DBS Economics & StrategyKopi Time E136 - Drew Thompson on Taiwan from Multiple Perspectives
Drew Thompson, Senior Fellow at the S. Rajaratnam School of International Studies at Nanyang Technological University, brings his deep China and Taiwan expertise to Kopi Time. Taiwan stands at the crossroads of tech manufacturing excellence and geopolitical tension. How does its recent political developments look from the perspective of its local population, mainland China, and the US administration? How will its politics and economic policies evolve in the coming years? Beyond the superpowers, how is Taiwan’s relationship evolving vis-à-vis SE Asia, India, S Korea, and Japan? What are the risk scenarios ahead? Drew provides unvarnished perspectives and analysis.
Hello, welcome to Copy Time, a podcast series on Markets and Economies from DVS Group Research. I'm Tamir Beg, chief economist, welcoming you to our 136th episode.
In the last episode of this podcast, we discussed techno nationalism with Alex Capri. And today we will talk about Taiwan where tech and nationalism and security all get blended together. We will have a keen Taiwan watcher to do that. Drew Thompson is a senior fellow at the S Rajaratnam School of International Studies at Nanyang Technological University. He's also a part time senior research scientist at the CN A corporation.
He's been with the Lee Kuan Yew School of Public Policy at the National University of Singapore in the past and from 2011 to 2018, he was the director for China Taiwan and Mongolia in the office of the Secretary of Defense in the United States where he was responsible for supporting the secretary and managing military to military relations. Drew Thompson, a warm welcome to Kobe time. Thank you for having me. It's great to have you drew. I want to talk about Taiwan today with you and let's begin with Taiwan's President Lai Chen de
known also as William Lai. But I think you just told me earlier that he doesn't go with you by William anymore. So I will refer to him as President Lai if I may. Uh President Lai has been in power for about four months. In a recent article, I think you talked about his 100 days where he said that the view and degree of satisfaction with Lai's 100 days so far differ considerably in Taipei, Beijing and Washington walk us through those multiple city of assessments.
Sure. So actually I was asked by the, by the publisher to submit an article because they'd read a piece in a Chinese outlet that basically said how bad lies 1st 100 days were. And, and the editor thought there's really more to it than, than Beijing's perspective. So, so I really think it does come down to sort of president line and is domestic uh contacts as well as Beijing and Washington, of course. So,
so maybe starting with, with President Lai, um I mean, I think he's managed his transition pretty well. I mean, he hit the ground running, which is the advantage of being the former vice president. Um He certainly got an advantage in that the Taiwan economy is doing quite well. I mean, it's in good shape, it's, you know, growth, GDP growth is like 3% or so they predict it to maybe go up a little, inflation is under 2% and unemployment's at 3%. So you've got pretty much full employment.
Uh And then in, in the sentiment index, you, you've got the Taiwan stock market being one of the best performing in Asia and it's up over 30% in the first half of, of the year. So, so, so things are kind of going his way domestically. Um He has uh uh a parliament, the legislative yuan that's controlled by the opposition party, Guomindang, uh uh the KMT
and, and they, since they control the legislature that that's a potential political challenge for him, um They've thrown a couple of shots across his bow and I think he's dealt with them pretty effectively so far, but that's going to be an ongoing challenge for him,
but he so far managed it well. I mean, he's, he's like any president, you know, certainly very astute about his own domestic politics. He's had a long run in politics as a, as a former mayor. So, so he knows the political field and plays it well. Um He
has, I think, done something rather unique in that. He's really set an agenda that he's been able to push. And, and one of the ways he's done that is he's formed three presidential level committees similar to what the US would have and what we call the interagency, sort of multipart, multi multi government agency meetings that he chairs and one of them is on climate change, another on health care. And the last one is on whole of society resilience.
Uh, and, and I think the, the whole of society resilience campaign is, is, is pretty new and I think that makes it, um, uh, pretty potentially impactful and, and I think it's worth watching. Um, it, it's, it's intended as they said to coordinate government efforts as well as mobilize society and it's not just homeland defense against blockades or invasions or the threat of natural disasters which they face. There's a typhoon currently hitting Taiwan.
Um But it, it's, it's really about mobilizing civilians to be prepared and get basic training for uh like medical and emergency responder training. Um And that's an area where NGO S in the private sector can, can step in.
It's also about strengthening critical infrastructure, including the power financial system, wartime communications and also reducing their vulnerability to disruptions in undersea cables. So, and the last thing I think they're really focusing on is stockpiling energy, food and emergency medical supplies so that they can withstand either
prolonged natural disaster or, or a blockade, for example. So, so I think, you know, this is a pretty new and innovative um and, and potentially game changing approach to resilience in Taiwan. Um But I think it also is really important because of the signaling aspect. So rather than focusing on like how much natural gas uh Taiwan could stockpile and who's going to pay for it.
I think it's going to change the population's mindset and probably raise their morale and maybe strengthen the will to resist, which is a, which is a big issue. And so it's going to give him political support to stand up to bullying and protect Taiwan's autonomy in the face of aggression. So basically, he's empowering the Taiwan people to take their future into their own hands.
Um That obviously doesn't make Beijing happy. Once
Drew before we go to Beijing, I just want to stay with for one second. Sorry about interrupting. Um So how popular is he uh with these uh pivots that you just talked about?
