On July 1st, 2021, Chinese President Xi Jinping gave a speech on Beijing’s Tiananmen Square to mark the 100th anniversary of the founding of the Chinese Communist Party. He received overwhelming applause from participants while delivering the two remarks below:
“We Chinese are a people who uphold justice and are not intimidated by threats of force. As a nation, we have a strong sense of pride and confidence. We have never bullied, oppressed, or subjugated the people of any other country, and we never will. By the same token, we will never allow any foreign force to bully, oppress, or subjugate us. Anyone who would attempt to do so will find themselves on a collision course with a great wall of steel forged by over 1.4 billion Chinese people.”
“Resolving the Taiwan question and realizing China’s complete reunification is a historic mission and an unshakable commitment of the Communist Party of China. It is also a shared aspiration of all the sons and daughters of the Chinese nation. We will uphold the one-China principle and the 1992 Consensus, and advance peaceful national reunification. All of us, compatriots on both sides of the Taiwan Strait, must come together and move forward in unison. We must take resolute action to utterly defeat any attempt toward “Taiwan independence,” and work together to create a bright future for national rejuvenation. No one should underestimate the resolve, the will, and the ability of the Chinese people to defend their national sovereignty and territorial integrity.”
Immediately after his speech, a Chinese website specializing in ships posted a video simulating a military reunification of Taiwan, which received massive attention in both public and social media in China. For Beijing and the majority of mainland Chinese, a reunification with Taiwan is only a question of when, not if.
Considering all the military support announced by Washington, it seems that an American military intervention unavoidable. Thus, the most important question is: what would the cost for America be? It is very interesting to observe how American stakeholders in the military establishment operationalize strategic challenges. Without fail, the costs always significantly exceed the initial estimates. In the case of Vietnam, the true damage to the world economy, the destruction of the USD gold standard, could only be repaired with a trade commitment of oil in USD, which would result in the destabilization of the entire Middle East.
Let’s recall how the Vietnam war began, so we have a reliable historic benchmark for what a war with Taiwan might cost.
The cost of American intervention in South Vietnam: USD Gold standard
Before World War Two, Vietnam was part of the French Empire. The revival of French colonialism in Indochina was not universally popular with Americans, many of whom despised colonialism and believed that Asian nations should be free to govern themselves. But, the USA needed France’s active involvement in the occupation of Germany and to restore order in Europe, not to mention joining NATO. What would have been gained by saying no to France going back into Indochina? France might have become far more obstinate far sooner. They may have sided with the USSR over the partition of Germany, and might not have joined NATO. [Source]
The Domino Theory was fabricated as a way of successfully manipulating the American public, and unfortunately the majority of political decision makers all became convinced of it. In December 1953, US vice president Richard Nixon explained:
“Let us turn now to another area of the world: Indochina. And many of you ask this question: Why is the United States spending hundreds of millions of dollars supporting the forces of the French Union in the fight against communism in Indochina? If Indochina falls, Thailand is put in an almost impossible position. The same is true of Malaya, with its rubber and tin. The same is true of Indonesia. If this whole part of south-east Asia goes under communist domination or communist influence, Japan, who trade and must trade with this area in order to exist, must inevitably be oriented towards the communist regime. That indicates to you and to all of us why it is vitally important that Indochina not go behind the Iron Curtain.” [Source]
This horror scenario remains a propagandistic fabrication. Estimates of the number of Vietnamese soldiers and civilians killed vary from 966,000 to 3,812,000. Currently, 2017 records report that the conflict resulted in 58,318 U.S. fatalities. The war in Vietnam cost the United States $843.63 billion in 2019 dollars, or 2.3% of GDP in 1968. [Source]
The international monetary system after World War II was dubbed the Bretton Woods system after the meeting of forty-four countries in Bretton Woods, New Hampshire, in 1944. The countries agreed to keep their currencies fixed (but adjustable in exceptional situations) to the dollar, and the dollar was fixed to gold. Since 1958, when the Bretton Woods system became operational, countries settled their international balances in dollars, and US dollars were convertible to gold at a fixed exchange rate of $35 an ounce. The United States had the responsibility of keeping the dollar price of gold fixed and had to adjust the supply of dollars to maintain confidence in future gold convertibility.
