Fathom Consulting
September 9, 2022

News in Charts: What Russia-Ukraine teaches us about China-Taiwan

by Fathom Consulting.

The views expressed in this article are the views of the author, not necessarily those of Refinitiv Lipper or LSEG.

China has long regarded Taiwan as a part of its sovereign territory, rebuking states that recognise the small island as an independent country. When Russia sent its troops into Ukraine, eyes turned to Beijing to see its reaction. What lessons can the international community draw from the unfolding Russia-Ukraine conflict on the prospects for a conflict between China and Taiwan? In this piece we discuss five such lessons.

Lesson 1: The Russia-Ukraine conflict is likely to prove an opening salvo of a new era in geopolitics. With an economy larger than that of the US (in terms of purchasing power parity, at least), China now feels emboldened to position its state-led authoritarianism as a credible alternative to the Western model. The invasion of Ukraine is likely to go down in history as the first episode of a new period of more hostile international relations, with China expected to play an increasingly forceful role on the world stage.

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Lesson 2: Despite rumours of their demise, the western democracies remain powerful. The G7 + NATO account for more than half of world GDP in nominal US dollars, and have shown the determination in rhetoric if not yet fully in practice to accept high levels of pain in order to deter Russia. While most of the focus has been on how sanctions will affect Russian exports, it is perhaps their influence on imports that will be more important. The impact of fewer imports will take longer to see, but it is likely to have a corrosive impact on Russia’s industrial production. Likewise, western nations have the ability to impose significant pain on China – its exports to the EU and US total more than $1 trillion, and its manufacturing base remains reliant on other Asian states for advanced technology.

 

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Lesson 3: Sanctions don’t often ‘work’ but usually hurt. There are limits on states’ willingness to enact sanctions, as imposing them hurts not only the target but also the sender. EU nations opted against immediate bans on energy imports. Nonetheless, the impact of sanctions imposed so far has been a large increase in inflation in the EU and UK. Any material sanctions imposed on China would also be expected to increase the inflationary outlook.

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Lesson 4: The sustainability of sanctions should not be taken for granted. The European public’s reaction to Russia’s invasion of Ukraine opened the door for politicians to impose sweeping measures, but the public mood may not last forever. Indeed, European energy prices continue to soar, and there is the looming threat of winter shortages. It remains a large unknown how western public opinion would react to any conflict between Beijing and Taipei. Public opinion in the Asia-Pacific region is similarly unclear. However, this public reaction is likely to prove critical in determining how the world responds.

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Lesson 5: Most of the world is unlikely to ‘gang up’ on China. Tallying up votes at the UN, countries representing two thirds of the world’s population excluding China either voted ‘no’ (11.1%) or abstained (55.5%) on a resolution condemning Russia’s invasion. Non-western states are likely to be even less enthusiastic about measures to disconnect from China, given its economic importance. And there is a further reason to suspect a relatively muted international response: only 13 UN member states recognise Taiwan as a sovereign nation, leaving the door open for Beijing to more credibly argue that it is a domestic, internal affair. This is in stark contrast to Russia-Ukraine, where internationally-recognised borders were clearly violated.

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