Defying China’s stark warnings and condemnation — and even the Pentagon’s opposition — House Speaker Nancy Pelosi (D-Calif.) boldly embarked on a two-day whirlwind visit to Taiwan where she vowed to protect the island country’s independence and democracy.
Beijing has always considered Taiwan a rogue nation that still belongs to China.
This was Pelosi’s “Mr. Gorbachev, tear down this wall” moment. She singlehandedly brought China to its knees — if only for a few days.
But Pelosi’s swan song will come at a big price — not for her or the U.S., but for Taiwan. The thousands of small businesses there doing business with China will suffer immensely.
No doubt, China will put the hammer on the U.S as well. Expect harsh and sudden combative measures. Just this week, China sanctioned Pelosi and her family, and suspended or canceled future cooperation on such issues as climate control, maritime security, and communications between military leaders.
And don’t discount that President Xi may step over President Biden’s “red line” by supplying Putin’s Ukraine invasion with badly needed drones, or he may cut off supply of rare earth minerals, pharmaceutical drugs and medical supplies to the U.S. After all, Pelosi stepped over Xi’s red line.
Ultimately, however, the world’s most powerful country will weather the storm. “There is not much Beijing can do to the U.S.,” said James Zimmerman, the four-time chairman of the American Chamber of Commerce in China, “and any economic sanctions will only harm China’s own shrinking economy.”
On the other hand, Taiwan, an island nation just 13 times the size of Rhode Island, is too small, too nimble, and too economically dependent on China to withstand an economic cold war with Beijing.
Many China experts expected an all-out war, but why fire missiles when Beijing could just as easily destroy Taiwan with economic and trade weapons?
Kenneth Rapoza, a senior contributor to Forbes who has been following China since 2011, feels an economic war makes much more sense “because using trade as an attack will make it harder for the U.S. to counterattack. I have never heard of the U.S. going after another country because it imposed a tariff or trade ban.”
China is Taiwan’s largest trading partner accounting for 42 percent and 22 percent of Taiwan’s exports and imports, respectively, in 2021, totaling a whopping $270 billion.
Within 24 hours of Pelosi’s Taiwan visit, China’s Ministry of Commerce suspended the export of natural sand, a vital material for semiconductor production and construction, and halted the imports of citrus fruit and fish products.
And that is only the tip of the iceberg.
China could easily sanction or — worse — cease the thousands of Taiwanese companies operating factories in China, producing such products as auto parts, consumer electronics and industrial chemicals that are vital not only to Taiwan’s economy but to the world’s supply chains.
In a doomsday scenario, China could possibly sanction Taiwanese company Foxconn, the world’s largest contract manufacturer and the largest private employer in China, resulting in billions of dollars of lost revenue, thousands of Taiwanese jobs lost, and double-digit percentage losses on Taiwan’s annual GDP.
An earnest and unprecedented economic sanction from the mainland, “would be nothing short of devasting to Taiwan’s economy,” said Jack Gao, program economist at the Institute for New Economic Thinking. “The ripples would not only be felt in East and Southeast Asia, but in economies around the world.”
But doomsday scenarios are just that, and how many “end of the world” stories have come and past? Many. My biggest worry is for the thousands of small Taiwanese mom-and-pop factories operating in never-heard-of places in China like Zhongshan and Jinan that produce bland and boring items like spark plugs, bicycle spokes, and plastic-injected pencil boxes. It’s these no-name entrepreneurs who will suffer the wrath of China. It’s their China visas that will be canceled and revoked; it’s their factories that will be ceased and closed for “health and safety violations.” It’s their livelihoods that will die, and worst of all, no one will ever know about it. After all, mom-and-pop closures don’t make headlines.
China needs Foxconn and Taiwan Semiconductor Manufacturing Company (TSMC) more than Foxconn and TSMC need China. Just ask Huawei, the world’s largest supplier of telecommunications equipment and which contracts much of its cellphone and other telecommunications hardware manufacturing to Foxconn.
However, China doesn’t need older, often outdated, small mom-and-pop factories, especially ones owned Taiwanese. Just the opposite: Shutting these down would be a blessing for China. It would lower China’s green-house effects, put an end to low-tech industries that no longer serve the interests of the Communist Party, and ease some of China’s power shortages.
But China’s true agenda in closing Taiwanese factories will be to devastate Taiwan quietly, one-by-one via the thousands of mom-and-pops doing business with China that — in aggregate — would definitely cripple Taiwan economically.
Let’s not worry about China’s sanctions on Pelosi and her family. I don’t expect her to be touring the Great Wall any time soon anyway. And don’t fret about TSMC’s sand supplies; I haven’t heard of any worldwide shortages of sand lately.
I will, however, be thinking of my fisherman friend in Kaohsiung who, for the past 10 years, has been farming and exporting live grouper to China’s hundreds of restaurants in Hong Kong and southern China. Thanks to Pelosi’s visit, he soon may no longer be able to sell groupers to China, which more than likely would put him out of business.
Needless to say, my friend is no big fan of Nancy Pelosi.
Stanley Chao is managing director of All In Consulting, a Los Angeles-based firm which focuses on business development in China. He has worked in China and the Asia Pacific region for more than two decades and is the author of “Selling To China” (2012). Follow him on Twitter @stanleychao6.