Initially, the Bretton Woods system operated as planned. Japan and Europe were still rebuilding their postwar economies and demand for US goods and services—and dollars—was high. Since the United States held about three-quarters of the world’s official gold reserves, the system seemed secure. In the 1960s, European and Japanese exports became more competitive with US exports. The US share of world output decreased and so did the need for dollars, making converting those dollars to gold more desirable. The deteriorating US balance of payments, combined with military spending and foreign aid, resulted in a large supply of dollars around the world.
Meanwhile, the gold supply had increased only marginally. With inflation on the rise and a gold run looming, Nixon’s administration coordinated a plan for bold action. From August 13 to 15, 1971, Nixon and fifteen advisers, including Federal Reserve Chairman Arthur Burns, Treasury Secretary John Connally, and Undersecretary for International Monetary Affairs Paul Volcker (later Federal Reserve Chairman) met at the presidential retreat at Camp David and created a new economic plan. On the evening of August 15, 1971, Nixon addressed the nation on a new economic policy that not only was intended to correct the balance of payments but also stave off inflation and lower the unemployment rate. [Source]
Additionally, due to the Bretton Woods system, many European countries had exchanged their gold reserves to Dollars as a means of backing their respective currencies. All that gold went to the USA in exchange for the dollars. However, America went overboard on printing US dollars to continue financing the war in Vietnam. This led a lot of countries becoming concerned that the values of their respective currencies would be seriously affected. Ironically, the French, as the only one with veto power in the U.N., first decided enough was enough and asked the US to honor its agreement to sell the French gold back to them at the agreed price of $35 dollars an ounce.
Is the ideology behind defending Taiwan comparable to that of the Vietnam war?
A possible decision to prevent Chinese reunification with Taiwan via American military intervention, possibly assisted by Japan, seems to be emerging. The ideological motivation is to defend democracy, in this way it is fully comparable with the decision to go to war with Vietnam.
Trump’s administration has frequently encouraged the anti-China sentiment of local Taiwanese independence forces by advocating the threat of China, and instigating cross-strait relations, but it has never explicitly promised that America will protect it from attacks from the Chinese mainland. In doing so, the United States not only want to leverage the Taiwan issue while bargaining, but also do not want to bear any losses. However, in the United States, anti-China forces and sentiments have spun out of control. There have been fierce debates in Congress on whether or not to abandon the “one China principle”. There is a very strange paradox here: the United States have recognized the fact of “One China”, which is tantamount to acquiescing that China has been reunified. At the same time, Taiwan’s Democratic Progressive Party wants to be independent. While it is clear that it is splitting China, America and the DPP are still colluding with each other. Where is the logic, justification and morality?
In the past few weeks, both Japanese Prime Minister Yoshihide Suga and the Deputy Minister of Defense have spoken up about the Taiwan issue. For many mainland Chinese, this awakened humiliating memories of Japan’s invasion of China: when Emperor Fu Yi of Manchuria and Wang Jingwei of Nanjing were installed. The rhetoric back then was to establish a greater East-Asian co-prosperity circle. Now it is to defend democracy in Taiwan.
Japanese Deputy Defense Minister, Yasuhide Nakayama, said it was necessary to “wake up” to China’s threat and that democratic nations should stand by Taiwan – remarks the Chinese foreign ministry blasted as “sinister, dangerous and irresponsible”. On Monday, June 29, 2021, Japan’s Deputy Defense Minister warned of the growing threat posed by Chinese and Russian collaboration and said it was necessary to “wake up” to Beijing’s pressure on Taiwan and protect the island “as a democratic country.”
