressions elsewhere should contemplate just how extraordinarily restrained the Chinese have been on Taiwan, quite against the wishes of their own people. If you want to hear a Chinese crowd cheering, just get up on a podium (in China it might be a virtual, 3-D, holographic podium) and shout “Take Taiwan! Taiwan belongs to China.”
There is an alternative, argued in these pages before: Make Taiwan a free port. Anything shipped from Taiwan, originating from any nation, but offloaded and reloaded in Taiwan, can come into the US duty-free. Hint — quietly — that this will continue as long as China refrains from using force against the island. Effectively we have been sharing Taiwan, with its technological cornucopia, for decades. It’s worked pretty well. The free port plan would institutionalize that sharing.
It’s long past time that we could talk softly and carry a big stick. Our stick isn’t big enough anymore. It’s time to talk softly and lay in a supply of carrots.
Will the Democrats do the right thing? The Chinese are probably counting on this and restraining themselves in the meantime.
They may be disappointed. Avoiding war is the one liberal principle Democrats have most blissfully abandoned since the first Gulf war in 1990. Above all they fear being dismissed as sissies, found wanting as jingoes. For any war Republicans like (and which war have they not liked?), Democrats have professed their love.
Here’s hoping the Dems are brave enough not to destroy our super-power status as quickly as war in the South China Sea would do it.
Editor, Gilder's Daily Prophecy
Senior Analyst, Gilder's Daily Prophecy