US–China relations have become progressively more strained in the past decade, with each state increasingly convinced that the other is seeking to undermine it. This situation was thrown into stark relief during the Trump administration, which initiated the United States’ trade and technology wars with China and enhanced relations with Taiwan. While both countries are seeking to put a floor under their deteriorating relationship, the prospects for sustained improvement are remote given their differences in ideology, values and geopolitical ambitions.
NO CHANGE UNDER BIDEN
The Biden administration has not merely maintained the policies of the previous US administration: it has systematically sought to build alliance relations in the Indo-Pacific to constrain China’s room for manoeuvre.
TECHNOLOGY WARS
The US president has also imposed major restrictions on the sale to China of advanced semiconductors – and the equipment required to manufacture them – in order to maintain US dominance in technologies deemed critical for national security. Decoupling is a reality, although its pace and impact remain unclear.
TAIWAN: THE PLACE WHERE IT ALL COMES TOGETHER
Sino-American tensions have become focused on Taiwan, a critical source of advanced semiconductors, with Beijing perceiving Washington’s increased engagement with the island as hollowing out the United States’ long-standing ‘One China’ policy and reducing the prospects for peaceful reunification.
The US–China relationship has been characterised by cultural and political misperceptions and mismatches of expectations ever since the two countries first came into contact in the mid-nineteenth century. The result has been a dynamic that has seesawed between periods of close approximation and intense antagonism. Even during the best of times, relations were never straightforward; as China has grown in wealth and power it has become increasingly competitive and confrontational, while the US perceives China’s rise as a threat to its global standing. The 2008 global financial crisis proved to be a major tipping point in the relationship as Beijing sought, not without justification, to blame Washington for failing to prevent it while overlooking its own role in precipitating the crisis through mercantilist behaviours that led to an unmanageable global savings glut.
The second major tipping point was the 2012 appointment of Xi Jinping as secretary-general of the Chinese Communist Party (CCP). Shortly after assuming office, Xi made it clear that China had effectively abandoned Deng Xiaoping’s policy of keeping a low profile (‘hide and bide’) in favour of a more assertive posture commensurate with the country’s growing wealth and power.1 Xi began promoting internationally the concept of a ‘Community of Common Destiny for Mankind’, a deliberately vague formulation first used in 2012 by then Chinese president and CCP secretary-general Hu Jintao that amounts to a significant revision of the post-Second World War US-led global order in ways favourable to China’s interests. Such a revision would include recognition of the validity of different political and values systems and would preclude the establishment of alliances and blocs based on shared political and values systems – a feature of the US-led global order.2 The trope that ‘the East is rising, the West is in decline’ began to feature in leadership speeches, reflecting the belief in historical determinism and Chinese exceptionalism that form the basis of ‘Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era’, an amalgamation of Marxism–Leninism with aspects of traditional Chinese concepts of statecraft.
While believing that the West (and particularly the US) is in terminal decline, Chinese leaders are also seized of the conviction that this decline may translate into ever more desperate actions by the US to maintain its hegemonic status. A particular concern is the threat of subversion through US attempts to encourage ‘peaceful evolution’ and to promote colour revolutions in authoritarian states. This concern was articulated by Hu in a 2011 speech in which he stated that ‘hostile foreign powers are intensifying strategies and plots to Westernize and divide our country, the ideological and cultural sphere is the focus sphere in which they conduct long-term infiltration’.3 This message was reiterated in a video produced by China’s National Defence University in 2013 with the title ‘Jiaoliang Wusheng – Silent Contest’, which focuses on the West’s supposed unremitting hostility to China and its determination to subvert it through the introduction of Western values.4 Moreover, the CCP’s Central Party Document Number Nine, formally entitled ‘Briefing on the Current Situation in the Ideological Realm’, amounted to a comprehensive rejection of universal values.5
MATTERS COME TO A HEAD
After a long period during which both Washington and Beijing played down their differences, matters came to a head midway through the tenure of US president Donald Trump. Though Trump’s initial attitude to China was ambivalent, by the end of 2017 his administration had published a National Security Strategy that described a new era of great-power competition and characterised China as the United States’ primary strategic threat. It was followed in 2018 by the imposition of 25% tariffs on some Chinese imports, with the threat of more tariffs to come. Washington’s behaviour was driven by frustration with Beijing’s perceived gaming of the international trading system to the detriment of the US economy, as well as China’s pervasive acquisition of US intellectual property (IP) both through industrial-scale cyber espionage and by compelling US and other Western companies to hand over proprietary technology as a condition of access to Chinese markets. Trump sought to address both the chronic US trade deficit in goods with China (see Figure 2.2) and the decline in US domestic manufacturing. According to a report by the Economic Policy Institute, the growing trade deficit with China resulted in the loss of 3.7 million US jobs between 2001 and 2018.6
Figure 2.1: US semiconductor sales to China, 2016–21Note: In the context of this figure, ‘China’ refers to mainland China only, excluding Hong Kong, Macao and Taiwan.
