The Taiwan Catastrophe

Washington and its allies face many potential geopolitical catastrophes over the next decade, but nearly all pale in comparison to what would ensue if China annexed or invaded Taiwan. Such an outcome, one U.S. official put it, “would be a disaster of utmost importance to the United States, and I am convinced that time is of the essence.” That was General Douglas MacArthur in June 1950, then overseeing occupied Japan and worrying in a top-secret memo to Washington about the prospect that the Communists in China might seek to vanquish their Nationalist enemies once and for all. More than 70 years later, MacArthur’s words ring truer than ever.

Then, as now, Taiwan’s geography matters. A self-governing Taiwan anchors Japan’s defense and denies China a springboard from which it could threaten U.S. allies in the western Pacific. But unlike in the 1950s, when Taiwan was under the authoritarian rule of Chiang Kai-Shek, today the island is a full-blown liberal democracy—whose subjugation to Beijing’s totalitarianism would hinder democratic aspirations across the region, including in China itself. And unlike in MacArthur’s time, Taiwan today is economically crucial to the rest of the world, by virtue of its role as the primary producer of advanced microchips. A war over the island could easily cause a global depression. Yet another key difference between MacArthur’s time and today is the flourishing of a wide network of U.S. allies across the Indo-Pacific, countries that rely on U.S. support for their security. A Chinese seizure of Taiwan could trigger a race among nations to develop their own nuclear arsenals as U.S. security guarantees lost credibility.

In recent years, Chinese leader Xi Jinping has shown an impatient determination to resolve Taiwan’s status in a way his predecessors never did. He has ordered a meteoric military buildup, instructing Chinese forces to give him by 2027 a full range of options for unifying Taiwan. These signals are triggering debate in Washington and elsewhere about whether Taiwan is strategically and economically important enough to merit protection through the most challenging of contingencies. But make no mistake: whether one cares about the future of democracy in Asia or prefers to ponder only the cold math of realpolitik, Taiwan’s fate matters.

DEFENDING DEMOCRACY

When MacArthur wrote his memo in June 1950, Communist insurgencies were convulsing Southeast Asia, and the Korean Peninsula was teetering on the brink of war. The military utility of Taiwan—then called Formosa in the West—beckoned. “Formosa in the hands of the Communists,” he wrote, “can be compared to an unsinkable aircraft carrier and submarine tender [a ship that supplies submarines] ideally located to accomplish Soviet offensive strategy and at the same time checkmate counteroffensive operations by United States Forces based on Okinawa and the Philippines.” MacArthur explained how imperial Japan, which ruled Taiwan from 1895 to 1945, had used the island as “a springboard for military aggression” beyond East Asia and warned that Communist forces could do the same.

But MacArthur was thinking about far more than basing, emphasizing that Taiwan’s people should be offered “an opportunity to develop their own political future in an atmosphere unfettered by the dictates of a Communist police state.” He even highlighted Taiwan’s importance as a net exporter of food in postwar Asia and as a future “prosperous economic unit.”

The dynamics MacArthur highlighted remain relevant today, some more than ever. Eventually, Taiwan’s citizens did indeed seize the opportunity “to develop their own political future” by building a full-fledged democracy off China’s coast. If that system were extinguished, Beijing would have erased the world’s first liberal democracy whose founders include many people of Chinese heritage—and, with it, living proof that there is a workable, appealing alternative to Beijing’s totalitarianism. In 1996, the Taiwanese voted for the first time to directly elect their president, whose maximum tenure was newly shortened from two six-year terms to two four-year terms. Four years later, they elected an opposition-party president, ending the political monopoly of the Kuomintang, the party that had ruled the island since 1945. Over the past two-plus decades, democracy has only deepened its roots in Taiwan, which enjoys an orderly transition of political power every four to eight years.

Taiwan is ranked by the Economist Intelligence Unit as the world’s eighth most “fully democratic” polity, ahead of every country in Asia and even the much older democracies of the United Kingdom and the United States. Its people enjoy freedom of speech and freedom of association. Taiwan also has one of the most economically equitable societies anywhere, with a relatively low disparity in income distribution despite having among the highest median incomes. Its per capita GDP overtook Japan’s in 2023.

Over the past two-plus decades, democracy has deepened its roots in Taiwan.

