At Top Gun Options we always keep an eye on the DRINCs in order to anticipate events that will drive the economy and the markets. This acronym stands for Democrats, Russia, Iran, North Korea, and China. Among the various concerns from this bunch of troublemakers is that China will invade the island nation of Taiwan. Concern about this happening has increased of late as China staged live ammunition drills around the periphery of Taiwan. When will China invade Taiwan? Here are a few thoughts about if they will and when that might be.
Why Would China Invade Taiwan?
In 1912, after the Chinese people threw off the rule of the last imperial dynasty of China, the Qing Dynasty in the Xinhai Revolution and until 1949 the Republic of China was the government. However, the entire period was marked by unrest and fighting between various factions. In the end the Communist Party defeated the Kuomintang under General Chang Kai-shek which was severely weakened after fighting Japanese invaders before and during World War II. In the end the Republic of China government and what remained of its army followers retreated to the island of Taiwan where it refers to its mainland period and its Taiwan period. Ever since 1949 the Chinese Communist Party has claimed sovereignty over Taiwan and demanded that rule be returned to mainland China. The current leader of China, Xi Jinping, wants to cap his political career by bringing mainland rule to Taiwan and Xi is likely to get five more years of power at the upcoming party congress.
Can China Successfully Conquer Taiwan?
We expect that China is taking a lesson from Putin’s invasion of Ukraine in which he expected a quick and virtually bloodless victory and now is bogged down in a war of attrition as Western sanctions hurt his economy, casualties mount, and NATO has become more united and more powerful with the addition of Finland and Sweden. Like Ukraine, the people of Taiwan are not going to roll over and give up if Chinese troops set foot on their soil. They have adopted the “porcupine” strategy of asymmetrical warfare to make an invasion as difficult and costly as possible for the invader. China knows this and will take this into consideration in deciding if it will launch an invasion. Over the years the US has maintained “strategic ambiguity” in regard to how much manpower and materials it would devote to a direct defense of China however in the last year President Biden has three times stated clearly that the US would defend Taiwan in the event of an attack. This is the tripwire that Russia is avoiding in Ukraine by not attacking any NATO countries and bringing on a full scale war.
China Counts the Cost of Taking Taiwan
The most likely discussions in China about invading Taiwan likely center on whether or not the potential benefits will outweigh the costs. The costs will certainly include loss of military assets and human casualties but on a broader scale China would alienate itself from its biggest customers, lose the trade agreements that have brought its industry to global power, and accelerate the anywhere but China policies that are already moving business out of China. The crown jewel of a successful conquest of Taiwan would be Taiwan Semiconductor, the Taiwan-based maker of the world’s most advanced computer chips. In this regard a recent interview of CEO Wei by Bloomberg was instructive. He noted that Taiwan Semiconductor is purposely integrated very widely with tech partners throughout the world so that taking possession of company assets in Taiwan would not put anyone in control of the whole company. Furthermore, the company has already accelerated movement of fabrication facilities to Japan and the US according to Asia Financial.
When Would An Invasion of Taiwan Occur?
US military planners say that China will see a window of opportunity in about five years as its military ramps up, its navy becomes the largest by ship count in the world, and progressively higher technology is integrated into their forces. An issue for China is that unlike Russia their army, navy, and air force have no experience in a real war and have not had and since they were fought to a standstill by Vietnam in a border war about forty years ago. Thus, China may see the next few years as their chance to bring Taiwan under Communist Party control or they may decide that destroying their trade relationships with their best customers will not be worth it!