So, I mean, these are fairly new developments. The, the first committee meeting he held was last week. Um So, so I don't think there's a reflection yet in the public polling, he's doing pretty well in public polls. Um I mean, as, as good as they are. Um he's, he's at around the 50% mark, which is quite good. Um in a way the risk is that his, um you know, his popularity is going to decrease because there's really nowhere else to go.
Um So, so I think he's got, he's got strong support. Uh It's interesting to note that um commentators in Beijing, you know, keep pointing out that he only, he only got 40% of the vote um in the last election.
And that's an indication that he's not supported by the, the, the public. But, you know, they, they don't often mention that it was a three way race. Um And that uh and that the vote was split so he didn't get an absolute majority. Um but he definitely one handedly um uh against the other two candidates.
Great.
So Beijing, yes. Um
Beijing is, is in a way, sort of
their approach to Taiwan since he's been elected is essentially unchanged. Um It, it's very static. Um I mean, Lai is, is, I mean, his, his existence is a provocation to Beijing. Um when a couple of years ago around 2017, he said sort of off the cuff that he called himself a pragmatic worker for Taiwan independence.
And, and I think that that really stuck in Beijing's mind and, and as a result, even when Li Jing De is trying to be accommodating or trying to be uh self restrained, um Chinese commentators will often say, well, you know, he's just hiding his true nature. Um or you know, he's, he's a die hard, independent separatist and he's irredeemable. Um so,
so so basically he has to face a pretty tense and difficult cross strait relationship from, from the day he was elected. And, and there's really very little prospect for uh cross strait engagement because China positions it as uh a precondition that, that he accepts the one China principle. Um and, and that pretty much rules out dialogue between them because it's not acceptable to, to, to his electorate. So
the other thing is that Beijing really doesn't have any assurances to offer Taiwan very few incentives and, and those incentives that they do offer are not terribly attractive. Um So China has tried to offer economic integration as a potential carrot to, to get uh Taiwan closer to the mainland, but it becomes less effective when China's economy is not doing as well. Taiwan companies are are struggling to be,
to be profitable and succeed in the market or enter the market. Um But more importantly, you know, China has used trade as a political coercion tool. Uh more than once, including against Taiwan, they've cut off tourists since 2016, 2020. There was a pretty dramatic
incident in 2021 where um you know, China has embargoed pineapples from Taiwan. So so suddenly, you know, Taiwan pineapple farmers have lost their major market and uh it became a rallying cry for uh divestiture from China and, and for, for de risks. Um and that's been driving uh Taiwan businesses away from the mainland and into places like Southeast Asia.
So, so that kind of leaves Beijing's main policy tool. Um and, and, and sort of go to response to deal with policy differences. It's military coercion and, and it's just not working on the people of Taiwan. It may serve the interests of, you know, leadership in Beijing in terms of demonstrating to their people that, that they are, you know, resolved to, to oppose Taiwan independence and anything that
goes against Beijing's interest. But the military tool is not convincing the people of Taiwan that they should form a uh uh uh some sort of confederation with China. In fact, it's driving people to be more
uh supportive of a higher degree of autonomy and resilience against the mainland, which is, you know, continually running uh uh military missions around Taiwan across the center line in, in increasingly complex military maneuvers.
Uh drew one question on Beijing, it it's uh engagement or you know, efforts to coerce or um you know, show them with some carrots either way. Uh your your point that you know, it's not really has had any impact on
improving the relationship or changing the mind of the Taiwanese political leadership. I think that's well taken. But it is still the fact that despite all the talk of Deris Taiwan remains a very large investor in China and you do have many Taiwanese professionals gainfully employed in China.
There's been a dramatic exodus of Taiwanese expats from the mainland back to Taiwan and increasingly to other places. Um
not, not considering the total stock of foreign direct investment. But if you look at at new foreign direct investment, I think the last year uh two years, the amount of Taiwan foreign direct investment going to Southeast Asia and South Asia, primarily India um is exceeding what goes to China.
Um And I think if you add it up with what's going to the United States, um there are clear indications that there is de risking going on uh in the cross strait economic relationship.
Uh It's also borne out in, in the identity issue. We can, we can talk about that some more but, but essentially the Taiwanese people increasingly self identify as Taiwanese, not as Chinese and they may speak Chinese language. Um you know, they, they have a shared history but, but that's changing in Taiwan as well.
Hm. Good point. Uh All right, we'll, we'll come back to Beijing a little later but walk us through Washington's assessment of like,
sure. So I mean, Washington is always going nervous about cross strait relations when they're tense. Um they uh are going to be concerned about the risk of miscalculation. Um whether that's uh China miscalculating uh Taiwan miscalculating uh or even even Washington itself. So, so I think Washington is, is, is going to be concerned about lie, possibly antagonizing Beijing
um because he'll be pursuing a balance between protecting Taiwan's autonomy and their dignity and at the same time showing some restraint so that he's not
overtly antagonizing Beijing. And I think that's an important posture that he has to continually manage and calibrate. And I think that's the context by which Washington views most of Taipei's actions. I mean, obviously there's strong support in Washington for human rights self determination, particularly with AAA liberal government in Washington.
