Friday, August 19, 2022

A Grand Bargain For Taiwan: Literally

We all know that the stakes are high—maybe mushroom-cloudily high—in regard to Taiwan. “A Fight Over Taiwan Could Go Nuclear,” headlines Foreign Affairs, not a publication known for sensationalism.  And that header ran on May 22, weeks before House Speaker Nancy Pelosi’s August 2 trip to Taiwan.  Since Pelosi’s visit, concern about a possible Sino-U.S. conflict over the island has ratcheted even higher.  

Hence an ominous second headline from Foreign Affairs, post-Pelosi trip: “America Must Prepare for a War Over Taiwan.”  Meanwhile, headlines from around the world veer from pensive to panicky.  From Germany: “Pelosi in Taiwan—important signal or historic mistake?”; from the United Kingdom: “Horrifying escalation of tensions.”  And the fear is that the war may spread to neighbors in Asia.  Japan: “China’s planned military exercises near Taiwan may have another target: Japan.”  Smaller countries, too, are worried; Malaysia: “Crossing Red Lines to Nuclear War.”  

Just on August 15, a second U.S. Congressional delegation visited Taiwan.  To which the People’s Liberation Army responded by staging more menacing “drills.”   Meanwhile, back in Washington, D.C., on August 16, the Chinese ambassador to the U.S., Qin Gang, delivered a 90-minute tirade, which Politico characterized as “doubling down.”  Qin accused Pelosi of “political provocation” and of “changing the status quo”—and implying that China would be within its rights to change it some more.  To which U.S. Air Force secretary Frank Kendall responded, in effect, on August 19: “The military activities that China engaged in during the time of the speaker's visit increased the level of risk and they violated a number of norms, crossing the line was one, firing into the exclusive economic zone of Japan was another, and firing over Taiwan itself was another.” Kendall added, “These are not actions that are designed to promote peace and stability in the region, they are very provocative and they increase the level of risk.”

Stepping back and adding perspective on this ominous tit-for-tat, former secretary of state Henry Kissinger told The Wall Street Journal, “We are at the edge of war with Russia and China on issues which we partly created, without any concept of how this is going to end or what it’s supposed to lead to.”  

So maybe, as we seek to sort things out, we should pause to remember wisdom from Winston Churchill: “To jaw-jaw is always better than to war-war.”  As we know, Churchill never shrank from an unavoidable fight, and yet at the same time, he believed that war should always be the last resort.  

With such prudence in mind, we should consider all possible ideas for staving off a conflict, including those from outside the box.  One such outside-the-nine-dots thinker is Greg Piccionelli, a Los Angeles-based polymath who has combined law, biology, physics, inventing, music, and bird-care. He has an interesting suggestion: The People’s Republic of China should buy Taiwan.  Not conquer it. Not nuke it.  Not blockade it.  Buy it.  That’s truly a Grand Bargain.  

“The U.S. bought Louisiana in 1803,” Piccionelli says. “Perhaps we could have taken it by force from the French, but we’ll never know, because we bought it.  Same with Alaska in 1867.  The Russians were a strategic threat to us, and we were a strategic threat to them.  So instead of risking a conflict in the Pacific Northwest, we just bought the territory.  A win-win.”  So yes, with apologies to Churchill, at least in some cases, buy-buy is better than war-war.  

We can add that in 1821, the U.S. acquired Florida from Spain.  As part of the deal, the U.S. assumed some $5 million in liabilities, and yet the cession was a bit more complicated than just a purchase, in part because Florida was filling up with American settlers and also because Spain was at the time fighting revolutions all across South America.  Still, it was a peaceful addition to the U.S.  Interestingly, the Florida deal was negotiated by Secretary of State John Quincy Adams.  Today, he is remembered as an apostle of foreign-policy restraint; as he said of America in his famous oration of July 4, 1821, “She goes not abroad, in search of monsters to destroy.  She is the well-wisher to the freedom and independence of all.  She is the champion and vindicator only of her own.”  All true, and yet at the same time, Adams was a realist champion of American interests. He knew that it was better for the U.S. to have Florida than for Spain to have it—and if he could get it for a mere payment, all the better.  

