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Introduction

On January 1, 1979, the Standing Committee of the National People’s Congress of the People’s Republic of China issued a “Message to Compatriots in Taiwan.�� The message declared an end to Beijing’s periodic bombardment of Taipei-controlled islands, a shift away from the forceful “liberation�� of Taiwan, and an emphasis on achieving “peaceful reunification.��¹

This softer approach was explicitly rebutted exactly forty years later. In a speech to mark the fortieth anniversary of the first “Message to Compatriots in Taiwan,�� Xi stated that unification was “an inevitable requirement for the great rejuvenation of the Chinese people�� and that the Taiwanese would have to accept that they “must and will be reunited�� with China. He added that Beijing would use force to achieve this end if required and that any moves towards independence “will only bring hardship�� for the Taiwanese people.²

Xi’s speech on January 1, 2019, only put into words what was already occurring. Over the past few years, China has deployed a multifaceted approach to Taiwan, including altering the military balance to achieve air and sea dominance over the Taiwan Straits; increasing the frequency of military maneuvers and incursions in order to intimidate; shrinking and eliminating Taiwanese participation in international forums; pressuring other countries and firms to cease any recognition of Taiwan as a distinct entity; and increasing Taiwan’s dependency on the mainland to enhance China’s capacity to seduce and coerce economically.

In important ways, Taiwan is further from the Chinese Communist Party’s grasp than ever before. As a result of China’s moves in Hong Kong, Taiwanese president Tsai Ing-wen has explicitly ruled out a “one country, two systems�� arrangement with China, on the basis that it cannot be trusted to preserve freedoms and the Taiwanese way of life.³ China’s hardening authoritarianism makes unification an increasingly unattractive proposition for the majority of Taiwanese citizens.⁴ Beijing’s assertiveness and activities in the East and South China Seas and South Pacific elevate Taiwan’s geostrategic and military relevance to the United States and place renewed importance on Washington’s meeting its obligations in the Taiwan Relations Act. Placed within the broader context of the deepening US-China rivalry, a strong and autonomous Taiwan is more important to the US than it was just a decade ago. As far as Washington is concerned, these factors increase Taiwan’s relevance and value as a strategic, military, and political bulwark against Xi’s China.

Even so, China’s strongest hand is arguably the economic leverage many believe it has over Taiwan. This brief looks at the importance of Taiwan’s loosening itself from China’s economic grip, the role the US can play, and why an enhanced US-Taiwan economic relationship will serve Washington’s strategic, economic, and domestic objectives.

This report makes the following arguments:
* From Taiwan’s perspective, the greater its economic presence and importance to the world, the better positioned it is to reduce its dependency on China and maintain its autonomy. This also serves US interests.
* From the US perspective, deepening the economic relationship with Taiwan in strategic ways will assist it in achieving greater economic distance from China and reducing the extent to which China can capture and dominate global supply and value chains in the future.
* The US and Taiwanese economies are largely complementary, and this can become even more so. Thus, a deeper bilateral economic relationship will be generally consistent with domestic economic objectives, such as prioritizing high-value job creation and preventing high-value supply chains from remaining in China or leaving the United States.⁵

The report offers recommendations to:
* help prevent the hollowing out of Taiwan’s competitive strengths;
* help Taiwan broaden and deepen its participation in the regional and international economic space, which is currently being narrowed by China;
* assist with Taiwan’s desire to lower dependency on China-based supply chains, especially with respect to high-value-added processes;
* encourage more bilateral investment, intra-industry relations and firm-to-firm activity between the United States and Taiwan.