Taiwan ranks sixth in the world for gender equality, according to a UN Development Program index. Women hold more than 40 percent of seats in Taiwan’s national legislature, the highest percentage in Asia and well ahead of the United States, where just 28 percent of members of Congress are women. Taiwanese have twice elected a female president, several of its leading cities are led by female mayors, and the incoming vice president is female. Taiwan’s respect for the rights of indigenous peoples (with designated legislative seats) and minority groups stands out, too. In 2019, Taiwan became the first society in Asia to legalize same-sex marriage.

Taiwan is a democratic standout in another important respect: its faith in democracy is growing at a time when many democracies are doubting their system of government. A Taiwan Foundation for Democracy poll in 2023 found that three-quarters of Taiwanese believe that although there are problems with democracy, it remains the best system. And in a refreshing contrast with the United States, younger people were especially likely to hold that view.

It is difficult to overstate the significance of Taiwan’s strong democracy, given the political realities just across the Taiwan Strait, where more than 1.4 billion people sharing many linguistic and cultural traditions are subject to totalitarian rule. Numerous Chinese citizens draw inspiration from Taiwan’s political transition from martial law to democracy, which offers a model for what China could become. Fearing precisely such a result, officials in Beijing have long tried to caricature Taiwan as slavishly imitating Western forms of governance. But it is actually the Chinese Communist Party that is doing so by clinging to its Marxist-Leninist system, a discredited political model imported from Europe. A Chinese street protester caught on video in late 2022 highlighted the absurdity of the accusation that he was manipulated by foreign forces. “What ‘foreign forces’ are you referring to?” he asked. “Is it Marx and Engels? Is it Stalin? Is it Lenin?”

The loss of Taiwan as a democratic alternative would end the experiment with popular, multiparty self-governance by a society with significant Chinese heritage, with bad tidings for the possibility of democracy in China and far beyond.

CHIP WARS

A Chinese takeover of Taiwan would devastate semiconductor manufacturing—the backbone of almost every strategically important industry today and the lifeblood of our big data world. The planet now produces approximately $600 billion worth of chips each year. Those chips end up in products—from smartphones to cars to supercomputers—that are collectively worth multiple trillions of dollars, and the services delivered by these devices amount to tens of trillions annually. The very latest generation chips (those with circuits five nanometers or smaller) are produced in only two places: Taiwan (by Taiwan Semiconductor Manufacturing Company, or TSMC) and, to a much lesser extent, South Korea (by Samsung). Taiwan now accounts for roughly half the global production capacity for all semiconductors and a much higher proportion—perhaps 90 percent—for the most advanced chips. Put differently, Taiwan’s market share for advanced semiconductors is roughly twice the share of oil produced by OPEC.

Much as cheap Russian energy fueled German industry for decades, so, too, have abundant Taiwanese semiconductors propelled global technological progress, the artificial intelligence boom, and the rise of trillion-dollar U.S. tech titans such as Apple, Google, Microsoft, and Nvidia. Thanks largely to Taiwanese manufacturers’ efficiency gains, the unit costs of computing power have fallen exponentially in recent decades. The cutting-edge chips that are (or will be) used in Apple’s latest generation smartphones, for instance, now cost less than $100 apiece. Combining high-powered computing capabilities with low unit costs generates a virtuous cycle of discovery and productivity. As Eric Schmidt, the former CEO and chair of Google, put it in Foreign Affairs last year, “Faster airplanes did not build faster airplanes, but faster computers will help build faster computers.”

The loss of Taiwanese chips would shatter that cycle. Unlike with oil and gas, commodities whose source can be switched with relative ease, no such fungibility exists for high-end semiconductors. It would take years to build and activate high-end chip production facilities to replace Taiwanese foundries. Each month of delay in resuming chip supplies at pre-crisis levels would cause compounding global economic losses and stall progress in critical fields, from medicine to materials science. In a best-case scenario, inferior, far less energy-efficient substitutes would require massively increased electricity use merely to keep society functioning. In the more likely scenario, global computing power would effectively be capped for a prolonged period, wreaking profound economic and political damage.

Losing access to Taiwanese semiconductors would shave five to ten percent off U.S. GDP.