In addition, in 1854, the U.S. made the Gadsden Purchase from Mexico, gaining parts of today’s states of Arizona and New Mexico.  Just in the previous  decade, the U.S. had fought a war with Mexico, seizing substantial amounts of territory, and yet this time, the U.S. chose a peaceful approach.  In fact, Wikipedia lists some two dozens instances in history in which territory traded hands via purchase, not conquest.  In other words, there’s ample precedent for buy-buy as a way to gain land-land.  

So now to Taiwan. “If China offered $1 million to every man, woman, and child in Taiwan if they agree to vote to voluntary reunify with the mainland, the cost would be $24 trillion—24 million people times one million dollars,” Piccionelli suggests. “That $24 trillion price tag would accomplish peaceful reunification without an incredibly more costly cold war with the U.S. or an even more costly and catastrophic hot war with the U.S. and its allies.”  So there’s the deal.  

To be sure, $24 trillion is a lot of money.  And perhaps the price of $1 million per Taiwanese is too high—or maybe it’s too low.  That’s what would need to be negotiated between the parties.  However, as Piccionelli says, almost whatever the per capita valuation, war is more costly.  On August 8, Yahoo News cited a RAND Corporation study suggesting that a war with Taiwan would cut China’s $17 trillion GDP by as much 25 percent.  That’s more than $4 trillion, just in a single year.  Which is to say, stretched out over many years, the cost of a war with Taiwan would vastly exceed the possible purchase price of Taiwan.  And in the meantime, a Taiwan war would clip off about five percent of U.S. GDP, which is currently $23 trillion.  So that would be another trillion or so lost.  And there’d be sizable impact on the rest of the world, too.

Of course, we haven’t mentioned yet the price in lives, buildings, cultural artifacts, and so on—all the treasures that are being destroyed tragically, on a daily basis, in Ukraine.

We can add that the RAND numbers assume that the war would be contained—and who can make any such assumption?  Perhaps it’s fitting that I am writing this in the month of August.  It was in another August, 108 years ago, that The Guns of August roared, and World War One commenced.  Few of the war’s protagonists had any idea how destructive it would be: in lives, in money, in cultural and political capital.  

One who did foresee the true cost of a great war was Norman Angell, the British journalist and essayist.  His 1910 book, The Great Illusion, argued that war had become so destructive that it was no longer “profitable” to think of conquest.  In particular, Angell cited the importance of intangibles, such as credit—which would evaporate in a conflict.  As he wrote, these intangibles would evaporate in the event of a war: “Because of this delicate interdependence of our credit-built finance, the confiscation by an invader of private property, whether stocks, shares, ships, mines, or anything more valuable than jewellery or furniture—anything, in short, which is bound up with the economic life of the people—would so react upon the finance of the invader's country as to make the damage to the invader resulting from the confiscation exceed in value the property confiscated.” 

Angell was pro-peace, but he was tough-minded. He conceded that in countries without industry, there was gain to be found in pillage.  As he wrote, “Where Nature does not respond readily to industrial effort, where it is, at least apparently, more profitable to plunder than to work, the military tradition survives. The Beduin has been a bandit since the time of Abraham, for the simple reason that the desert does not support industrial life nor respond to industrial effort. The only career offering a fair apparent return for effort is plunder.”  But for countries and civilizations that had evolved beyond smash-and-grab, Angell insisted, war was a costly mistake.  

Angell is often mocked, because just four years after the publication of his book, World War One erupted.  But in fact, what was then known as the Great War proved his point: All the countries of Europe, even the “victors,” were, in fact, losers.  The Europeans recognized Angell’s enduring wisdom, and so in 1933, he was awarded the Nobel Peace Prize

If Angell was correct a century ago, he’s even more correct today. To be sure, plenty of advanced countries go to war—and yet when they do, they are economic losers, not winners.  The recent military misadventures of the U.S. in the Middle East are a case in point.  

Updating Angell, we can observe: In the past, if a country conquered a territory, it would get the land, and maybe, too, future subjects or slaves.  But these days, when a territory is conquered, the conqueror gets craters and ruins.  (Yes, theoretically a lightning strike could decapitate the regime and leave the nation intact—that’s what Putin was aiming for in Ukraine, and it didn’t happen.)