Source: Enodo Economics, www.enodoeconomics.com
Though arguably incoherent in both conception and execution, the Trump approach to China reflected a growing perception within the US policy community that engagement with Beijing had been a failure. Far from bringing China more in line with Western norms of behaviour and values, engagement was perceived as having empowered an authoritarian regime that was irremediably hostile to such norms and values in ways detrimental to US interests.7 China seems either to have been unaware of such sentiments or to have discounted them in the conviction that the gravitational pull of Chinese markets would prove irresistible to Western entrepreneurs and investors. And it was and remains the case that Silicon Valley and Wall Street are heavily invested in maintaining the best possible relations with China, for understandable reasons. In the case of the former, in 2020, 15 publicly traded US chip manufacturers derived, on average, 31% of their revenues from sales to China; in the following year, the US sold US$14 billion worth of semiconductors to China (see Figure 2.1).8 Also in 2021, major US financial institutions, including Goldman Sachs, Blackstone and JP Morgan, made substantial investments in China’s financial sector.9
Figure 2.2: US trade balance with and goods imports from China, 1994–2021Note: In the context of this figure, ‘China’ refers to mainland China only, excluding Hong Kong, Macao and Taiwan.
Source: enodo economics, www.enodoeconomics.com
A Phase One trade agreement signed between the two countries at the beginning of 2020 did little to address the underlying causes of tension, which were themselves a function of profound differences of ideology and values – differences that had always been present but which had been brought into sharp relief by China’s growing geostrategic ambitions. Nor would it prove to make a significant difference to the US trade deficit with China. Relations were further exacerbated by the coronavirus pandemic, the effect of which on a hitherto buoyant US economy cast doubt on Trump’s re-election prospects. Thereafter relations entered what appeared to be an uncontrollable downward spiral: the US sanctioned China’s actions in Xinjiang and Hong Kong; imposed restrictions on Chinese technology companies, notably Huawei; promoted the concept of ‘clean’ networks (networks free from Chinese technology); restricted visas for Chinese students, journalists and CCP members; and closed China’s Houston consulate, which stood accused of acting as a collection hub within the US for stolen US technology.
By the end of the Trump administration, senior US officials, including then-secretary of state Mike Pompeo and then-deputy national security adviser Matt Pottinger, were making speeches that sought to distinguish between the CCP and the Chinese people in ways that Beijing interpreted as a policy of regime change.10 The hawks in the Trump administration appeared determined to put US–China relations beyond any possibility of recovery. Meanwhile, Congress achieved a rare consensus on the need to get tough on Beijing, initiating a range of anti-China and pro-Taiwan legislation, an approach that was to continue under President Joe Biden. By late 2020, China’s leaders were convinced that the Trump administration – in a ‘final stage of madness’, to quote the state-backed Global Times11 – was using its last days in office to provoke Beijing, and it subsequently transpired that China feared the US military would seek to provoke the People’s Liberation Army (PLA) into launching an armed attack on US forces.12
NO CHANGE UNDER BIDEN
Chinese leaders did not expect the relationship to improve following Biden’s arrival in office. Veteran US watcher Yuan Peng, the president of the China Institutes of Contemporary International Relations – a respected think tank that is also the open-source research institute of China’s Ministry of State Security – had provided the Chinese leadership with a series of analytical pieces on US–China relations in which he compared the US to the United Kingdom after the First World War: diminished and unable to exercise effective hegemony but still powerful enough to prevent any would-be competitor from displacing it.13 In the US–China context this analysis highlighted the risk that relations could tip over into confrontation. In an initially unreported exchange with a provincial cadre in early 2021, Xi referred to the US as the biggest threat to China’s security.14
Early interactions between Biden’s top national-security and foreign-policy staff and their Chinese counterparts amounted to little more than a recital of each country’s grievances with the other. At a March 2021 meeting in Alaska between senior US and Chinese officials, in a departure from standard protocols, Secretary of State Antony Blinken upbraided China in front of the assembled press corps. State Counsellor Yang Jiechi responded by publicly accusing the US of abusing ‘so-called notions of national security to obstruct normal trade exchanges, and incite some countries to attack China’.15 The Chinese position was that the US should revert to ‘correct’ behaviour, with Beijing offering no concessions. Biden indicated that he was in no hurry to lift the Trump-era tariffs and technology restrictions. He stated in his first press conference as president that he would not allow China to become the world’s leading and wealthiest country.16 It became apparent that Biden, whose room for manoeuvre was limited by the hawkish stance of Congress and the Republican Party, would essentially continue Trump’s policies but in a more structured and focused way (Figure 2.3 highlights the continuity in US legislation on China across the administrations).