Even if China captured Taiwanese foundries intact, they would probably struggle mightily to reach prewar production levels. Disruptions to electricity, software updates, and the supply of foreign equipment, maintenance, and engineering—not to mention the likely flight overseas by many of Taiwan’s most knowledgeable semiconductor experts—would throttle Taiwan’s chip factories. For months or even years, occupied production facilities would face grave difficulties, especially given the postwar economic sanctions that the world’s democracies would impose.

The global economic convulsion that would follow an interruption of Taiwanese chips could well exceed those caused by the global financial crisis and the COVID-19 pandemic. The hedge fund manager Ken Griffin has estimated that losing access to Taiwanese semiconductors would shave five to ten percent off U.S. GDP. “It’s an immediate Great Depression,” he assessed in 2022.

If Taiwan’s chip factories somehow remained intact and operational, Beijing would control virtually the entire world’s supply of the most advanced semiconductors. If, on the other hand, they struggled to resume operations, as is more likely, the world would have to settle for much inferior older-generation chips—of which China is on track to become the largest producer.

Certainly, China’s economy would suffer major setbacks if Taiwan’s high-end chips disappeared from global markets. But so would the economies of the rest of the industrialized world. Beijing’s Marxist-Leninist rulers, who regard power as zero-sum, may consider this a price worth paying—especially if China ultimately emerged as the world’s leading chip producer. Indeed, Xi and his advisers might plausibly conclude that China could weather, and ultimately leverage, such a Taiwanese production halt better than any other country.

FROM ORDER TO DISORDER

Whether through outright war or intense coercion, Chinese annexation of Taiwan against the will of its 24 million people would disrupt the global order in ways unseen since World War II. For starters, Beijing might not stop after annexing Taiwan. As Russian President Vladimir Putin has demonstrated in Ukraine, the leaders of revanchist powers are not known for appetite suppression. China is grabbing land in Bhutan and engages in border skirmishes with India. It pursues disputes with all its maritime neighbors. It is actively challenging Japan’s claims over the islands that Tokyo administers and calls the Senkaku (and which China calls the Diaoyu), as well as the territorial claims of five other governments in the South China Sea. Ominously, official maps, propaganda, and statements question the legitimacy of Japanese sovereignty over the Ryukyu island chain—including Okinawa—and of Russia’s control over parts of its far east.

Japan would be in a far weaker position to defend its territory were Taiwan under Beijing’s control. Japan’s defensive strategy relies on the ability to threaten People’s Liberation Army forces that approach, penetrate, or venture beyond the “first island chain,” the long string of Pacific archipelagoes that includes Japan and Taiwan. To ensure Japan’s security, the entire chain must remain in friendly hands. If Taiwan hosted PLA bases—the “unsinkable aircraft carrier and submarine tender” MacArthur warned of—Japan would become acutely insecure. PLA doctrine stresses precisely this point. As one air force textbook emphasizes, “As soon as Taiwan is reunified with mainland China, Japan’s maritime lines of communication will fall completely within the striking ranges of China’s fighters and bombers.” China made its capabilities clear during extensive PLA exercises in August 2022, when one of several ballistic missiles it fired landed in the water near Japan’s Yonaguni Island, only 68 miles from Taiwan.

The fall of Taiwan would be even worse for the Philippines and other Southeast Asian countries. Beijing would have the power to complicate U.S. access to East Asia, Southeast Asia, and the Indian Ocean—the littoral of the most populous, economically active part of the world. The United States could begin to resemble, as the diplomat Henry Kissinger once put it to one of us (Pottinger), “an island off the coast of the world.”

Worse, by establishing an indisputably dominant position in East Asia, Xi could pursue preeminence globally. The military resources, planning, and training that have long been concentrated on taking Taiwan could, following a successful annexation, be used for projecting power throughout continental Asia, the Pacific Ocean, and the Indian Ocean. China could even attempt to make inroads in the Atlantic Ocean, where the PLA already operates tracking, telemetry, and command stations in Argentina and Namibia. Angola, Equatorial Guinea, and Gabon are among the 19-odd countries with which Beijing has been pursuing military facilities beyond the ones it already has in Djibouti and Cambodia. America’s own history shows how achieving regional preeminence facilitates global power projection. Only by dominating the Western Hemisphere in the nineteenth century was the United States able to become a global superpower in the twentieth.