Yet even if the kinetic damage is somehow held to a minimum, the damage is still severe.  Not only does the credit evaporate, but so does the human capital and the intellectual property.  And if economic sanctions and capital flight are piled on to those costs, then all the more, even the winners become losers.  So the Russians will not wring profit from the parts of Ukraine that they have conquered and devastated. 

Admittedly, a few countries and regions might be so abundant with natural wealth—gold, oil, perhaps rare earth elements—that they might, in some cruel calculus, be deemed “worth” conquering.  Yet Taiwan is not one of those countries.  It’s prosperous, for sure, boasting a per capita GDP of more than $33,000, and yet that wealth is found in the brains of its people, not underground.  Moreover, Taiwan’s prosperity is built on gossamer webs of globalism, linking its crucial exports to the rest of the world.  For instance, China is Taiwan’s largest trading partner, and Taiwan is China’s tenth-largest trading partner

Specifically, the Taiwan Semiconductor Manufacturing Company (TSMC), which Pelosi visited, makes 56 percent of all the computer chips in the world, (other Taiwanese companies make another 10 percent), and accounts for 92 percent of the most advanced chip-manufacturing capacity.  So yes, these trade links are quite real, in the sense that the world economy relies on Taiwanese chips, and yet at the same time, the links are fragile.  On August 1, the president of TSMC, Mark Liu, spoke out about  the perilous situation, as it might affect his company—and the world.  He said that a military attack from the PRC would render TSMC factories “non-operable,” because “suddenly their most advanced components” would disappear.  Liu explained that TSMC depends on real-time exchange with partners and suppliers around the world, for everything from “raw materials and chemicals to spare parts and software.”  And so, Liu continued, “nobody can control TSMC by force.”  The result of a war, he concluded, would be “great economic turmoil on [both] sides.” 

So even if the PRC were to subdue Taiwan by non-lethal means—say, an economic blockade, or turning the electricity off—plants such as TSMC, having lost their supply chains, and also many of their tech workers, would soon be reduced to worthless hulks.  

Okay, so now to possible objections to the Grand Bargain.  Here are five:  

First, would either the Taiwanese government, or the Taiwanese people, be at all interested in this proposal?  The immediate answer is that this sovereign power should be up to the Taiwanese and their democracy. Unlike the PRC, Taiwan is a democracy, where human rights are respected—and so the nation can have a full and free debate on its destiny.  Without a doubt, it’s nice to be an independent country. (Officially, Taiwan is the Republic of China, ROC, so it’s legally arguable that it’s just a different government for China, even if, course, in reality, it’s its own nation.)  Yet at the same time, it's also nice not to have to worry about being invaded, bombed, or maybe even nuked.  So perhaps the Taiwanese will deliberate on this matter, decide to take the deal—and then take the money and run. That is, skedaddle to California or Canada with the million bucks in hand.  (This assumes, of course, that those countries would take these economic migrants in such huge  quantity; in fact, given their wealth, as well as their presumed skills, it's quite possible that a new kind of international competition for Taiwanese human capital would emerge, with shrewd host countries gaining much.) 

This author will volunteer that there’s no reason to think that the PRC would treat an owned Taiwan, and its population, any better than it has treated an owned Hong Kong.  Yet still, more than 98 percent of Hong Kongers have remained.  Evidently, in the minds of most residents of that former British colony, rule by the PRC isn’t so bad.  But once again, the choice should be made by the Taiwanese, whether to take the deal, or not—and whether to stay in Taiwan, or not.  

Second, would the Beijing government have any interest in this idea?  After all, Chinese Communist Party leader Xi Jinping might think to himself, Taiwan is already ours, so why should we pay for it?  To which we can point out: Possession is nine-tenths of the law, and the PRC does not actually possess Taiwan.  So maybe Xi will see the value in a war-free, blood-free way to tidy up that geopolitical discrepancy.  Indeed, a purchase might be a face-saving way for the PRC to gain sovereignty over Taiwan, without the risk of Putin-Russian type Ukraine debacle.  Better to gain Taiwan by moving in on little weiqi cat feet. 