Um But, but there are limits to that. It can't come at the expense of of, of us interests and us interests are stable cross strait relations. So we'll certainly see Washington continuing to monitor Lai's behaviors, his speeches in a couple of days on October 10th, he'll, he'll
a National Day speech. And I think there will be plenty of, of think tankers in, in Washington and Beijing analyzing word by word what he says and scrutinizing it for evidence about whether he's diverging from the status quo. But I mean, I think, I think Lii Jing de will thread that needle well, um Tsai Wen certainly did it for, for eight years. And I think at the end of the day, you know, Washington is going to be satisfied that um
uh that, that Li Jing De is considering us interests as he postures himself and communicates with his own, his own people. Uh Beijing is not going to be happy. Um You know, and at the end of the day though, for Lai Jing De, it's really Washington's continued support, that's what really matters the most. And I think importantly, and I mentioned this in the, in, in the, the, the essay uh Lai Qing has done a pretty good job building a rapport and a relationship with Washington and the US government.
Um It started before um before the uh inauguration in May. I remember the, it's a very long interregnum in, in, in Taiwan between the election in January and inauguration in May and the um Biden administration had pretty strong connections even before the election with, with all of the political parties that were running and that really
helps build trust and, and a sense of confidence that the US interests will be protected that, that Taiwan candidates are not going to be reckless. And I think he's done a good job developing that trust, but that said he never gets a free pass. Uh, he won't get a free pass from Washington. So I think Washington DC and its perceptions are a risk that he'll have to continually manage. Looking ahead,
the perception from Washington DC is a function of who's the president or there's a little more structural beyond political cycle. Uh Sort of stands on Taiwan,
I think,
I mean, at its best, Washington's foreign policy is based on national interests. Uh it tends to be in the context of allies and partners, you know, coming as the, the primary interest uh as well as access and influence and, and, and that's really irregardless of the party in power, both in Washington or in Taipei.
Um It's, uh you know, these are, these are, you know, two governments that have long experience dealing with one another, you know, very, very experienced bureaucracies and, and professional career, civil servants that manage the relationship in multiple administrations as the political leaders shift, the managers of the relationship do not.
Um And, and, and I think it's uh there may be an element of risk, but it's basically a manageable one, the um uh kmt present presidency. Certainly we saw this under Mao had a very different cross straight characteristic than the twn administration. But the US can, can deal with that just as a Taiwan administration can deal with uh shifts in, in Washington politics as well.
All right. Well, we'll talk about that some more later. I'm curious about that issue. Uh but just staying with uh President Lai's uh uh you know, performance so far. So, ok, 100 days, you think that, you know, he has done pretty well from Taiwan's perspective. He has not surprised Washington and Beijing, of course, is not going to be happy. Uh What about the next 3.5 years? What lies ahead?
Yeah, as Yogi Berra said, right, making predictions is difficult, especially about the future.
Um
But that said, you know, we, we can monitor trends and, and I don't see big paradigm shifts from what we've already seen. Um I mean, he's gonna have to manage a host of known risks. Um uh some of them including demographic risk of a, of an aging shrinking society and the impact that has on, on the economy and society and security.
Uh He's got, you know, domestic political and economic risks. As I said, managing an opposition party that's quite empowered and runs the legislature. Uh He's got to manage cross strait risks. He's got to manage Washington. Uh And at the same time, he's also looking to strengthen relations with Japan and with Europe and those have been trending upwards as well. So that's added to his, his workload.
Um as I mentioned before, his polls are quite high. So it's pretty certain his popularity will fall. Um that may not be a horrendous thing. Um uh If it gives him guidance in terms of, you know, what the people of Taiwan wants and how to deliver it. Um But I think those are all pretty, pretty well known knowns. Um
There is a risk of, I think some exogenous shocks, unexpected ones. Um you know, he'll have to deal with that, that are really kind of irrespective of cross strait relations or, or maybe Washington. Um you've got global economic downturn risk. Uh global rise in inflation would be pretty hard on Taiwan because inflation is currently quite low. Uh wages have not been increasing dramatically, standard of living is high but but wages have not been going up. So a kick in global inflation would, would hurt.
Um if you had additional stress in the global supply chain system of trade, I mean, Trump is threatening 60%
tariffs on, on China if that comes to be, you know, that will be difficult on those Taiwan companies that still have manufacturing in China. But um that's as I said, trending downward and trending outward. So maybe what's more threatening would be Trump threat uh in, in, in initiating 10% tariffs across the board on every country uh which would hurt Taiwanese operating in the mainland Taiwan and Southeast Asia.
So uh for trade dependent countries like Taiwan, like Singapore, this could be a a major risk that that is difficult to prepare for. Um it's important to know that
Taiwan's top export destination is still China, but the US is catching up and it's probably going to exceed total exports in the near future. And again, I think that's a growing trend as manufacturing hubs shift out of China into Southeast Asia. Chinese factories are increasingly focused on supplying the Chinese market.
Um You're going to see the importance of the US as an export destination rise. It's already Singapore's top export destination. Um and it's going to, I think very shortly be one for Taiwan as well. So, so I think having the US close itself off to imports would certainly hurt, hurt Taiwan. Um I I think there's another major risk that, you know, everybody has to contend with is, is you know what emanates from Beijing.