Over the course of 2021 China became progressively more vocal and specific in setting out its grievances with the US and demanding action to address them. In July 2021, then minister of foreign affairs Wang Yi told US Deputy Secretary of State Wendy Sherman that ‘the US must not challenge, slander or even attempt to subvert the path and system of socialism with Chinese characteristics’.17 That same month, Vice-Foreign Minister Xie Feng presented Sherman with two sets of demands: a ‘List of US Wrongdoings that Must Stop’, and a ‘List of Key Individual Cases that China Has Concerns With’. These included demands that the US revoke visa restrictions on CCP members and their families; revoke sanctions imposed on Chinese leaders over Xinjiang and Hong Kong; cease suppressing Confucius Institutes; revoke the requirement for Chinese media organisations to register as foreign agents; and revoke the extradition request for Huawei’s chief financial officer, Meng Wanzhou (who is also the daughter of Huawei’s founder), whose detention on alleged breaches of US sanctions on Iran had become a cause célèbre.18
Figure 2.3: US legislation on China and Taiwan, 2018–22Source: IISS
In March 2021 the Biden administration published its Interim National Security Strategy. In his introductory message, the president spoke of a world at an inflection point involving a contest between democracy and authoritarianism. He continued that for democracy to prevail at a global level the US would need to
build back better our economic foundations; reclaim our place in international institutions; lift up our values at home and speak out to defend them around the world; modernize our military capabilities, while leading first with diplomacy; and revitalize America’s unmatched network of alliances and partnerships.19
These points were broadly repeated in the 2022 National Security Strategy released in November that year, which stated: ‘The People’s Republic of China harbors the intention and, increasingly, the capacity to reshape the international order in favor of one that tilts the global playing field to its benefit, even as the United States remains committed to managing the competition between our countries responsibly.’ The strategy also repeated the juxtaposition between democracy and authoritarianism.20
ALLIANCE RELATIONS
Though the Biden administration placed the reinvigoration of US alliances at the heart of its security policy, it was Trump who initiated this policy – despite his professed disdain for alliances. His administration’s Indo-Pacific Strategy, declassified in 2020 years ahead of normal schedules, advocated the creation of a latticework of alliance and partnership relations as a means to contain China. The strategy involved a reactivation of the Quadrilateral Security Dialogue (the Quad), bringing together Australia, Japan, India and the US in a loose partnership. This grouping has subsequently held two summits, one virtual and another face to face. The Quad was first launched in 2007 and followed the four countries’ cooperative response to the 2004 Indian Ocean tsunami. However, the format did not progress in subsequent years due to Australian fears that China would see its existence as provocative. While its revival was made possible in large measure by India’s desire to develop closer links with the US to hedge against China’s more assertive posture – particularly in the wake of the 2020 Sino-Indian border clashes – New Delhi has been at pains to ensure that the Quad presents itself not as a military alliance but as a means of ensuring security and stability in the Indo-Pacific region.21
Another major alliance initiative by the Biden administration was the AUKUS pact, which aims (among other objectives) to provide Australia with nuclear-powered submarines. Washington’s maladroit handling of the initiative, which saw Canberra terminate a 2016 deal – worth US$60bn – with Paris to supply it with 12 conventionally powered submarines, had the unintended effect of alienating France, a consequential Indo-Pacific power in its own right.22 The AUKUS project goes far beyond just the provision of nuclear submarines, which are unlikely to be operational until well into the 2030s; it extends to uninhabited underwater vehicles, quantum sensing, artificial intelligence (AI), cyber capabilities, hypersonic weapons and electronic warfare. The ultimate goal is to provide Australia with a comprehensive advanced defence-industrial capability such that it can meet its own defence requirements and contribute to wider regional security.23
The Biden administration’s engagement with allies has contributed to public shifts in position by Japan and Australia, with leaders in both countries expressing concern regarding China’s more confrontational posture and identifying Taiwan as key to their national security.24 The government of Japanese Prime Minister Kishida Fumio aspires to double Tokyo’s defence budget – from 1% to 2% of GDP – by 2027 and, in a significant departure from decades of pacifism, to develop counterstrike capabilities.25 European states have also been encouraged by the US to undertake assertions of maritime rights and freedoms in waters claimed by China, namely the South China Sea and the Taiwan Strait. Meanwhile, China has become a more pressing issue on the agendas of both the European Union and NATO.