Third, there’s that $24 trillion price tag.  Rich as China might be, that’s a lot of money.  So here’s perhaps where international finance could help.   And why might the Rest of the World (ROW) be helpful?  Because the ROW realizes that a war over Taiwan would be an economy-tanker across the planet, and that would be bad for ROW asset values.  And if the war went worldwide, well, that would be even worse—much worse. To stave off potential planetary peril, the ROW might see the value in creating some sort of financial instrument to help the purchase along, perhaps by providing the money upfront to the Taiwanese, with Beijing operating on a longer-term installment plan.  Indeed, it’s quite possible that fear of a war over Taiwan is already “priced in” to the value of stocks and currencies—that is, depressing their value—around the world.   So if the threat of war were to go away, those valuations would rise, worldwide.  And there’re quants on Wall Street—and in London,  Tokyo, and Shanghai—who can figure out how to securitize, and monetize, that potential good news.  In other words, properly thought through, a permanent peace between China and Taiwan would be remunerative good news.  Plotting peace and getting richer as a result surely counts as a virtuous kind of market manipulation. 

Fourth, some will say that any suggestion that there’s an impermanence to Taiwan as an independent state undermines the freedom and autonomy of the Taiwanese people.  That is, the mere thought that Taiwan might be “for sale” could undercut its sovereignty and become a self-fulfilling prophecy.  This is a valid concern.  However, the idea that world could go to war over Taiwan—and maybe it would even be a nuclear war—is also a valid concern.  And the idea that the world, including the United States, might, in fact, “blink” on the defense of Taiwan is yet another valid concern.  For half a century, the U.S. has had a policy of “strategic ambiguity” on Taiwan; that is, we won’t say what we will or won’t do, militarily.  President Joe Biden has said three times that the U.S. would, in fact, defend Taiwan, the administration has unsaid it three times.   So there are many valid concerns, there is much ambiguity—and very high stakes.   So maybe it’s not so bad to consider different solutions—even outside-the-box bargains.  

Fifth, many on the right, as well as the left, will be concerned that paying money for territory and nationality would represent a further commodification of mankind.   Perhaps the most revered of all conservatives, Edmund Burke, sighed that the age of noble chivalry was being yielded up to “sophisters, oeconomists, and calculators.”   And Karl Marx’s declared that the bourgeoisie was reducing all human interactions to the “egotistical calculation” of the cold cash nexus.  Myriad thinkers and philosophers, before and since, on the left and the right, have further scorned the idea that human affairs can be reduced to a price point.   So how would Taiwan Grand Bargainers plead to these charges?  That they are crassly auctioning the organic, the intrinsic, the historic, and the heroic?   In their defense, the financializers might argue that over the last two or three centuries, innovation, including financial innovation, has increased the standard of living some 20-fold.  Still, it’s hard to address non-monetary concerns with money, because one side is talking taboo, while the other side is talking tradeoff.  But it’s worth trying to make these minds meet; that’s what diplomats are for.  With apologies to Churchill, jaw-jaw is good.  Indeed, the beginning of bargaining could be a path to the resolution of other international disputes.  Around the world, there’s plenty of territory that’s probably better paying for than killing for.  

In fact, the lethality of warfare is ever increasing.  That’s not just because of nuclear weapons, but also due to artificial intelligence, which makes possible new agents of mass destruction, from drones to robots to gain-of-functioned viruses.  To put it bluntly, dark technological innovation is making the planet more dangerous, and that’s not even including environmental concerns such as climate change.  Stepping back on all the dangers confronting Spaceship Earth, Piccionelli espies all the dangerous techno-trends and labels them the “doomsday curve,” which is not curving in a good direction for humanity.  So perhaps, as a possible partial solution, we need nuanced political and financial innovation that offers new hope for not only peace, but survival.  

Let’s let Piccionelli have the last word: “A purchase of Taiwan is, first, good for the world order; second, gets the U.S. off the hook for Taiwan’s defense; third, makes China look like a responsible superpower.  A win-win-win.”  

An intriguing argument.  Now we’ll have to see what Taiwan, China, —and the rest of the world—make of it.  

Addendum: I am reminded that I wrote in praise of a report that Donald Trump wanted to buy Greenland.  

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