Um I mean, we saw, you know, Beijing last week uh implement uh stimulus, but that wasn't expected. Uh I think that that maybe took longer than most people hoped for. Um We saw China very unexpectedly shift away from its uh zero COVID stance and, and and just open everything up and, and return to normal uh which certainly had costs on, on, on the Chinese people as well as the society. So there's an unpredictability
emanating from Beijing that I think um Lai Jing de and everyone else is going to have to deal with. Um and, and maybe ultimately the mother of all political risks is, you know, what happens if Xi Jinping suddenly departs the scene. I mean, there's no anointed successor, there's no agreed to norms for succession. So I mean, if Xi Jinping suddenly uh you know,
gets called for a meeting with Marx, Um you know, Beijing's palace politics could get very sporty and, and we're all going to have to deal with that, but Lai Jing in particular,
yes, uh no, no shortage of unpredictability these days. I want to stay with this uh US, Taiwan trade and investment relationship a little more as you know, uh Drew TS MC is a singular point of vulnerability as well as opportunity for Taiwan because, you know, no other company makes what TS MC makes with the quantity and precision
and the US administration is very keen on reducing the risk of all of those things being made in Taiwan. So we've seen under the Ira, you know, lots of incentives being given to Taiwanese manufacturers to build in the US.
So when we talk about the next 3.5 years of vice presidency, would he be a cheerleader of Taiwanese companies building in Texas or Arizona? Or would he try to tread the balance because he does want that core excellence to stay in Taiwan? Because that is Taiwan's branding and source of power.
Yeah. Yeah, I mean, between the Ira and the Chips Act, the US is suddenly very attractive for, for this type of manufacturing. I think it's also important. It's not just TS MC, right? I mean, TS MC is, is very much a product of its own supply chains. There's a, there's a tremendous ecosystem of companies that support TS MC and its processes. So, so it's not just TS MC setting up a factory, it's the whole supply chain to that
fabrication plant moving with it. And many of those are Taiwanese. So, so it, it's potentially AAA pretty massive footprint that that will ultimately emerge. Um I don't think La Jinta is terribly concerned because Ts MC is committed to keeping the most cutting edge of the cutting edge in Taiwan. That's where they perform at their highest
uh their highest efficiency levels. It's where the top top engineers are. They definitely see um uh Arizona as an important component of their global manufacturing just as they also manufacture in China too. So, so I think there's going to be diversified footprints. But
II, I don't think Lai is concerned about the semiconductor industry hollowing out from Taiwan itself, partly because that infrastructure to support it, not only in the subs suppliers but also in the human capital uh uh sector and, and, and really the, you know, the, the incredible work ethic of Taiwan engineers um who are highly incentivized to work incredibly hard. Um In Taiwan plus, you know, pretty good standard of living, fairly low cost standard
of living um makes it pretty competitive. So I don't think they're worried about losing that. Um I think there's enough semiconductor demand from the highest levels to lower levels that, that the TS MC
position in, in, in Taiwan itself is pretty secure so they can afford to diversify. And I think that's Taiwan's benefit as well at the end of the day.
Ok. So speaking of diversification, you, you've touched upon this briefly earlier, let's go a little deeper on this, which is Taiwan vis A vis Southeast Asia. Uh There's a lot of trade and commerce between this region and Taiwan and in the context of the risks of supply chains, I think there'll be far more going forward. Um What do you hear from the president and his administration as far as their Southeast Asia strategy is concerned?
Um
So the Taiwan Southeast Asian relationship is, is really quite, quite interesting. Um I won't get into the history but I mean, I've been watching and traveling to Taiwan for, for more than 20 years and
it's intriguing for me to watch the change particularly in the last say 10 years, how Southeast Asia is becoming much more relevant in and to Taiwan. So, I mean, I think the two, the two Taiwan and, and, and the Southeast Asian region, they're really becoming very increasingly intertwined. Um and maybe I'd describe that as is too
two trends, right? So call it an inward trend and an outward trend. Um So, you know, first of all, I remember Taiwan is not small, it's, it's very tempting to sit back and say, wow, you know, China is so big and Taiwan is so small but, but Taiwan is, is neither small nor nor significant. I mean, if you group it economically with Southeast Asia, Taiwan would be the second largest economy after Indonesia and it would be the second wealthiest per capita after Singapore. Um So, so
as the relationship changes, Taiwan becomes increasingly important uh in a way to Southeast Asia. So on that, that outbound side, um yeah, we're now seeing Taiwan companies increasingly investing in Southeast Asia and South Asia more than they do in China. I think that's, that's an inevitable trend here.
Um We talked about Taiwan companies being sort of central to these global supply chains. It's not just semiconductors, it's IC T across the board oe impart suppliers. Um uh So that electronic sector is really pretty critical and, and we saw that during COVID, when everybody began working from home and they were buying um uh they were buying new, you know, new cameras
and new monitors and new computers. And Taiwan's exports soared during COVID to supply that. So, so I think as manufacturers from around the world, including Taiwan shift their production to Southeast Asia, you'll see a supply chain from Taiwan following those clients. And that's primarily landing in Singapore, Vietnam, Indonesia and Thailand. For the most part, I think some in Malaysia but, but less,
but on the inbound side, we'll call it the inbound side. You've got more Southeast Asians becoming part of the fabric of Taiwanese society. So Taiwan's society is shrinking. Their population is shrinking. The fertility rate is like 1.25 which is one of the lowest in the world. So basically for every couple, you have one and a quarter Children being born, uh the sustainment rate for a population is 2.2.
