Episode Transcript
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Steve Odland (00:00):
Welcome to C-Suite
Perspectives, a signature
series by The Conference Board.
I'm Steve Odland from The ConferenceBoard and the host of this podcast series.
In today's conversation, we're going totalk about the state of China and Taiwan
relations and what could happen next.
Joining me today is Dr. LoriEsposito Murray, a senior fellow
for national security and managingdirector of CEO programs at the
(00:23):
Council on Foreign Relations.
Lori is also the former presidentof the Committee for Economic
Development, which is the publicpolicy center of The Conference Board.
And Lori, you've been here many times.
Welcome back.
Dr. Lori Esposito Murray (00:35):
Thank you,
Steve, and very happy to be invited back.
Steve Odland (00:40):
So we're going to
talk about some delicate subjects
today and try to understand what'sgoing on in the minds of the leaders
of China, as it relates to Taiwan.
So talk about, first of all, theChinese buildup of its military.
It's really been exceptionalover the past couple of decades,
(01:02):
especially their naval and air forces.
Give us some numbers andwhat their goals are.
Dr. Lori Esposito Murray (01:10):
So basically,
to sum it up, China has been experiencing
the most dramatic military buildup thatthe world has seen since World War II.
And this has been a very seriouscommitment by President Xi since he
came into power, and particularlysince 2014, when he really explained
(01:34):
his vision for the China Dream, whichincluded national rejuvenation by 2049.
And key to that was really establishingChina as a military power to
support its growth as a globaleconomic and geopolitical power.
(01:54):
And
at least a decade ago, youwere seeing double-digit
increases in the defense budget.
And while China hasn't sustainedthat, with its economic problems,
it's still announced and hascontinued to provide increases.
This year, it just announced an over 7%increase in the defense budget, which it
(02:16):
has done for the past couple of years.
So the military is continuing, even withthe economic shifts, the impact of COVID
on the economic budgets, continued toget very extensive resources from China.
It's the second-largest militarybudget globally, second to the
US, which is far above it, butnonetheless, it's number two globally.
(02:40):
It has the largest navy in the world,has been one of the developments
out of this large commitment.
It has the largest activemilitary force in the world.
It has an air force as the mostpowerful and extensive air force
in the region, and about to becomethe largest air force in the world.
(03:03):
And while the US still maintains,obviously, very significant as Adm. Sam
Paparo, who is head of the Indo-PacificCommand said, in terms of war-winning
advantages, it's also a highlydeveloped technological force, as well.
(03:24):
And so you combine all this together,what you're seeing is China has really
moved, not only with its navy butwith its entire military force, from
looking at its near abroad, in termsof what it was protecting, to actually
projecting to a global presence.
It's also important to point out,too, as a part of this military
(03:46):
buildup, which doesn't get as muchattention, is the fact that China is
also expanding its nuclear forces, andmore rapidly than we had anticipated.
And which is really a critical componentbecause Xi Jinping has moved beyond what
has been a traditional Chinese approachof trying to have a minimum deterrence
(04:08):
to actually model the US and Russiain terms of their strategic forces.
And this will have particular impactin terms of any conflict that happens,
because it will give, and it is whatthe Defense Department thinks China's
seeking more escalation control.
And as we've seen in Ukraine, howPutin has really played the nuclear issue
(04:34):
in terms of both publicly stating andtrying to control what the escalation
levels are with his threats of nuclearweapons use, you could see that factoring
into any conflict with China goingforward, including, obviously, Taiwan.
Steve Odland (04:51):
So help us understand
also just, the basis of the
relationship between China and Taiwan.
Because Taiwan was, in 1949, followingWorld War II, it was a backwater.
There was some native Taiwaneseon there, but there wasn't much
there until the revolution.
So talk about then what happened andthen how the relationship evolved.
Dr. Lori Esposito Murray (05:14):
So the
history of the relationship of
China to Taiwan is complicated andreally stems from the revolution.
But if I could even back up evenfurther, Steve, what had happened in
the late 1800s, 1895, the Qing Dynastyactually gave away Taiwan to the Japanese
(05:39):
after the first Sino-Japanese War.
During World War II, theJapanese control Taiwan.
And we were working very closely withChiang Kai-Shek, who was head of the
Kuomintang Nationalist Republic of Chinaand very much involved with fighting the
(06:00):
Japanese, more so than Mao Zedong wasat the time with the communist forces.
And we had promised Chiang Kai-Shek, wehad promised China during the negotiations
leading up to the end of World WarII, including at Potsdam and Cairo
declarations, that China would receiveback Taiwan as part of its territory.