China’s relationship with the EU has undergone a significant deterioration since 2019, driven by Europe’s frustration over its restricted access to Chinese markets and China’s predatory efforts to acquire European technology. Values have also come to the fore, driven by China’s repressive policies in Xinjiang and Hong Kong, resulting inter alia in the European Parliament’s refusal to ratify a Comprehensive Agreement on Investment with China that had taken years to negotiate. Such collective decisions, however, mask significant disparities between individual EU member states over China policy, a situation Beijing has sought to exploit by urging Europe to exercise ‘strategic autonomy’ – code for divergence from US positions.26
More consequential than the EU’s changing policy has been NATO’s new focus on China. At a June 2021 summit, for the first time the Alliance acknowledged that ‘China’s stated ambitions and assertive behaviour present systemic challenges to the rules-based international order’.27 A year later, NATO’s 2022 Strategic Concept identified China, together with Russia, as a major strategic challenge. The Strategic Concept stated that NATO would
work together responsibly, as Allies, to address the systemic challenges posed by the PRC [People’s Republic of China] to Euro-Atlantic security and ensure NATO’s enduring ability to guarantee the defence and security of Allies. We will boost our shared awareness, enhance our resilience and preparedness, and protect against the PRC’s coercive tactics and efforts to divide the Alliance. We will stand up for our shared values and the rules-based international order, including freedom of navigation.28
This shift in focus can be seen as a product of US efforts to indicate that continued American commitment to European security – NATO’s fundamental raison d’être – will henceforth be a function of the organisation’s willingness to provide concrete support for US objectives in the Indo-Pacific.
TECHNOLOGY WARS
Technology has become a critical issue area in US–China relations and one that is inextricably linked with the other primary source of contention: Taiwan. Prior to the Trump administration, the US had adopted a broadly collaborative approach with regard to providing technology to China. This policy was to some degree based on a complacent and – as it proved – mistaken conviction that China could copy US technology but not innovate.29 The Trump administration’s efforts to constrain China’s technical development appeared to be somewhat haphazard and lacking in coherence but did serve to recognise and begin to address the challenges China presented.