So, so Taiwan is, is basically running out of people and they have been for a fairly long time and Southeast Asians are stepping in to fill the gaps in the workforce and they're playing a really important role in Taiwan's economy. But that also means in their society. So the official statistic is that there are about 760,000 Southeast Asians living in Taiwan. Uh But there's actually probably a sizable number that are not counted. Uh So it's probably closer to a million
and this is in a population of 23 million. So it's a pretty big, pretty big chunk. Um And, and they primarily come from Indonesia, Vietnam and the Philippines. Um and, and as I said, it's a big number of people. So when you walk around in, you know, downtown Taipei or, or a major city, particularly in the affluent areas, you see shops catering to Southeast Asians, they're selling, you know, some
ball and Southeast Asian products and services and shipping, you know, shipping boxes back to Southeast Asian States. And there's a prominent chain called Coco Indo uh that you can find in sort of uh back alley. Um um you know, neighborhoods and, and, and, and where the domestic helpers and the, you know, service workers can, can go and, you know,
buy their comfort food and ship their boxes home and transfer money. And um and you see Indonesian caregivers escorting the seniors in the markets, doing, doing their shopping on the weekends and, and in the mornings it's, it's an increasingly common sight.
Um So, so you basically got a lot of Southeast Asians living in the homes of Taiwanese. So you've got some cross cultural uh exchanges going there in the major cities. But you're also seeing that in the industrial centers um particularly from Indonesia, Vietnam, you've got a lot of factory workers, a lot of skilled laborers who are working in these factories, particularly down south. So you can just
go to a shopping center and see a lot of signage in, in, in different Southeast Asian languages where they're providing services and information. You're also seeing this in the government, public facing departments are, are, are communicating in up to seven languages. Now, um I was almost surprised that Taiwan government's news agency started issuing, uh they started a a Bahasa language service uh in, in July.
So, so it's really changing Taiwan. Um And so even though countries don't recognize Taiwan for the most part, diplomatically, this labor trend is internationalizing Taiwan in a way. And I think there's maybe two big implications for this. Um
I mean, obviously there's a social impact, 5% of the population give or take is, is from Southeast Asia. Um and that's going to change Taiwan's identity, right? And, and it's Taiwan is increasingly dependent on diversity and that's going to make Taiwan even more distinct from China. Then you've got political and security implications. Um Taiwan's security interests align more closely with Southeast Asia than they ever have before. Um
I was, you know, doing some research on um you know, countries opposed, you know, basically which countries had opposed China's aggression in the South China Sea. So I Googled, you know, Vietnam, Indonesia pick a couple of countries and, and, and Google, you know, Indonesia condemns China's coast guard ramming a Philippine vessel.
Um you know, no public statements from any of the Southeast Asian States, but the number one hit on Google is Taiwan Ministry of Foreign Affairs decries uh China ramming Philippine vessel. So, so you have, you know, Taiwan is a very vocal
quarter of, of, of these sorts of, you know, peaceful resolution of conflict, international norms and, and that, that, that means there's a security alignment of interest. So, you know, even though the potential for cross strait conflict is low. Um,
uh, you know, it's not imminent, it's not inevitable. But, you know, you've got a million Southeast Asians living on Taiwan who'd be pretty adversely impacted if a conflict occurs. Um, and there's, of course, economic consequences too. Right. It's not just the remittances but the impact on global trade. And I think the polls in Southeast Asia are starting to show Southeast Asian elites increasingly opposed
China using force against Taiwan. Doesn't mean they're willing to stand up to Taiwan or denounce them publicly, but they definitely have an interest in not having a conflict occur. So the question will be what Southeast Asia prepared to do to, to deter China from using force. And at this point, there's not much, but I think as that trend continues, we may see some change.
So the trend is certainly fascinating and um I actually want you to look a little further east from Southeast Asia or rather sorry, look West India. Uh I've seen recent stories that, you know, Indian Navy have Cooper with the Vietnamese Navy or Indian companies are, you know, exploring Southeast Asia as part of the supply chain that they could take advantage in their pursuit for manufacturing excellence.
Um Do you see Taiwan India relationship, you know, feature in a prominent manner when you read like Taiwanese media, for example,
and there's,
I mean, hardly, I I would hardly consider myself an expert on, you know, the Taiwan India relationship. But, but my sense is that it's growing, um there are now a number of prominent Indian scholars who are resident in Taiwan in academia doing national security research.
Um The Taiwan government just signed an agreement with India to facilitate migrant workers coming to India. I mentioned that, you know, you've got potentially a million Southeast Asians. Um Taiwan is looking to bring in South Asians as well. So I think maybe those are two examples. Um the
uh you know Indian representative office in Taiwan is, is active and you know, meets with officials and and does representation and provides facilitation for businesses to, to invest in Taiwan. We've certainly seen um uh you know, one of the the biggest Taiwan companies hung high precision Foxconn which assembles iphones and other apple products, setting up factories
in, in India. So, so I think the potential for that relationship to grow is, is definitely there. Uh but it's been starting from what I think is a fairly low base. But again, I think Taiwan's interest is on is in internationalizing. So if Taiwan businesses um are looking for opportunities to invest in India, I'm sure India will welcome them. And likewise,
uh you know, if, if, if you know the big Indian companies, the Tatas of the world want to engage in Taiwan, the Taiwan Economic Ministries will certainly help them find a suitable partner, suitable locations and facilitate their inbound investments as well. So I think that's, it's a, it's a relationship primed to expand for sure.
Ok. Since I'm dragging you around the region, uh, Drew, I might as well teach you up north a little bit now. Quick comments. Uh, Taiwan, Japan, Taiwan Korea.
Good one. Taiwan Korea,
smaller, less potential but certainly plenty of overlap. I mean, in, in some ways, I think
painting a broad brush.