Speaking to the Hudson Institute think tank, State Minister of Defense Yasuhide Nakayama questioned whether the decision of many countries, including Japan and the United States, to follow a “one-China” policy that has recognized Beijing rather than Taipei since the 1970s would stand the test of time. “Was it right?” he asked at the online event, referring to how future generations will judge policymakers on the issue. “I don’t know.” [Source]
“As US-China relations have deteriorated, US-Taiwan relations have been strengthened, in part because of concerns in the US about Chinese threats to Taiwan’s security,” said Bonnie Glaser, director of the China Power Project at the Center for Strategic and International Studies. “The US has also stepped-up efforts to encourage Taiwan’s diplomatic allies to retain their ties with Taipei, and persuaded leaders from many other countries to publicly voice concerns about the importance of preserving peace and stability in the Taiwan Strait,” she said. Last month’s G7 communiqué mentioned Taiwan for the first time since 1975 – when it was the G6 – as US President Joe Biden managed to forge a consensus to counter Chinese assertiveness. [Source]
“Defense of Taiwan Vital to Regional, National Security” said Navy Adm. John Aquilino testifying today before the Senate Armed Services Committee. The committee is considering his nomination for commander of U.S. Indo-Pacific Command. [Source] Aquilino noted that various studies predict that China might decide to launch a military strike against Taiwan sometime between now and 2045. “My opinion is this problem is much closer to us than most think,” he said. If China is allowed to take over Taiwan, it would be a severe blow to the credibility of the United States as a strong and trusted partner in the region, he said. To meet this challenge, it will take all elements of national power, working together and with a sense of urgency, he said, adding that allies and partners will also play a key role.
On June 29, 2021, Pacific Fleet Commander Says He Has a Duty To Prevent Seizure of Taiwan: “I worry about China’s intentions,” Adm. Sam Paparo said June 29 during the final webinar of the West 2021 symposium of the Armed Forces Communications and Electronics Association, and the U.S. Naval Institute. “It doesn’t make a difference to me, whether it is tomorrow, next year or whether it is in six years. At Pacific Fleet and Indo-Pacific Command we have a duty to be ready to respond to threats to U.S. security.” That duty includes delivering a fleet “capable of thwarting any effort on the part of the Chinese to upend that [world] order, to include the unification by force of Taiwan to the People’s Republic of China,” the admiral said. “But I also feel confident in our Sailors, Marines and Coast Guardsmen … as well as our operational designs to thwart such an effort with the teamwork of our allies and partners.” [Source]
The other cost for America of a Taiwan war: USD dominance.
Operational cost items of a possible military conflict in the Taiwan strait would be, in addition to all direct military expenses, a blockade of the Chinese economy which would result in damage to the world economy: Inflation, supply chain disruption, unemployment and a surely disastrous collapse of all major stock exchanges. The closest comparison thus far is the semiconductor industry, an example which is explored below:
Over the past three decades Taiwan has become the world’s leading manufacturer of semiconductors. Its industry is now so advanced, no one, not even the US or China can compete. Complex manufacturing outfits called foundries churn out the world’s smallest and most sophisticated computer chips that power everything from smartphones to fridge freezers. TSMC (Taiwan Semiconductor Manufacturing Company) alone accounts for more than half of the globe’s market share and includes Apple, Qualcomm, Nvidia among its clients.
The disruption caused by Covid to the global semiconductor supply chain over the past year highlighted Taiwan’s critical importance to the industry and focused minds in Tokyo, Washington, Beijing and Europe. “Look at the impact of the current chip shortage on the auto sector over the past several months,” said Craig Addison who coined the phrase Silicon Shield in his 2001 book of the same name, “then multiply that 1,000 times, across dozens of tech-dependent industries, if Taiwan’s ability to make chips is disabled.”
“It is a bit like the MAD (mutual assured destruction) concept during the Cold War,” he added, “if China attacks Taiwan, it would harm itself (and the US) just as much as it harms Taiwan, so that acts as a deterrent.” It is a mutually assured dependency that has accelerated China’s push for self-reliance in tech while US companies scramble to bring some American-designed chip manufacturing back home. But Taiwan’s pre-eminence is likely to remain for decades to come, which is an incentive for other countries to keep it sweet.
“Self-reliance in semiconductor production – if that includes the entire supply chain from design of chips to wafer fabrication – is a practical impossibility in my view (and even if it were technically possible, the cost of achieving it would be prohibitive for any single country)” Mr Addison said. “And that not only goes for China, but the US as well,” he added. [Source]
American military intervention in Taiwan would immediately cause China to pause USD usage in all economic activities: Economic sanctions against China, imposed by America and its allies, would certainly include its exclusion from e.g., the SWIFT settlement system. Beijing would have no choice but to drop the USD as the trading and reserve currency politically as well.
