"How to Avoid War With China"

"How to Avoid War With China"

by George Gilder

"Recent U.S. naval maneuvers in the South China Sea and the Taiwan straits raised the issue, “Should we risk war to keep China from subjugating Taiwan?” Ever since President Nixon’s trip to China, and UN action recognizing Taiwan as part of China, the U.S. has acknowledged the People’s Republic has ultimate sovereignty over Taiwan. But today, the U.S. seems to be presenting itself as a guarantor of Taiwan’s autonomy in a way that is provoking intense resentment on the mainland. But, as my editor and co-author Richard Vigilante suggests, better than a three-way military debacle is a path to a triple-win for all three countries. The American people can profit from the ascendancy of China together with its satellite industrial power, Taiwan. But first we must give up the fantasy of U.S. rule in the South China Seas.

“A Ship’s a Fool to Fight a Fort”: China is at least 20 times as powerful as it was when the U.S. began its series of mostly failed Asian wars. Admiral Nelson famously said “A ship’s a fool to fight a fort.” How about if the fort is defended by 1.4 billion people?

Though Washington does not know it yet, in many ways China’s technology is now superior to ours. Should we risk the destruction of our navy and final loss of our standing as super-power in a contest that would ultimately require an attack on the Chinese mainland? Do we imagine that once this conflict was joined, the PRC would be the first to back down? Could we believe that anything could convince them to let us win a war in the south China seas?

The Trump Administration seems to suppose that this is our last chance to force the issue of a free Taiwan; the last plausible moment when our military superiority might intimidate the Chinese communists into letting go. Trump may be right about it being the last moment, but this is not reassuring. Ten years from now Taiwan will still be 100 miles off the coast of China, and Chinese land-based missile technology will be able to sweep the U.S. Navy from China’s homeland seas almost effortlessly.

The Battle Over TSMC: The Administration seems to imagine that we can bully Taiwan into separating its fate from the world’s second - soon to be first - largest economy, a few hours away by sea. Thus, it hectors Taiwan Semiconductor Manufacturing Corporation and threatens it with being cut off from the U.S. market if it dares make chips for China. TSMC is the world’s most important microchip maker, the foundry that executes the designs of hundreds of U.S. semiconductor firms, producing tens of billions in value for the U.S.

The Chinese can’t be bullied into giving up leadership in Taiwanese microchip technology that is crucial to their prosperity and defense. Nor ultimately will it make sense for TSMC or even the Taiwanese government to side with the U.S. China is a bigger market and soon will be the overwhelmingly dominant regional power. Of Taiwan’s investment over the last decade, 60% has gone to the Mainland. Guns and money beat lawyers and liberals every time.

A Peaceful Resolution: What if instead of trying to grab Taiwan, we created a way to share it? Instead of making it a locus of conflict, we turned it into a premium for peace? This could be done relatively easily, in a way that would not even require a negotiation with China or raise Chinese hackles about the U.S. interfering in China’s “internal affairs.”

Make Taiwan a free trade zone for U.S. imports. Declare that any goods transiting Taiwan, even if made on the mainland, may enter the U.S. duty free. For those concerned - as only economic illiterates can be - about a flood of cheap goods from China, the U.S. could make clear that imported goods must be off-loaded and re-loaded in Taiwan. This would serve not only as a boost to the Taiwanese economy, but also as a modest tariff on mainland exports. This is a good thing for multiple reasons…

Maintaining the Status Quo: Overnight, this would create a huge incentive for China to amicably extend the status quo on Taiwan - as it has for 70 years its claim to sovereignty - while refraining from military action. Free passage for exports to the U.S. could be worth hundreds of billions to the Chinese. Even pre-Trump, U.S. tariffs on Chinese imports averaged about 3.5%, or $35 billion on traffic close to $500 billion. Under Trump tariffs on many goods are as high as 15% and in some cases higher, even 25%. In a duty-free environment, trade could reach into the trillions.

To avoid triggering nationalist resentments from the Chinese, the U.S. need never to state the obvious - that this deal is contingent on the Communists leaving Taiwan alone. Nor should we expect the Communists to cease fulminating about the island. Promises to retake Taiwan are a staple of Chinese politicking and so far, have been about as predictive of reality as most political promises. The Communists can fulminate forever, as long as they don’t launch an invasion.

In retrospect, this is what we should have done with Hong Kong in 1997 when the Brits ceded control to the PRC. The benefit to Chinese - businesses in the entrepreneurial regions around Hong Kong - the first to take advantage of Deng’s loosening of the economy would have given the U.S. great leverage to demand that China abide by the Fundamental Law, guaranteeing Hong Kong’s autonomy. It’s probably too late for Hong Kong. Declaring a free trade zone on the premise that Hong Kong will regain its autonomy would be too blatant an intervention for the Communists to swallow.

China Was an Underrated Ally During WWII: We have become accustomed to think of ourselves as a supreme military power. Yet, the United States has not been on the winning side of a war since 1945. Even when we have been militarily dominant, our democratic politics has not been willing to sustain the kind of brutal operations that are necessary for victory.

Even in World War II, our opponents were three nations without domestic supplies of oil, and in the case of Japan not even self-sufficient in coal. Modern Italy has never won a war against an enemy possessed of gunpowder.

On our side was the largest army on earth - the Soviet Union’s; up till then, the greatest navy on earth from Great Britain; and often forgotten, China, which held down at least a million Japanese soldiers during the war. Add a million Japanese soldiers to the fight for Pacific islands, and that flag might never have been raised over Iwo Jima. Shift Japanese resources from the Army, tied down in China, to the Navy preparing to take on the U.S., and there might have been 10 Japanese carriers at Midway. No tide would have been turned that day.

Win-Win: Nothing is as dangerous to us right now as the uncontested myth of our military supremacy in Asia, which is based on bloated spending and an unusably self-defeating nuclear capability. The U.S. has been in a war with China - in Korea - long before China became the world’s leading manufacturing power. The Chinese had no air force, no navy, and no true mechanized divisions. The Chinese invaded over the mountains of Korea with only the munitions they could carry on their backs. And we could not beat them. China’s rise is all but inevitable. Either we work out ways to rise together, or the U.S. will fall. Chinese and Taiwanese prosperity is crucial to the future of our country."

- dailyreckoning.com

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