Taiwan companies in many ways, compete with, um, South Korean ones in, in places like Southeast Asia. Um certainly the, the
the South South Korean companies like Samsung are quite prominent. Uh And at the same time, I'm sure they have plenty of Taiwanese suppliers who contribute to their assembly work in, in Vietnam and elsewhere. So I think it's both symbiotic but certainly politically. Um South Korea hasn't had much interest in Taiwan or the cross strait relationship.
Um South Korea has been very focused on its security issues with the North Koreans and China's support for North Korea as well as the survival of South Korean businesses in China. So, so I think that's been primarily the focus and there hasn't been, for instance, you know, not expecting to hear news that, that South Korean arms manufacturers are preparing to provide platforms or munitions to Taiwan.
Um uh you rarely hear South Korean politicians talk about Taiwan, but Japan is a completely different matter. Um When Tsai Wen was elected in 2016 and Prime Minister Abe was in office, you had really a confluence of interest um where uh
Prime Minister Abe had a very close relationship with Taiwan, had an affinity for them. And likewise, the, the, the President Thai and her party, the DPP and, and President Lai's party have, have, have an affinity for Japan. I think there's been an awakening in Japan about the security risks that China presents to the Japanese homeland. Um And Taiwan is a very important part of that. Uh Japanese politicians will sometimes say that if you stand on the southernmost parts of,
of Japan, you can see Taiwan from Yonaguni Island. Um So Japan is concerned about the security of the Southwest Islands and, and therefore, um there's been a lot of investment in building uh military infrastructure around the, the,
the Ryuu chain and, and as a result, um you know, from Okinawa down to, to, to Yonaguni, you've, you've got uh an increasingly aware and prepared and postured uh Japan self defense force. Um I mentioned, you know, socially, I think there's a lot, you know, Japanese culture is very popular in, in, in, in Taiwan. Um People can forget, you know, that,
that Taiwan is not the home of, of Hello, Kitty, not the birthplace of, hello Kitty, but you wouldn't know it. Um uh So, so I think Japanese culture very, very popular in Taiwan. Um the economy, the economic relationship also quite close. Uh and the security relationship is is increasing. Um They don't have diplomatic recognition. But uh the Japanese uh defense Ministry has posted a serving official for the first time to Taiwan,
um not retired officials and retired officers as they had in the past. So that's a very small upgrade. Uh But it's important for the Japanese Defense Ministry to understand um what's going on in Taiwan and Taiwan's military and, and have an open channel that, that they, they can count on.
So, uh I think Japan has a very heightened concern about the military threat from China and the prospect for a cross strait conflict and, and that's, that's becoming apparent in, in Japan's posture towards Taiwan.
Ok. Drew, you're nudging me into the next segue uh very, very seamlessly. Um In a recent article you wrote, I quote, China's steadily increasing coercive measures against Taiwan, but they remain to date below the threshold of military conflict
essentially. When does coercion end and conflict begin? Question mark, end quote. All right, let's be clear, you're not making a prediction for a war here, but your objective is to deepen the understanding of the risks of conflict. So with that context, please walk us through the threshold scenario. Dr
So yeah, I appreciate the caveat. I mean, when, when one is engaged in defense planning, um it can be a somewhat dark, dark place. Um You know, you, you're thinking about the worst possible outcomes, you know, the failure of diplomacy and, and the prosecution of a war. Uh and and that's, that's, that's hard. Um So, so just because you're planning for it doesn't mean you want it.
Um it, it, what it really means is you want to avoid it, you want to prevent it, you want to deter it. So, one of the things I've been thinking about for a very long time is and particularly as, as I mentioned, China's military coercion against Taiwan has increased very steadily, especially since August 2022. And Speaker Pelosi visited um that coercion has become normalized.
Um you know, Chinese navy regularly sails ships around Taiwan, including aircraft carriers, they fly surveillance planes, bombers regularly, all around Taiwan. Fighter planes cross the center line on an almost daily basis. Um You know, it it looks quite
touchy. Um And, and I think
as we become normalized to that regular steady military coercion, you also recognize there's a lot of other coercion going on diplomatic, economic informational. Sometimes the Taiwanese call that cognitive warfare. It's all designed to impose political pressure on Taiwan oftentimes it's called gray zone below the threshold of conflict, any of these activities. So
the question for me is as it increases, is there a tipping point at what point does it become war? And, and it's pretty, pretty critical moment to consider because if you've got tensions rising and, and a conflict is becoming increasingly apparent
at what point do you cross that threshold? And I think it's important for businesses as well as governments and militaries to, to sort of recognize this because that normalization of military coercion makes people complacent. Um And you may not, you may not be aware of the indications of the change in, in the phase. And, and I think that
also has really important implications for how the US responds. So there's a very natural tension within the US government between the civilians. Um you know, the diplomats, the White House who really want to use diplomatic means to avoid conflict. Um and that bumps up against military officials who also want to avoid a conflict for sure, but they need to move forces to prepare for the start of the war.
Um They need to move forces from the US mainland, from Guam, from Hawaii towards the conflict and they need to posture themselves to be able to take advantage of the opening phases from a position of strength, right? The first movers advantage, uh some military officers might might advocate for a show of force as a means to deter China.