The United States’ initial focus was China’s efforts to become the dominant global force in fifth-generation (5G) mobile technology. This reflected the fact that China’s national telecommunications champions Huawei and ZTE had assumed a globally leading position in 5G manufacture and systems integration while the US, though responsible for much of the technology that enabled 5G, had nothing comparable to offer. Through a combination of applying pressure on US allies to exclude China from their 5G networks and denying the likes of Huawei and ZTE access to US technologies by placing them on the US Department of Commerce Entities List, the business models of these companies were substantially eroded, buying time for the US to concentrate on the development of alternative 5G solutions, such as Open-RAN.30
The Trump administration applied a variety of instruments to constrain China’s technology development. Chinese technology companies were added to the Entities List on the basis that their technologies might have military applications. The result was that US companies wishing to export to these companies had to apply for an export licence – with a presumption of denial. Other measures adopted by the Trump administration included application of the Foreign Direct Product Rule, first introduced in 1959 to control trading of US technologies, to limit the amount of US technology in any given system that Chinese firms could acquire; a more rigorous application of Committee on Foreign Investment in the US (CFIUS) rules, to limit Chinese acquisitions of US technology companies; visa restrictions imposing limits on the number of Chinese graduate and research students and denying access to those with links to China’s civil–military fusion programmes; and law enforcement, in the form of an ill-conceived and since abandoned effort to identify and prosecute US-based academics involved in unauthorised research collaborations with Chinese institutions.31
The Biden administration’s early focus was addressing the United States’ own shortcomings through investment in human capital and the creation of incentives for US companies to ‘re-shore’ or ‘friend-shore’ manufacturing capabilities to reduce exposure to China. The most egregious example of the latter policy was the CHIPS and Science Act of 2022, which made provision for US$280bn in spending between 2023 and 2027. Of this, US$200bn is slated for scientific research and development (R&D) and commercialisation, while US$52.7bn is allocated for semiconductor manufacturing, R&D and workforce development. US$24bn is earmarked for chip production – in the form of tax credits. Moreover, US$3bn has been allotted for programmes focused on leading-edge technology and wireless supply chains.32 Other initiatives included persuading the Taiwan Semiconductor Manufacturing Company (TSMC) to invest approximately US$40bn to build two advanced microprocessor foundries in Arizona.33
Initially, Biden did little to impact the situation he had inherited from his predecessor, beyond adding some Chinese technology companies to the Entities List. However, a debate between his administration’s security and economic constituencies was, over the course of 2022, resolved in favour of the former. A series of statements by senior US officials followed. In May 2022, Blinken gave a speech at George Washington University entitled ‘The Administration’s Approach to the People’s Republic of China’, stating that because the US could not change China, ‘so we will shape the strategic environment around Beijing’.34 In September 2022, in a speech to the Special Competitive Studies Project established by former Google chairperson Eric Schmidt, National Security Advisor Jake Sullivan identified export controls as a strategic tool of national security:
On export controls, we have to revisit the longstanding premise of maintaining ‘relative’ advantages over competitors in certain key technologies. We previously maintained a ‘sliding-scale’ approach that said we need to stay only a couple of generations ahead. That is not the strategic environment we are in today. Given the foundational nature of certain technologies, such as advanced logic and memory chips, we must maintain as large of a lead as possible.35
The practical application of the approach outlined by Sullivan became clear the following month when the US Department of Commerce’s Bureau of Industry and Security issued new rules restricting the sale of advanced semiconductors – and the equipment needed to make them – to Chinese entities. The rules restricted specifically the sale of logic chips with non-planar transistor architectures (i.e., FinFET or GAAFET) of 16 nanometres or 14 nm, or below; dynamic random-access memory (DRAM) chips of 18 nm half-pitch or less; and NAND flash memory chips with 128 layers or more.36 In effect, the US government was not only making it impossible for China to acquire or produce semiconductors at the most advanced production nodes but also making it impossible for the country to maintain existing production at less advanced nodes.
The new regulations targeted in particular the sale of advanced graphics processing units used to train and run AI algorithms and enable small-scale high-performance computing applications. As a result, they will significantly restrict China’s ability to become a major AI power. The new regulations also prohibited ‘US persons’ – not merely citizens or green-card holders but anyone resident in the US – from assisting China in the development of advanced semiconductors, a move that resulted in the immediate repatriation of hundreds of US engineers working on projects in China.
The new regulations, accompanied by a decision to place a further 31 Chinese companies on the Entities List, targeted a key Chinese vulnerability. For all the talk within China’s leadership of the need for technological self-sufficiency – a focus reiterated in Xi’s work report to the CCP’s 20th Party Congress – China has consistently lagged behind the most technically advanced economies in the production of advanced semiconductors, most of which are designed in the US and manufactured in Taiwan and South Korea. In early 2022, a report produced by Peking University’s Institute of International and Strategic Studies, which was removed from the internet after just a few days, assessed China’s competitiveness and weakness – relative to the US – in information technology, AI and aerospace. The report concluded that in the event of a technology decoupling between the US and China, both sides would lose but China would suffer more: ‘In the future, China may narrow the technological gap with the U.S. and achieve “autonomous control” in some key sectors. But China faces a long uphill battle surpassing the US in technology.’37
In recent years, China has spent in excess of US$100bn trying to stimulate its indigenous semiconductor industry, with at best mixed results.38 China’s flagship initiative for promoting indigenous semiconductor manufacture – the China Integrated Circuit Industry Investment Fund (CICF, also known as the ‘Big Fund’) – is a case in point. Set up in 2014 and backed by the Ministry of Finance, the Big Fund has received over US$40bn of capitalisation. A 2022 review conducted by Vice Premier Liu He confirmed that there was little to show for this investment. Those heading the fund are now under investigation for corruption. Notwithstanding this failure, it has been reported that the Chinese government is preparing an investment of US$143bn to develop China’s indigenous semiconductor industry, though this has not yet been officially confirmed.39
China’s efforts have not been totally without success. It has achieved significant progress in areas such as memory-chip design, produces substantial quantities of less sophisticated semiconductors (24 nm upwards) and has effectively cornered the global market in semiconductor assembly, testing and packaging. One of the country’s national champions, the Semiconductor Manufacturing International Corporation, has managed to produce semiconductors at the 7 nm node, although it has done so only in small quantities using a highly laborious process that is unlikely to prove commercially viable.40 These achievements being acknowledged, the US retains a stranglehold on the production of electronic design automation tools (EDAs), while the amount of US IP that informs the most advanced etching tools – extreme ultraviolet lithography (EUV) machines, for which the Dutch company ASML has a global monopoly – means that Washington is able to veto their export to China.
