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The Taiwan risk gorilla kicks Kim to Asia's sidelines

Beijing clampdown on Hong Kong has put Taipei on edge

| Taiwan
A Taiwanese fighter aircraft in foreground flies on the flank of a Chinese bomber as it passes near Taiwan in February 2020: the real audience is officials in Tokyo and Washington.   © Taiwan's Ministry of National Defense/AP

William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."

Kim Jong Un is either loving 2021 or feeling terribly ignored, now that Taiwan has usurped North Korea's dubious honor as Asia's top geopolitical flashpoint.

The Taiwan Strait had long been a dormant worry for Asia policy wonks. But the island of 23 million has recently become a risk requiring daily assessments everywhere from the White House situation room to investment boards in New York, Tokyo and Shanghai. And, of course, the Taiwan situation offers an insight into how newish U.S. President Joe Biden intends to take on Xi Jinping's China.

Suffice to say, President Xi is likely less happy about Biden's arrival on the scene than even Kim, who played Donald Trump like a haegeum -- Korea's answer to the fiddle. Kim scored summits, chummy photos, "love" notes and a White House invite.

Trumpian chaos, meanwhile, created a void that Xi exploited by concluding history's biggest trade deal -- the 15-nation Regional Comprehensive Economic Partnership. Biden flipped the script with remarkable speed. In less than 100 days, he got under Xi's skin in ways Trump never managed despite 1,461 days of trade-warring, mean-tweeting and corporate banning.

Last month's remarkably testy exchange in Alaska between Biden and Xi officials was proof enough of that. But the six days since Japanese Prime Minister Yoshihide Suga sat with Biden in the Oval Office have deepened the Taiwan-related plot.

Biden and Suga, with just a few words, had Xi's diplomats apoplectic about a "very dangerous" U.S.-Japan conversation and crossing a "red line" with efforts to "play the Taiwan card." All they did, in a rather dry communique, was "underscore the importance of peace and stability across the Taiwan Strait and encourage the peaceful resolution of cross-strait issues."

It matters, of course. Not since 1969, when President Richard Nixon and Prime Minister Eisaku Sato joined forces, have the leaders of the U.S. and Japan issued such a punctuation point. Let us not get ahead of ourselves, though. Jeff Kingston, director of Asian studies at Temple University in Tokyo, cannot help but be bemused by the "media pants-on-fire scramble to make a mountain out of a molehill."

Kingston has a point. Today's China watchers sure are an easy crowd. Take, for example, their collective excitement over Xi supposedly calling for some kind of "New World order" as Beijing grows its influence. For many, Xi saying this week that greater global integration would be nice and to be careful about economic decoupling seemed a game-changer.

Hardly. Xi simply served up the same old "noninterference in internal affairs" orthodoxy China has propagated for decades. The real message from Xi's Boao Forum on Asia speech: The U.S. and its allies must not "boss others around."

Xi Jinping delivers via video link a keynote speech at the opening ceremony of the Boao Forum on Apr. 20: the real message is the U.S. and its allies must not boss others around.   © Reuters

Yet, a Sino-U.S. inflection point may indeed be in the making, as Xi endeavors to remind Biden who is boss in Asia.

Over the last year, Taiwan has gotten used to almost daily Chinese aircraft sorties into its air-defense identification zone. The real audience for such stunts seems less President Tsai Ing-wen's administration than officials in Tokyo and Washington who might have the most to say -- and do -- should Beijing suddenly move to grab the island.

Xi's Hong Kong clampdown put Taiwan on edge as rarely before. So did Trump's incredibly limp response to one of Asia's most vibrant cities getting a Chinese makeover. Team Biden is wasting no time calling Beijing out for actions in the Taiwan Strait.

These concerns are rapidly fusing together with Taiwan's pivotal role in the global supply chains, fraying the nerves of the U.S. and China. The main backdrop for this fraught relationship, says analyst Arthur Kroeber at Gavekal Research, is the "centrality of technology and especially semiconductors in that rivalry."

This hinge point could either ensure peace or up the odds that Xi will move to topple Tsai's democratically elected government. Taiwan Semiconductor Manufacturing Co. (TSMC) is the global leader in an industry Trump's trade war tried to suffocate. From Xi's point of view, it sure would be convenient to go seize TSMC one of these days.

"China's technological dependence makes the risk over Taiwan low for now, because the ultimate economic cost of even a successful military action might be too much for Beijing to swallow," Kroeber said. "But Taiwan matters to China for reasons far deeper than semiconductors. And the risk of conflict is rising because of the growth of China's military and technological capacity and uncertainty over the strength of the U.S. deterrent."

Markets abhor uncertainty. Until now, it was Pyongyang's missile tests ruining weekends and family holidays. Do not be surprised if the early-morning alerts on your phone start warning of Taiwan-related drama. Investors might soon be buzzing about Taiwan risk premiums in interest rates and cross-strait hedging strategies. Especially as U.S. and Chinese warships come into proximity with greater frequency.

In resource-poor Japan, policymakers are leaving little to chance. They are drawing up contingency plans should the East China Sea and South China Sea become harder to navigate. The levels of petroleum reserves are getting renewed attention, as are the procurement of liquefied natural gas and imported food items. Manufacturers are drawing up plans should supply chains suddenly collapse.

Even if the risk of military adventurism is small, Taiwan risks are joining COVID-19 as an 800-pound gorilla in every room where the outlook for Asian markets is being discussed.

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