But the diplomats that are looking for negotiated solutions don't want to do anything to provoke Beijing because they're looking for an off ramp from the road to war and that's going to be a natural tension because diplomats, the White House are not necessarily going to want the military to move forces very visibly closer to a potential conflict because it might hurt their chances for a negotiated peaceful solution.
And you, you run a risk and I think we saw that a little bit in Ukraine. Um uh We, we've seen it in past historic cases where negotiations tend to supplant military preparations. So, um so I think that, that
that's a pretty key tipping point that we have to understand so that we're not behind the curve and that, and that we're not showing restraint when the other side is preparing for a conflict and ready to move or potentially even using diplomatic negotiations as a ruse as a means to, to obscure and, and prevent,
prevent the adversary from, from using their military to their own advantage.
Your view on the US Taiwan policy under Trump versus Harris, you've already talked about this a bit, but just specifically under Trump or under Harris, how do you see us Taiwan
policy evolve?
Yeah, as, as I mentioned, I'm also reluctant to make predictions about the future. Um
I, I think there's very little to go on. I mean,
they haven't said
much, yeah,
us elections are, and, and the rhetoric that accompanies them are primarily domestic. Um That's what the, the voters care about. Um So we really can just speculate on what either administration will do. Um
So I, I think let's make the assumption that Washington's China Taiwan Asia policy is part of sort of an overarching approach uh to Asia. Um The relationship with treaty allies will take precedent.
Um And, and strengthening partnerships is kind of an instinct or perpetual foreign policy goal for, for Washington, that's kind of left to its own devices the way Washington would go. So I think those are us constants and you can say, well, Trump is hard on allies or not Trump. Trump is very crude uh when he's talking about allies. But what if, if you're gonna be
kind uh what he's essentially pushing for is, is reciprocity and, and what's sometimes referred to as burden sharing, basically trying to establish the, the value to the United States of a bilateral relationship in, in a security treaty. Um And I think that's, that's healthy. Uh I think the way Trump maybe approaches it isn't necessarily healthy but, but let's get back to the constant, you've got the alliances, you've got us interests in access, influence markets.
Um The desire to strengthen partnerships. Um You've got the other major constant in Xi Jinping. Um he's going to affect either administration equally. So you have to take that into account. Um I think Xi Jinping's foreign policy and national security objectives are, are not always aligned with us interests. Um Xi Jinping can be very um
uncompromising in his approaches. I mean, he set a goal for, for, for China, whether it's the China Dream or, or, or, or his economic policies that, that don't take into account us interests necessarily.
So, so I don't think there's a lot of room for, for negotiation or somehow fundamentally changing the paradigm. The us isn't just going to surrender and neither is China. So, so I mentioned that Xi Jinping can also be unpredictable. So throw everything out that I say. Um and we, we don't have visibility into the policy making process, but I think it's a fairly low probability that he's going to
wake up one morning and say, you know, I've misread the United States, they're not an ideological and security threat to us, you know, let's be friends. Um I, I don't think he's headed there. Um So, so I think competition is, is going to be a feature for the next administration, not only because of how Xi Jinping sees the relationship between the Communist Party and everything outside the party, including the West. Um
Competition is also deeply ensconced in the US political agenda. It's a bipartisan issue and that's very evident in Congress. So I think either political candidate falls in on that scenario as president. Uh I mean,
uh Vice President Harris doesn't have a lot of experience in foreign policy unlike President Biden who has very strong interests and preferences. Um So I think she doesn't to my knowledge yet have clearly designated foreign policy advisor with Deep Asia experience. Um certainly not on East Asia, China Taiwan. So, so it's questionable whether they would be in her inner circle once they are brought in. Um uh
I, I would assume their outlook is going to likely conform to past democratic administrations, but that doesn't necessarily tell you anything if you compare, say President Biden to President Obama, right? And again, that may be as much about the changes in China as it is in Washington. So so Beijing thought that President Obi President Biden would, would return to a more accommodating policy like the Obama administration after four years of Trump and and all of his assertiveness and disruption.
