Annexation of Taiwan: A Defeat From Which the US and Its Allies Could Not Retreat

Executive Summary

This paper addresses one of the most dangerous, consequential flashpoints on the planet today, and for years into the future: a potential attempt by the People’s Republic of China (PRC) to annex Taiwan. The aftermath would likely trigger the worst economic shocks experienced in more than a century, unleashing a cycle of repression and diminishing the quality of life for populations across Asia and beyond, with devastating impacts on American interests and Americans’ well-being. Moreover, China’s annexation of Taiwan could exacerbate regional tensions and extend into a broader, global conflict. At stake are crucial interests such as the semiconductors that power today’s big data world and the national security of U.S. allies and partners. Neighboring states’ responses to PRC expansion could also result in the erosion of American military advantages as well as the destabilization of democracy and the international order. 

With Xi Jinping, the paramount leader of the PRC, consolidating power and approaching the zenith of his ambitions and ability to execute them, this increasingly worrisome scenario and its profound implications demand immediate attention. With so much at stake, it is critical to take proactive measures to avert such a crisis. U.S. policymakers must urgently double down on efforts to deter Xi throughout this “decade of maximum danger.”

Key findings presented in this paper include:

• Xi has strong motivations to annex Taiwan through the threat or use of force. The key objective would be to assert political control over the island and capture much of its industrial and technological infrastructure intact while attempting to limit escalation and thwart intervention. Such a move would mark a critical step toward achieving Xi’s so-called “China Dream” and fulfilling the Chinese Communist Party’s (CCP) promise to reclaim all major territories historically associated with China in some form, of which Taiwan is the crown jewel.
• Due to Taiwan’s global dominance in the semiconductor industry, it is important to emphasize that America could not fully retreat from such a defeat. A coercive unification of Taiwan with China would likely disrupt global techno-industrial supply chains for years to come.
• Under some scenarios, the disruption would emanate from Beijing achieving control over an operational Taiwanese semiconductor industry. Under other scenarios involving kinetic action or an embargo by a U.S.-led tech alliance, semiconductor supply disruptions would likely be substantially worse than the challenges created by the most intense phase of the COVID-19 pandemic in 2020–21.
• A major semiconductor supply disruption triggered by PRC coercive annexation of Taiwan could result in global economic loss on a par with, or worse than, that caused by World War II — the largest decline in gross domestic product (GDP) in the past 120 years.
• A disruption in the supply of advanced Taiwanese semiconductors would stall progress in critical fields such as medicine and materials science. Inferior substitutes would, in a best case, require massively increased electricity use — with major energy costs and climate security impact — merely to deliver vital societal functions at reduced performance and potential.
• In a scenario where Indo-Pacific alliances are compromised and the majority of global advanced semiconductor production is either destroyed or falls under Beijing’s sway, the United States risks becoming an embattled “Fortress America” in a world increasingly under Beijing’s influence and control. This would set the stage for insecurity, economic deprivation, and — quite possibly — future warfare between China and the United States.
• The PRC’s successful annexation of Taiwan would cripple U.S. regional credibility and seriously damage its alliance relationships. China would likely be perceived as Asia’s clear dominant power if it subsumed Taiwan while managing to deter (or defeat) a U.S.-led military intervention.
• To Beijing, conquering Taiwan is a necessary, albeit insufficient, milestone in China’s quest for regional dominance and global preeminence. Accordingly, PRC success in coercively annexing Taiwan would not end or stabilize the current competition of systems between the United States and China and the associated risk of armed conflict. Instead, it would likely accelerate and intensify it.
• Economic exclusion from East/Southeast Asia or access conditioned on acquiescence to a PRC-dominated system would threaten American security and prosperity. Moreover, unlike Washington, a regionally-dominant Beijing would likely reject strategic hedging by members of the Association of Southeast Asian Nations (ASEAN).
• Beijing’s core political and informational motivations for extinguishing Taiwan’s autonomy underscore the island’s unique importance. As a beacon of capitalist democracy, it demonstrates the ability of a society with diverse Chinese (and other) heritage to address repressive history, value individual life and liberty, engage cooperatively abroad, and chart its own course.
• China’s gaining control of Taiwan would compromise sensitive technologies and information, degrade monitoring of PRC military operations, and enable PRC dominance over the primary approaches to South Korea, Japan, and the Philippines. This could significantly affect the ability of Seoul, Tokyo, and Manila to act autonomously, thereby calling into question U.S. commitments to its allies. It could also drive Seoul and Tokyo to seriously contemplate developing nuclear weapons as a means to backstop their autonomy.
• If American allies in Asia were to lose confidence in U.S. security guarantees, a cascade of multi-regional nuclear proliferation pressures would be unleashed. Competition among the three global nuclear superpowers — China, Russia, and the United States — would intensify, and India, Pakistan, and potentially Japan, South Korea, Iran, Saudi Arabia, and Israel could be prompted to develop or increase nuclear capabilities. This process could add dozens of nuclear warheads to global stockpiles each year.
• PRC attainment of hegemony in East/Southeast Asia could also destabilize China-Russia relations and other pivotal international dynamics.

In sum, Taiwan is in many ways akin to the “West Berlin” and “West Germany” of a Cold War 2.0. In this decade of maximum danger, American president(s) will likely face Taiwan-related scenarios at least as severe as those Dwight D. Eisenhower confronted during the First and Second Taiwan Strait Crises of 1954–55 and 1958 — but without the overwhelming military advantages that helped Bill Clinton diffuse the Third Taiwan Strait Crisis of 1995–96, or the inherently limited nature of the Fourth Taiwan Strait Crisis during the Biden-Harris administration in 2022. At stake are critical American and allied interests, the post-war international order, and the peace, prosperity, and freedom it undergirds. American policymakers must act urgently to deter PRC aggression and maximize capabilities to prevent China from coercively annexing Taiwan.

The risk window is here and now. The PRC’s publicly documented military modernization continues as Beijing works to shape the battlespace through an all-domain pressure campaign including political warfare, cyber and space activities, and physical deployment of military platforms and weapons. These actions are essential preconditions for coercive annexation and reflect the increasingly tight alignment between PRC capabilities and intentions concerning Taiwan. Therefore, absent a substantial U.S. investment in and reinforcement of effective deterrence, Beijing will likely attempt annexation of Taiwan before this decade is out. Safeguarding Taiwan should thus be urgently and relentlessly prioritized in American defense and foreign policy efforts. Some of America’s most vital interests hang in the balance.

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The views expressed here, based solely on open sources, are those of the authors alone and do not represent those of any institution with which they are, or have been, affiliated. The authors thank numerous anonymous experts for invaluable inputs.

This publication was produced in collaboration with Rice University’s Baker Institute for Public Policy. Unless otherwise specified, all calculations and estimates were made by the authors themselves. Wherever feasible, this research was reviewed by outside experts before it was released. Any errors are the authors’ alone. 

This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the authors and Rice University’s Baker Institute for Public Policy. The views expressed herein are those of the individual authors, and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy.