Pelosi has a record of grandstanding on China; in 1991 she unrolled a banner in Beijing’s Tiananmen Square in support of democracy protesters. Now she’s become the second speaker to visit Taiwan, following Newt Gingrich in 1997, when relations were warmer, and China was weaker. Though U.S. President Joe Biden has distanced his administration from the visit, Chinese state media is warning of a military response here.
For American and Taiwanese businesses, the question is whether Beijing will retaliate against them. Taiwan is vulnerable. Its exports to the mainland and Hong Kong topped $188 billion last year, accounting for over 40% of the total. For agriculture, the proportion is higher. Mainland officials banned imports of some 100 Taiwanese food products on Monday night, local media reported here.
However, Beijing has little choice but to keep importing higher-value goods, like the semiconductors Taiwan specialises in. Cutting off chip supplies to Chinese manufacturers would rebound on exports; Taiwanese giants like TSMC and Foxconn are also huge employers on the mainland. The same applies to many American companies.
China also has cause not to go overboard on choking off investment. Punishing U.S. and Taiwanese firms operating in the People’s Republic would validate those who argue that foreigners should vacate the market, as carmaker Stellantis did in July.
With nearly every economic indicator headed south except for exports, Xi is under pressure as he prepares to seek a third term in office. Capital flight or trade disruption would not help his position. However, Xi may also feel obliged to placate enraged nationalists at home. That raises the chances of a military show of strength, and an accidental clash between nuclear-armed states in one of the world’s busiest sea lanes. Business peace is no substitute for the real thing.
