On Tuesday, November 19th, the US-China Economic and Security Review Commission (referred to informally as the USCC) submitted its annual report to Congress. The report focused on Taiwan, detailing the increased pressure from the Chinese Communist Party (CCP) following the inauguration of President Lai Ching-te and presented two countermeasure suggestions to Congress.
The USCC, established by Congress in October 2000, is an independent commission responsible for reporting to Congress on the impact of US-China trade and economic relations on American national security.
The report outlined the CCP’s actions towards Taiwan in 2024, aimed at expressing strong dissatisfaction with the new administration of President Lai Ching-te. The CCP has consistently applied high levels of military, diplomatic, and economic pressure on Taiwan’s ruling party, the Democratic Progressive Party (DPP). The CCP has expanded its means of intimidating Taiwan, including increased use of the Chinese Coast Guard (CCG) around the outlying islands, the imposition of new guidelines punishing “separatist elements,” and intensified harassment of Taiwan travelers to the mainland.
The report cited examples of CCP interference and coercion against the Lai Ching-te government and actions to infiltrate and divide Taiwanese society:
– Lai Ching-te’s election as president indicated broad support from the Taiwanese people for his policies, yet DPP’s legislative setbacks in Taiwan could limit the government’s agenda. Beijing’s response to Taiwan’s exercise of autonomy was immediate, with extreme rhetoric and policy adjustments designed to intimidate Taiwan. The CCP legally defines “separatism” as a crime punishable by death in certain circumstances, posing direct threats not only to Taiwanese leaders but also escalating indirect threats to international supporters of Taiwan.
– The CCP refused direct communication with Lai Ching-te, choosing to intensify political pressure on Taiwan, indicating that the frosty relationship between the DPP government and the CCP will persist. Instead, the CCP signaled a willingness to interact with the opposition party and interfere in Taiwan’s political system to bypass the Lai Ching-te government.
– The CCP escalated military threats against Taiwan to gain operational experience, reduce Taiwan’s military readiness, and intimidate the Taiwanese population while increasing the normalization of CCP military presence.
– Additionally, Beijing expanded the use of “gray zone” tactics, blurring the boundaries between military and non-military operations, conducting attacks under the guise of law enforcement and administrative activities in the maritime and airspace domains to promote its claims that Taiwan and the Taiwan Strait are part of Chinese territory.
Faced with CCP pressure, Taiwan continues to strengthen its relationships with international partners and deepen informal ties with major countries in North America, Europe, and Asia. In contrast, Beijing leverages various levers and influences to garner support for its false claims from other countries.
“The United States has helped Taiwan enhance its defense capabilities through aid and internal reforms, focusing more on military and social resilience. The Taiwanese military continues to take significant steps, developing, manufacturing, and adopting asymmetric systems, and improving the training of conscripts and reserve personnel. However, domestic factors and almost daily CCP pressure actions remain challenges to this progress,” the report stated.
The report’s summary also emphasized that despite economic threats from the CCP, Taiwan’s economy remains robust.
The USCC noted that despite China’s aggressive stance, Taiwan’s vibrant and developed economy performed strongly this year, driven by demand for cutting-edge chips and other high-tech manufactured goods due to advancements in artificial intelligence, leading to a surge in exports and a rise in Taiwan’s stock index.
“While China’s Ministry of Finance canceled preferential tariff exemptions for 134 Taiwan exports to the mainland less than two weeks after Lai Ching-te’s inauguration, Taiwan’s economy showcased resilience and robust growth amid heightened tensions in cross-strait trade,” the report highlighted.
The USCC added that US-Taiwan relations continued to be constructive and strong, with the United States sending signals and providing steadfast support to Taiwan through various means.
In 2023, Taiwan’s approved foreign direct investment from the mainland plummeted by 39.8% to the lowest level in over 20 years. Meanwhile, approved FDI from the United States soared by 791% to $9.7 billion, reaching a historic high during the same period. In April 2024, semiconductor manufacturing company Taiwan Semiconductor Manufacturing Co. (TSMC) announced an expansion of over 60% in investment in the U.S. to over $65 billion after securing $6.6 billion in federal funding under the “CHIPS for America Act.”
As a crucial trade partner of the United States, Taiwan’s efforts to strengthen ties over the past year have resulted in numerous investment announcements, ongoing progress in substantive agreements like the “U.S.-Taiwan 21st Century Trade Initiative.” According to data from the U.S. Bureau of Economic Analysis, Taiwan ranks 13th among U.S. trade partners in terms of total goods and services trade volume ($152 billion) in 2023, behind France but ahead of Singapore. In goods trade alone, Taiwan is the seventh-largest trading partner with the U.S. ($128 billion), the tenth-largest export market ($40 billion), and the eighth-largest import source ($88 billion) based on 2023 figures.
The Commission proposed two suggestions to Congress:
– Amend the 1976 Arms Export Control Act to include Taiwan in the “NATO +” recipient list.
– Establish a “Taiwan Ally Fund” to provide foreign aid only to countries that maintain formal diplomatic relations with Taiwan. Each country should not receive more than 15% of the allocation annually, and nations that no longer have diplomatic ties with Taiwan will immediately lose eligibility for this funding.
The report acknowledged that while the Lai Ching-te government has expressed intentions to adopt an asymmetric defense strategy, CCP pressure actions pose challenges to its implementation. Taiwan must make complex decisions on resource allocation concerning how to counter CCP’s gray zone activities and whether to deploy equipment more suitable for repelling invasions. The United States can assist Taiwan in countering CCP’s gray zone activities by providing supplies to support its asymmetric strategy, though rapid military buildup in Taiwan remains challenging. Therefore, Taiwan will rely on the U.S. for deterrence.