China, Taiwan, and the Dollar

The more I learn about Southeast Asia, the more convinced I am that China will not escalate the Taiwan issue into a military confrontation. Nationalism is a powerful motivator, but China has been successfully deterred from military action before now. To argue that they will change policies, one must first show that the Chinese can expect to gain in the long run from war.

Let us assume that within a few years, China will assemble an amphibious force that they believe capable of taking Taiwan. (Set aside for the moment whether it would actually succeed.) Let us even assume that the United States is intimidated by China's nuclear arsenal, and withdraws its carrier task forces from the Taiwan Strait. (This is highly improbable, given that all signals have been to the contrary; note for example Operation Summer Pulse, in which an unprecedented seven carrier groups were activated as a show of strength.)

What would be the effect of such a move on China's neighbors?

Japan and South Korea, already nervous over North Korean nuclear blackmail, will certainly be concerned. Some analysts believe that they would be tempted to develop nuclear weapons of their own, which would certainly not be in China's interest. Japan is already testing the boundries of Article Nine of its constitution, which foreswore war as a tool of statecraft; the present Japanese deployment to Iraq is the first time that ground troops have been deployed outside of Japan not under UN auspices. Before that, Japan contributed immeasurably to the success of the Korean Inchon landing by providing a fleet of minesweepers to clear the way, though this was kept secret for decades.

China and Japan have been enemies for a long time, though this has not stopped them from trading with one another. If Japan felt threatened enough to take on a more assertive military role, China surely would not benefit.

Meanwhile, Australia has for a long time been building nuclear breeder reactors, which can quickly produce weapons-grade material if deemed necessary. Though Australia has not taken specific steps towards a nuclear weapons program, it is very deliberately giving itself the option.

What benefits would China get from control of Taiwan? The largest benefit would be expanded control over the sea lanes; but it seems likely that the United States, Indonesia, and Japan would quickly act to prevent Chinese access to the deep Pacific routes. And this would be after an expensive invasion. I don't see how gaining Taiwan would be worth the staggering cost.

What about the dollar-meltdown option? This scenario, a favorite of Fortress-America types and hard-money aficionados, goes roughly like this: China, having prepared for the inevitable war with the United States, first acts to disrupt the world economy by dumping its massive hoard of dollar-denominated bonds onto the market. With world financial markets reeling and the dollar plummeting, the United States will have too much on its plate to risk worrying about Taiwan, and our global deployments will be pulled back to save the cost of mintaining them.

This remains a possibility. But again, the benefit to China must outweigh the cost. Right now, China's economy is running on dollars. Moreover, China is now a net importer of oil, and will import much more in the next several years. Until China's economy becomes self-sufficient and it transitions away from oil, China needs the world market much too badly to consider destroying the dollar.

But these optimistic conclusions have one major difficulty, in that they do not explain the Chinese military's ongoing buildup, or the recent Chinese legislation authorizing an invasion if Taiwan should declare independence. It could very well be that China feels threatened by American power, and is only acting defensively. But China could also have decided to go to war, all of the foregoing notwithstanding. After all, national leaders have a history of improperly analyzing the chances of success and the costs of action.

We should of course be vigilant for any Chinese aggression. But on the whole, it seems unlikely.

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