So, so I think Beijing was quite surprised and in some cases, very disappointed with Biden when he retained the tariffs that Trump initiated. Um he strengthened the alliance um network strength, strengthen the quad, he established Aus. Uh he restricted and expanded the restriction of high tech exports. Um And he's also actively encouraged reshoring French shoring to, to derisk and supply supply chains, the Chips Act, the Ira. So
Harris may not recycle the Biden playbook, but she can build on that already. So it's probably unrealistic for Beijing to think that the Harris administration is somehow going to be a different path. Uh And we will suddenly start accommodating China, right? Saying, oh yeah, we should cooper and not worry about competition. I don't think that's going to happen. So, so I think Taiwan faces a slightly different risk. Um And that's the Harris administration is, is overly deliberative
um uncertain about how China will respond um to, to actions that support Taiwan that basically the calculus for deterring China is different. Um And I think there's a risk that Washington self deters. Right. And that there, there's a fear that whatever they do to support
Taiwan might elicit a response from Beijing. That's, that's, um, uh, particularly violent, uh, or impactful. And I, and I think that's a risk that, that Taipei is probably aware of,
um, Trump. I mean, Trump is the essence of uncertainty. Um, he, he fosters that intentionally, he takes a lot of risks. He ignores a lot of conventions. Um, In some cases, I think that can be virtuous. I mean, Trump, Trump made an effort to normalize the relationship with North Korea. Um
Yeah, and if you think about the Biden administration, you think about the Obama administration, neither one took a risk to, to, to address North Korea. Trump was all about risk. Um And, and I think it was a genuine approach to change the status quo and change the paradigm to offer him a very alternative future and it ultimately failed. Um But, but I think that that was indicative of what we might see. Um
Now again, Kim was open to it, there was support from South Korea. Um I'm not sure you have the same factors at play with China. So I don't think uh you know Xi Jinping is able to cut some sort of grand bargain modus vivendi deal with, with Trump. I I don't think either one are prepared for it. So, so again, you've got the risk of uncertainty, the risk of how Trump communicates um you also have, of course, the risk of the, the, the,
the conflation of his personal and, and national interests. Um
um, but for Taiwan, you've got maybe a different calculation. Um One way to think of it is, you know, the, the, the fat tail concept, right, the curve that, that lengthens at the ends. And, uh, and, and I, I think the fat tail for Trump is really quite large at both of the ends. Um So
there's huge risks with Trump, but there's also potentially very big rewards if you can get him on your side and give him what he wants. I mean, Trump is, I think almost undoubtedly going to be surrounded by advisers that are very positive towards Taiwan and quite negative towards China, quite skeptical of China and the Communist Party. Um I mean, we've seen
several of Trump's former advisor, you know, call for, for recognizing Taiwan. I mean, that would be a huge coup for, for, for Taiwan. So, so that's the positive end of the fat tail. Of course, there is a big risk at the other side. Um I think there's a risk that there will be some in, in the conservative side of the political agenda who see value in
supporting Taiwan because it's a good way to antagonize China and that's their ultimate goal. Um And I personally don't think that's a very good approach. It's not consistent with us national interests. Uh But there, there are possibly some who would. So it's, it's difficult to see how either administration will be good from Beijing's perspective, what they want. Um It's difficult to, to, to,
to determine, you know, whether Trump is going to be truly disruptive or simply ineffective. Um From Tai Taiwan's perspective, I think Taipei is, is very experienced, dealing with transitions from one US administration to the next. They have a playbook for keeping those channels of communication open. Um And, and Taiwan's also particularly good at making its case for obtaining us support and they're also good at rolling, rolling with the punches, rolling with the brakes.
So, so Taipei faces different risks from either administration um but they're accustomed to it and I think they are resilient um and they're resourceful. So I'm pretty confident Taiwan will make the best of whichever uh situation it encounters.
Super, super interesting. OK. So drew the things that you just talked about are in the context of the near term, a year, two years out. Uh Would you sort of change your assessment or prediction if you will as much as you hate that word? Uh If I were to ask you to look into the region a decade from now,
a decade from now? So where are we in 2034 35?
Um So Xi Jinping will be Biden's age
today. Um Is he still in power or not? I think that's an important question to ask. What does his successor look like and how did that succession take place?
Um So I think that's an important trend to map if, if we see
Taiwan, uh if we see China as, as inevitably consistently revenge,
angry
insecure, censoring all information within its borders, um
unable to let go of century of humiliation and, and you know, Japanese history in World War Two, if, if, if all of its relationships are still antagonistic um which is part part Marxism, right? Marx was all about antagonism, right? Relationships between the superstructure of the base, you know,
between you know, labor and capital, you know, I I think the Chinese see the world in very adversarial terms between the Communist Party and those outside of it. And I think if that continues, then what we see today
continues and perhaps
the risks increase, commensurate with China's economic success, its expansion of military power, um possibility that its soft power becomes more attractive though, I think that may be antithetical to, to increasing Marxism in, in Beijing.
Um Taiwan
demographics work against it. It needs to figure out you know, how is it going to
protect itself, feed itself clothe itself
if, if its population is shrinking at a at a steady rate, so either turn around your birth rates or figure out how do you assimilate some of these Southeast Asian migrants who are coming to, to, to live in Taiwan, a path to citizenship. And I think that's perhaps a little difficult for them to think about today, it's going to be increasingly necessary
uh in 10 years. And of course, that puts it even farther at odds as, as Taiwan would effectively be moving closer to Southeast Asia than to, to mainland China. So, so 10 years from now, that could be uh part of the paradigm, uh an increasingly internationalized Southeast Asian Taiwan. Um So the US,
the US just exists, right? I mean, it's, it's a country that thrives on chaos in many ways. Um It, it, you know, people who want small government, you see, you see cycles of, of, you know, strength and weakness. Um you know, you, you talk to folks older than me who have been around and they think, you know, the US is full of chaos, but it's nothing like the 19 sixties um the civil rights movement in Vietnam. So the US has a, has a way of rejuvenating itself,
maybe, you know, two election cycles from now, we, we have two very capable candidates for president who can articulate a inspiring vision to the American people to pull together and continue to, you know, follow its values and, and, and lead the free world it could happen
um or the cycles could deepen and strengthen. So I think I like to think of trends as being fairly consistent. Um It's just a question of their, their velocity
fair enough, uh very good. Uh We'll come back in 2034 and look back at what you said. Uh Drew. Uh Thank you so much for your time and insight. Drew Thompson. Thanks for our listeners and viewers for their time as well. Kobe Time was produced by Ken Dub at Fly Studios, Violet Lee and Daisy Sherman provided additional assistance.
It is for information only and does not represent any trade recommendations. All 136 episodes of the podcast are available on youtube and on all major podcast platforms including Apple and Spotify. As for our research publications, webinars and live streams, you can find them all by Googling D BS Research Library. Have a great day.