Even if China were able to circumvent the US embargo and acquire EUV machines, it would still need to address a shortage of skilled workers. It would also lack access to a complex supply chain of chemicals that have to be refined to the highest levels of purity, as well as valves, pipes, lenses and mirrors machined to the highest levels of precision (99.9999% is the industry standard). These considerations would apply in the event that China was, by invading Taiwan, able to secure control of TSMC, whose ‘pure-play’ foundries (foundries that only manufacture to clients’ designs) account for roughly 50% of global semiconductor production.41 This share rises to 92% in the case of the most advanced production nodes.42 In 2020, the US and China accounted for 60% and 20% of all TSMC sales, respectively.43 The fact that the TSMC foundries are situated just 150 kilometres off China’s coastline has led to speculation that the opportunity to acquire them might constitute an incentive for Beijing to invade sooner rather than later. However, for the reasons outlined above, that is an unlikely prospect and fails to consider what are likely to be the real drivers for Beijing to take such action – China’s perception that the recovery of Taiwan is necessary to restore a sense of national honour impugned by the ‘century of humiliation’ and, more pragmatically, the CCP’s need to be seen by the Chinese people to deliver on its commitment to realise the ‘great rejuvenation of the Chinese nation’. Conversely, Taiwan’s globally dominant role in semiconductor production has been cited by Taiwanese leaders as a reason why the US and its allies would have to intervene to prevent China’s occupation of the island – the so-called ‘silicon shield’ – a perception that is likely to prove equally misplaced.44 Beijing may well conclude that if it cannot benefit from the TSMC foundries then no one can, and that without them China would still be in a relatively strong global position by virtue of its ability to manufacture lower-end semiconductors at a scale others cannot match.
The effectiveness of the United States’ new technology-containment measures will depend on Washington’s ability to persuade other major Western technology powers to apply similar sales embargoes. For example, though the precise details have yet to be announced, both the Netherlands and Japan have agreed to match US restrictions and it has become clear that this outcome was never in serious doubt. However, it remains to be seen whether other states, notably South Korea, will follow suit. US technology companies are manifestly unhappy with the new measures, which will deprive them of significant revenues and have implications for their ability to invest in innovation. While the US has seen the beginnings of a move away from ‘fabless’ semiconductor production – which has seen design taking place in the US and manufacture outsourced overseas – towards indigenous manufacture, the limited scale of these efforts means they are unlikely to prove an effective substitute for current arrangements. Nor will it be straightforward to decouple from the US–China technology relationship, which has developed over the course of several decades and is characterised by deep entanglement.
To date, China’s reaction to the US restrictions has been relatively restrained. A case has been brought before the World Trade Organization alleging that the US is guilty of protectionism.45 However, Beijing has not brought to bear a range of Chinese legislation developed in recent years to counter the effect of sanctions and embargoes, including the Anti-Foreign Sanctions Law, which empowers the Chinese state to seize the assets of entities implementing sanctions against China and imposes liabilities on firms that refuse to help the country counter sanctions; an Unreliable Entity List, similar to that of the US; and the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures, which bar Chinese persons and companies from complying with extraterritorial applications of foreign laws. Nor has China yet sought to embargo the sale of rare earths to the US and its allies, possibly mindful of its earlier efforts to apply such an embargo against Japan, which proved counterproductive and simply reduced China’s market share as Japan found alternative sources of supply. China has however declared a ban on the export of solar-energy technology (a field in which China already occupies a dominant position) – an action which may have been intended as a retaliatory measure, although it was not announced as such.