It is impossible to predict precisely how China might act as a global power, but decades of data suggest it would take a far less benign approach than the United States. At an Association of Southeast Asian Nations summit in Vietnam in 2010, China’s foreign minister, Yang Jiechi, foreshadowed future bullying when he announced, “China is a big country and you are small countries, and that is a fact.” Beijing followed suit with the de facto annexation and outright construction of territory throughout the South China Sea and a massive military buildup. China has declared its goal to become a “world-class” military and to use its armed forces to defend its interests wherever it defines them around the world. And those interests are set to expand, with Beijing having unveiled a “global security initiative,” a “global development initiative,” and a “global civilization initiative.” These sprawling programs promote Chinese-led alternatives to Western alliances and Western economic and political models. As a 2023 State Council document explains, they “showcase the global vision of the Communist Party of China.”

Herein lies a danger similar to the one U.S. President Franklin Roosevelt warned of in 1939: “So soon as one nation dominates Europe, that nation will be able to turn to the world sphere.” Today, Asia has replaced Europe as the world’s center of economic and technological gravity. The region’s domination by a hostile power today would be equally dangerous to U.S. interests. Asian countries would not eagerly accept Beijing’s diktats, but absent Washington’s intervention, their options would be limited. China alone commands an economy meaningfully larger than that of all its Asian neighbors combined, India included. China’s navy, meanwhile, boasts firepower second only to that of the U.S. Navy. And it is relatively concentrated: imagine if the entire U.S. naval fleet primarily operated in an arc from New York to New Orleans.

With a U.S. counterbalancer committed to freedom of navigation and economic access, all Asian countries can prosper—including China, as decades of economic growth demonstrate. But were China to annex Taiwan and proceed to push the United States out of Asia, even the most powerful countries would see their economic sovereignty and long-term national autonomy compromised.

THE PROLIFERATION PROBLEM

At that point, another problem would arise: having lost faith in the United States’ security commitments, U.S. allies would face great incentives to develop their own nuclear weapons. Ever since China’s first nuclear test, in 1964, Washington has been able to dissuade most East and Southeast Asian countries from going nuclear. But an Asia reeling from the annexation of Taiwan would present very different circumstances and might send leaders scrambling to acquire nuclear armaments to protect themselves.

Japan has the shortest path to developing nuclear weapons, boasting both its own facilities for processing nuclear fuel and what is likely the world’s largest plutonium stockpile. In February 2022, months before he was assassinated, former Prime Minister Shinzo Abe raised the idea of Japan engaging in “nuclear sharing,” proposing something similar to the arrangements Washington has with a number of NATO allies, whereby nuclear weapons are stored on bases in the host country but under U.S. control. But Japan could go further and develop its own independent capability. In the words of Vipin Narang, a political scientist now serving as an official in the Pentagon, Japan has “a very real, and potentially swift, pathway to a nuclear weapons arsenal in the event of a rapid deterioration of Japan’s security environment.”

South Korea, for its part, has a world-class civilian nuclear program, with 26 reactors in service. Although the country currently lacks the domestic enrichment or reprocessing facilities required to build nuclear weapons, its politicians openly debate the question of whether to develop a nuclear arsenal. And given South Korea’s world-class scientific expertise and industrial base, Seoul could doubtless fashion deployable fission devices within a handful of years if it so chose.

China’s annexation of Taiwan might send leaders in Asia scrambling to acquire nuclear armaments.

Were Japan or South Korea to go nuclear, the effects might not stop there. Leaders in Beijing might conclude that they needed considerably more than the 1,500 warheads China is expected to have by 2035. Should China decide to expand its arsenal, both the United States and Russia would likely seek to expand their arsenals, too. India would probably follow suit; indeed, there are already signs that it is considering doing so. In December 2022, India tested an updated version of its Agni-5 ballistic missile, whose range exceeds 4,000 miles—sufficient to reach all of China. If India expanded its nuclear stockpile, historical patterns suggest its archrival, Pakistan, would likely seek parity.

Asian nuclear proliferation could even spill over into the Middle East, where Iran continues to edge closer to breakout capability. If two of the United States’ closest Asian allies, Japan and South Korea, became nuclear weapons states, it would be functionally impossible for Washington to secure a multinational coalition to punish Iran for building a bomb—something Iran might be more tempted to try in the chaos that would follow a takeover of Taiwan. If Iran went nuclear, Saudi Arabia would almost certainly do so, too, perhaps first through a stopgap sharing agreement with Pakistan and subsequently by developing a domestic production capability.