In January 2021, the USD maintained its top spot at 38% of global payments, followed by the Euro at 37%. [Source] In 2020, China ranked as the top exporter in the world, taking a 14.7 percent share that totalled US$2.59 trillion (World total: US$17.6 trillion) with China as the second largest importer with US$2.056 billion. Taiwan recorded its best export performance in 16 years in 2020, with its outbound sales growing almost 5 percent from a year earlier to US$345.21billion. In terms of imports, Taiwan was 18th globally in 2020, buying US$285.8 billion worth of products. [Source]
A military confrontation between America and China would damage (if not wipe out) a world trade volume of USD 5.82 trillion p.a., as a minimum consequence, implying a usage reduction of USD of this minimum amount (15% of global trade), thus immediately ending the USD dominance in global payments.
The US and Japan have been conducting war games and joint military exercises in the event of a conflict with China over Taiwan, amid escalating concerns over the Chinese military’s assertive activity. US and Japanese military officials began serious planning for a possible conflict in the final year of the Trump administration, according to six people who requested anonymity. The activity includes top-secret tabletop war games and joint exercises in the South China and East China seas. Shinzo Abe, then Japan’s prime minister, decided in 2019 to significantly expand military planning because of the threat to Taiwan and the Senkaku Islands in the East China Sea.
This work has continued under the administrations of Joe Biden and Abe’s successor, Yoshihide Suga, according to three of the people with knowledge of the matter. The US and Japan have become alarmed as China has flown more fighter jets and bombers into Taiwan’s air defense identification zone, including a record 28 fighters on June 15. The Chinese navy, air force and coast guard have also become increasingly active around the Senkaku, which are administered by Japan but claimed by China and Taiwan. China insists that it wants to unify Taiwan with the mainland. While it says it wants peaceful unification, it has not ruled out the use of force to seize control of Taiwan. “In many ways, the People’s Liberation Army drove the US and Japan together and toward new thinking on Taiwan,” said Randy Schriver, who served as the top Pentagon official for Asia until the end of 2019. “Assertiveness around the Senkaku and Taiwan at the same time drives home the issue of proximity.” [Source]
In simulated combat in which China attempts to invade Taiwan, the results are sobering and the United States often loses, said David Ochmanek, a former senior Defense Department official who helps run war games for the Pentagon at the RAND Corp. think tank. In tabletop exercises with America as the “blue team” facing off against a “red team” resembling China, Taiwan’s air force is wiped out within minutes, U.S. air bases across the Pacific come under attack, and American warships and aircraft are held at bay by the long reach of China’s vast missile arsenal, he said. “Even when the blue teams in our simulations and war games intervened in a determined way, they don’t always succeed in defeating the invasion,” Ochmanek said. [Source]
All war simulations conducted by the Pentagon can’t provide a scenario which resulted in a US military win, if Chinese generals don’t refuse to invade Taiwan. “Whenever we war-gamed a Taiwan scenario over the years, our Blue Team routinely got its ass handed to it because in that scenario time is a precious commodity and it plays to China’s strength in terms of proximity and capabilities,” said David Ochmanek, a senior RAND Corporation analyst and former deputy assistant secretary of defense for force development, to Yahoo News. Hinote explained that the Chinese started investing in their military capabilities more than a decade ago, leaving the US military’s model of expeditionary warfare, “where we push forces forward and operate out of relatively safe bases and sanctuaries, increasingly difficult […] At that point, the trend in our war games was not just that we were losing, but we were losing faster,” the USAF general added. [Source]
US Central Command is not stupid. In 2021, they quietly played 18 wargames and lost all 18 times. There is no first-line chance to win. Is it necessary for the United States to support and intervene in a war that is destined to lose? Can any simulation replace common sense judgements about the consequences of losing a military conflict in Taiwan operationally? Are any potential benefits of this likely and hopeless war going to outweigh the cost of isolating China and its economic allies in central Asia, ASEAN, the Middle East and even some G7 economies, damaging over USD 5 trillion trading activities? Can USD dominance survive without Chinese economy of USD 14.7 trillion in 2020 (most likely plus Taiwan of USD 668.5 bn and Japan of USD 5 trillion) [Source], against the Euro and continental Europe, backed by energy supply from Iran and Russia, with or without the British Pound?
Unfortunately, so far all discussions of a Taiwan war haven’t delivered the necessary economic intelligence and foresight about the possible impact on USD dominance, the successor of the Breton Woods system.
What could prevent a Taiwan war?