The US has made it clear that in addition to advanced computing-related technologies, biotechnology and clean technology are also viewed as ‘“force-multipliers” throughout the technology eco-system’, such that ‘leadership in each of these is a national security imperative’.46 It therefore seems likely that – notwithstanding China’s efforts to pose as an advocate of globalisation and open trade – a degree of US–China technology decoupling has become both a reality and an inevitability. The US approach to decoupling has been described as ‘small yard, high fence’, meaning that small amounts of key technologies should be heavily protected while trade in less sensitive technologies continues as normal.47 It is unclear how effective this approach will prove, especially given that in biotechnology and clean technology there is no obvious single point-of-failure technology that equates to advanced semiconductors. Nor is it clear how far the process of decoupling will go or what its practical effects will prove to be.
TAIWAN: THE PLACE WHERE IT ALL COMES TOGETHER
Geopolitical rivalry and technology competition between the US and China have become focused on Taiwan, which since 1949 has been a de facto independent entity but which has always been claimed by the PRC. Since the US and China established diplomatic relations in 1979 the status of Taiwan has been the subject of a diplomatic fudge whereby the United States’ ‘One China’ policy acknowledges – but does not recognise – China’s claim to the island. Per the 1979 Taiwan Relations Act, Washington has maintained a commitment to supply Taiwan with arms for its own defence while maintaining a policy of strategic ambiguity regarding its readiness to come to the island’s assistance in the event of a conflict with China.
Until relatively recently the prospects of such a conflict were not high. Though tensions had arisen following Taiwan’s transition to democracy and the emergence of the pro-independence Democratic Progressive Party during the 1990s, China has remained committed to peaceful reunification on the basis of Deng Xiaoping’s ‘one country, two systems’ model, a commitment most recently repeated by Xi in his 2022 work report to the 20th Party Congress. However, there are indications that Xi may have concluded that this model is no longer viable and has charged CCP Politburo Standing Committee member and chief ideologue Wang Huning with devising a new theoretical framework for reunification.
Concurrently, China has refused to renounce the use of force to achieve reunification and has implemented a major military-modernisation strategy that has, at its heart, the development of the capabilities needed to keep US forces out of theatre long enough for China to accomplish a military takeover of Taiwan.48 As a result, the PLA has developed a broad suite of military capabilities that comprehensively overmatch those of Taiwan. Moreover, in some areas, such as numbers of naval and paramilitary vessels and ballistic and cruise missiles, these capabilities exceed those of the US. The PLA has also focused relentlessly on practising the kind of joint operations it would need to conduct to invade Taiwan, while also building up amphibious-assault capabilities that involve the use of civilian roll-on roll-off ferries.
What has arguably been more consequential in altering the long-standing status quo over Taiwan has been the shift in Washington’s level of engagement with the island. Since establishing relations with the PRC in 1979, the US has effectively served as a guarantor of peace in the Taiwan Strait, reining in Taiwanese ambitions to declare independence while providing reassurances to successive Taiwanese administrations in relation to the island’s defence needs. This pattern ended in 2018 when the Trump administration began using Taiwan as a means to antagonise and undermine China, introducing a succession of measures that have been continued under Biden. These measures have included enhanced political relations through high-level visits to Taiwan by both congressional delegations and senior US officials, most notably then-speaker of the House of Representatives Nancy Pelosi in August 2022, and an invitation to Taiwanese President Tsai Ing-wen to speak at the December 2021 Summit for Democracy; legislation designed to enhance Taiwan’s international space; a major increase in levels of military assistance (the Trump administration provided US$18bn in arms over four years, while Biden has made provision in the 2023 National Defense Authorization Act for US$10bn in arms sales over five years49); and regular freedom-of-navigation transits by US and allied warships through the Taiwan Strait.