A nuclear cascade following a Chinese annexation of Taiwan could add hundreds of nuclear warheads or more to stockpiles globally. Decades of counterproliferation progress would be lost. Far better that this Pandora’s box were never opened in the first place.

ECONOMIC EXCLUSION

If China annexed Taiwan, the United States could well lose access to valuable trade and investment opportunities in Asia, severely damaging the U.S. economy. History shows that regional hegemons regularly restrict rivals’ economic prospects. In a 2018 Foreign Affairs article about “life in China’s Asia,” the political scientist Jennifer Lind noted that in their quest for regional dominance, such countries “develop and wield tremendous economic power.” They also “build massive militaries, expel external rivals, and use regional institutions and cultural programs to entrench their influence.”

In case this sort of behavior sounds alien, consider the United States’ own efforts in the nineteenth century and early twentieth century to enforce the 1823 Monroe Doctrine and extirpate European influence from the Western Hemisphere. Motivated by a fear of European entry (or reentry in some cases), Washington engaged in all manner of aggressive behavior: buying out debts owed to European banks, deploying warships in the Caribbean, toppling governments, and intervening militarily. Unlike a fledgling United States, a China buoyed by possession of Taiwan would have the economic and military means to immediately enforce its own Monroe Doctrine. And unlike today’s United States, China under Xi does not accept the postwar rules and norms that safeguard the sovereignty of a superpower’s neighbor, no matter its size.

Chinese attempts to hive off Asia, the world’s largest, most dynamic economic region, would deal a devastating blow to U.S. economic interests. East Asia and the Pacific account for one-third of global GDP in purchasing power parity terms, a share roughly twice that of the United States. The region’s vibrant, open trading networks would likely degenerate into more of a hub-and-spoke system, with China as the hub and subjugated countries at the end of the spokes. In the worst-case scenario, the United States could lose access to trade volumes with its nine largest Asian trade partners other than China. This group’s two-way goods trade with the United States was nearly $940 billion in 2023—about 60 percent larger than the U.S. goods trade with China itself. U.S. investors might also lose out. In Asian countries besides China, particularly in Southeast Asia, the United States is one of the largest sources of invested capital. Americans have plowed untold sums into factories, data centers, and real estate properties throughout the region. Because these and other brick-and-mortar infrastructure are physically immovable, they would be vulnerable to forced changes of ownership under Chinese coercion.

A China that had annexed Taiwan might also accelerate efforts to have other Asian countries reduce their reliance on the U.S. dollar as a reserve currency. Most governments in the region would prefer not to be forced to choose between the dollar and the yuan, just as many of them have tried to avoid taking sides on the broader competition between the United States and China. But a less constrained Beijing could plausibly seek to abolish such a middle course, pushing its trading partners to more widely use yuan in their economies and kicking off a regionwide de-dollarization.

THE NEW WEST BERLIN

In his memoirs, U.S. President Dwight Eisenhower envisioned a dangerous chain reaction that Taiwan’s fall would trigger: “The future security of Japan, the Philippines, Thailand, Vietnam and even Okinawa would be placed in jeopardy and the United States’ vital interests would suffer severely.” Consequences that already looked dangerous when Ike was in the White House 65 years ago would be far more dire today. Taiwan’s annexation in the face of U.S. inaction or ineffective action would present U.S. allies in Asia and Europe with a nightmare they have never faced before: Washington proving unable to protect a polity that is an ally in all but name.

Autocracy would surge ahead in the global contest of systems. An illiberal, China-centric world order could supplant the liberal, U.S.-led system that for 80 years has underpinned remarkable improvement in the human condition. This shift would curtail trade, limit India’s development, and crimp middle powers, including important U.S. allies. Moreover, China’s quest for domination abroad would cement autocracy at home, shrinking the prospects for its own population. The stage for future warfare would be set.

Taiwan is in a sense the West Berlin of the new cold war unfolding between Beijing and the free world. It is an outpost of liberty, prosperity, and democracy living in the shadow of an authoritarian superpower. Just as Stalin tested the free world 76 years ago by blockading Berlin, Xi is now testing it with rising pressure on Taiwan. Back then, U.S. leadership and major investment galvanized a four-decade multinational commitment to keep West Berlin and West Germany free. The stakes are equally stark today with Taiwan—and there is no time left to waste.