If America is unable to win using conventional military combat, one of the worst-case scenarios would be the usage of tactical nuclear weapons by America to prevent China’s seizure of Taiwan. In this case, Chinese nuclear retaliation can be expected. This worst-case scenario would result in the elimination of Taiwan, and possibly of Tokyo, if Japan were to enter into the conflict.
This is the main reason China has been refraining from direct military action on Taiwan. The hope is that Beijing can eventually force Taipei to buckle through steady military and economic pressure, that will make it clear that the U.S. can’t and won’t guarantee the island’s defense. China certainly has enough military capabilities to threaten the Taiwanese into some sort of settlement, without the need for any actual combat. This “nightmare” for American China hawks would be the best strategic outcome for the global economy.
Unfortunately, however, this is not at all desirable for Washington, and many other G7 members, but why? A plausible answer is that elected decision makers in Washington are unable to make strategic decisions. They are therefore delegating them to the Pentagon, where only operational decisions can be made, as they were made for and during the Vietnam war.
What is Washington’s perspective on this? It is a pity that the political and military inertia of the Vietnam War has been continued, and that neither rational, economic considerations, or human conscience are involved. In addition, the two houses and two parties are afraid of being held accountable, so the relevant discussions are still driven by the Pentagon.
China wants the ability to invade and hold Taiwan within the next six years but might not intend to do so in the near term, Chairman of the Joint Chiefs of Staff Gen. Mark Milley told Congress today. Milley said congressional testimony earlier this year from former U.S. Indo-Pacific Command commander Adm. Phil Davidson and current INDOPACOM commander Adm. John Aquilino that China was preparing to take Taiwan within the next six years was based on comments Chinese leader Xi Jinping made to the People’s Liberation Army. “Their assessment is based off a speech by President Xi that challenged the People’s Liberation Army to accelerate their modernization programs to develop capabilities to seize Taiwan and move it from 2035 to 2027… If Adm Aquilino and Adm. Davidson said that China had an intent, has made a decision, and they intend to invade and seize Taiwan then I do disagree with that. I see no evidence of that actual intent or decision-making. What I’m talking about is capability,” he said in response to Rep. Elaine Luria (D-Va.) during the hearing.
“It’s a capability, not an intent to attack or seize. My assessment is an operational assessment. Do they have the intent to attack or seize in the near-term defined as the next year or two? My assessment of what I’ve seen right now is no, but that could always change. Intent is something that could change quickly. “The difficulty of an invasion of Taiwan is still a major barrier for the PLA. “I don’t see it happening right out of the blue. There’s no reason for it and the cost to China far exceeds the benefit and President Xi and his military would do the calculation and they know that an invasion – in order to seize an island that big, with that many people and the defensive capabilities the Taiwanese have, would be extraordinarily complicated and costly. At this point in time – next 12 to 24 months – I’m not seeing any indicators warnings yet,” he said. [Source]
Franz Gayl, a retired US Marine major and Pentagon whistleblower, published an open letter to US President Joe Biden on Linkedin suggesting the US should refrain from engaging in a major war with China over the status of Taiwan. Gayl is now under counterintelligence investigation by the Marine Corps after publishing two opinion articles that disagree with the Taiwan policy of the current US government. In his letter, Gayl warned that Washington risks entangling America in a major war with China over the status of the island of Taiwan. He appealed to the US President to avert conflict and resist the temptation of a Taiwan Caucus-led groupthink, which was “motivated by the political, financial, and ideological benefits arising from preparation for and war with China.” “The arguments made by Congress’ bipartisan, bicameral Taiwan Caucus encouraging U.S. interference in China’s unresolved civil war are like those once proffered by the American Friends of Vietnam (AFV) lobby,” Gayl wrote, adding that during the Vietnam war, 60,000 American patriots and over three million Vietnamese were sacrificed. He believes the US would lose a war with China over the island as “Taiwan’s reunification with the PRC will always mean more to China than preserving the island’s democracy means to the U.S.” [Source]
The Pentagon already failed to correctly estimate the military expenses of the Vietnam war. How can it now be expected to foresee that American military intervention in Taiwan is not worth the loss of USD dominance? The subsequent fall of Wall Street, and the value of American pension funds is more than any administration, elected for only four years, should be responsible for.