For China, the cumulative effect of such actions is seen as a ‘hollowing out’ of the US ‘One China’ policy calculated to encourage Taiwan in the direction of independence.50 In interactions with US counterparts, Chinese leaders – most recently Xi during his meeting with Biden on the margins of the Bali G20 summit – have emphasised that Taiwan is ‘at the very core of China’s core interests … and the first red line that must not be crossed in China–US relations’.51 More consequentially, China has responded to US actions by progressively ratcheting up its ‘grey-zone’ pressure on Taiwan via cyber attacks, selective trade embargoes, military incursions into Taiwanese airspace and naval exercises in the waters around the island that have included simulations of a naval blockade. These developments have resulted in a ‘new normal’ whereby the PLA Air Force now regularly dispatches large contingents of fighters, strategic bombers and aerial-reconnaissance aircraft across the median line into Taiwan’s Air Defence Identification Zone (see Map 2.1) with the aim of both intimidating Taiwan and imposing attrition on Taiwan’s air force and air-defence systems.
Map 2.1: The Taiwan Strait median line and Taiwan’s Air Defence Identification ZoneSource: IISS
The increased military activity around Taiwan carries obvious risks of accidents leading to escalation, although it is worth noting that, to date, China has never allowed itself to be drawn into a conflict unless it was ready for one. Whether it is ready now remains a moot point. It has long been an article of faith that the attainment of China’s second centennial goal of ‘becoming a strong, democratic, civilised, harmonious and modern socialist country by 2049’ is dependent on achieving national reunification.52 However, realistically, achieving this by 2049 can only be an aspiration; there is no evidence that China has a fixed timetable for invading Taiwan. US military leaders have claimed that China may move as early as 2027 or even 2023 – though such statements appear to have been based not on firm intelligence but rather on an assessment of the date by which China will have in place all the military capabilities it will need.53 In fact, a decision on whether to achieve reunification by force is likely to be a function not just of military capability but also of a calculation of likely US and allied sanctions and non-military responses, in particular with regard to the potential impact of economic and financial sanctions on China’s economy. Chinese leaders will be aware that military defeat or a pyrrhic victory could prove terminal for their hold on power.
US civilian leaders, most recently Biden following his November 2022 meeting with Xi, have played down the risk of military action.54 Nor is there any evidence to indicate that Russia’s invasion of Ukraine in February 2022 has altered Chinese thinking on the timescale or methodology for attacking Taiwan. It is clear that Chinese military thinkers have analysed both the implications of Western support for Ukraine – in the form of weaponry, enhanced cyber defences, intelligence sharing, information operations and the imposition of economic and financial sanctions – and the factors that have contributed to Russia’s poor military performance.55 However, Taiwan is seen as a separate case on the basis that the Chinese leadership has always considered it to be part of China’s national territory. Therefore, Chinese officials bridle at the suggestion that there may be any similarity between the Ukraine war and a potential invasion of Taiwan.
It is impossible to determine whether China will use force to take Taiwan at some point in the future. Such force might take a variety of forms, ranging from a contested amphibious assault to concerted missile attacks and bombardments or a naval blockade. China has prepared for all these options, including via ‘lawfare’ by claiming that the Taiwan Strait is not an international waterway.56 In any case, the decision on whether to resort to armed force is arguably no longer just in China’s hands; rather, it has become a function of the dynamic that has evolved between Beijing and Washington. As such, the US must walk a fine line, taking measures to reduce the risk of a Taiwan conflict while avoiding actions that either encourage Beijing to conclude that peaceful reunification is no longer an option or back China into a corner such that it feels obliged to strike out. This context may well account for Washington’s reluctance to abandon its long-standing policy of strategic ambiguity in relation to an intervention in Taiwan despite the fact that a US military intervention is considered a given in PLA planning. The formal abandonment of US strategic ambiguity may well be the action that tips China over the edge. The stakes are high, not just for the region but for the world as a whole: Rhodium Group has estimated that a war in the Taiwan Strait would result in an immediate US$2 trillion hit to the global economy as a result of massive disruption of global supply chains, with the most serious disruptions being to supplies of semiconductors from Taiwan.57
CONCLUSION
Towards the end of 2022, the US and China took steps to renew top-level communications with the explicit aim of putting a floor beneath the rapid deterioration in their relations. However, it is difficult to envisage how such a tactical pause can address the intractable issues that divide these two major powers. When presidents Biden and Xi met in November 2022, each sought to reassure the other: Biden that the US did not seek to constrain China, and Xi that China did not seek to displace the US. Both statements were at odds with objective reality, begging the question of whether the two countries can find a modus vivendi without tipping into conflict.
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