(06:25):
After the war, that's what happened.
But the civil war broke out.
In 1949, Mao Zedong becomes forcesChiang Kai-shek to go to Taiwan with
his forces, the nationalist forces,and the issue of Taiwan then becomes
a complicated, conflictual issue interms of, does Mao Zedong's China have
(06:51):
Taiwan as part of its China, whereChen Kai-Shek claimed that it was the
home base of the Republic of China?
With this conflict, with the civilwar, with Mao Zedong declaring
his China, communist China, as theone China, this issue became an
international issue and particularlyan issue with the United States.
(07:14):
And was an issue of conflict withChina during that time, including,
particularly during the Eisenhoweradministration, where it actually almost
triggered decisions as to whether touse nuclear weapons in these crises,
the Taiwan crises that developed in1954 and 1958, and led to a defense
agreement with Taiwan and the US.
(07:35):
And basically became a majorissue that almost was resolved
prior to the Korean War in 1950.
And Kissinger actually said to Mao Zedong,had that Korean War never happened.
Taiwan probably would've been returnedto China at that time and wouldn't
be an issue in US-China relations.
Steve Odland (07:58):
So why does
China lay claim to the island?
Dr. Lori Esposito Murray (08:02):
So China
lays claim to the island because of
that history after World War II, orduring World War II and after, where
Taiwan was part of the post-World WarII arrangement to be returned to China.
Steve Odland (08:16):
OK.
That's like a nanosecond in history.
And it's like a minute in Chinese history,which goes back as old as almost any,
where there was no claim on Taiwan.
So this is a relatively new event, andit has been operating independently,
(08:36):
it was the original China recognizedat the UN until we changed that.
So this is all relatively new, and it'sbecause of that post-war agreement.
So unlike some territorialclaims, it's not rooted in
thousands of years of history.
Dr. Lori Esposito Murray (08:57):
Right, and
it really became a central piece of the
US opening, President Nixon's openingto China, a central piece in those
negotiations, how to deal with it.
A central and difficultpiece on how to deal with it.
And as you said, it was in 1971 during theNixon presidency that the UN votes to seat
(09:21):
the PRC as the official representativeof China and expel the Republic of China,
the Chiang Kai-shek government, thenationalist government, from the UN.
And so sat the People's Republicof China as the China seat.
Steve Odland (09:39):
OK.
Dr. Lori Esposito Murray (09:39):
So President
Nixon goes to China, and part of that
visit included what was called theShanghai Communiqué, which is one of the
three communiqués that actually definedour relationship with China and Taiwan.
And what it did was it acknowledgedthat all Chinese on either side
(10:00):
of the Taiwan Strait maintainedthat there was one China.
And that It acknowledgedthat Taiwan is part of China.
What it did was this strategic ambiguityin terms of not explicitly stating who the
US thought or whom the US thought would bethe one China and what Taiwan's role was.
(10:20):
It just acknowledged the situationand really, most importantly, left the
settlement of the Taiwan question tothe Chinese themselves, really between
Taiwan and, mainland China, to decidehow it was going to be resolved.
And that was the first of threecommuniqués that followed.
And just very quickly, thesecond one was President Carter's
(10:44):
communiqué in 1979, where
he was frustrated by the lack of progress.
The Carter administration was frustratedby lack of progress, and they had a joint
communiqué, which recognized the People'sRepublic of China, communist China, as
the sole government of China, but didn'trecognize China's sovereignty over Taiwan.
(11:04):
And it also abrogated the 1950 DefenseTreaty, which Congress responded
with the Taiwan Relations Act,which actually set up the situation
where the US would provide, fordefensive purposes, arms to Taiwan.
And then the third communiqué wasRonald Reagan in 1982 with the Chinese,
(11:26):
where that communiqué basically saidthat we wouldn't have long-term arm
sales with Taiwan or exceed thecurrent levels unless the situation
should change and warrant it.
And we provided six assurancesalong those lines to Taiwan.
And that is basically framed thispolicy we have, which is really
(11:47):
leaving it to Taiwan and China toresolve the issue peacefully while
carving out a US role to help Taiwanfor defensive purposes with arm sales.
Steve Odland (11:59):
OK, so the current US
position is that Taiwan and China
should resolve it peacefully, andit should be between the two of
them, but we are arming Taiwan.
What is Europe's position or the restof the West's position towards Taiwan?
Dr. Lori Esposito Murray (12:16):
As with the
US, Europe has basically followed the
same policy in terms of recognizingthe PRC as the representative in the UN.
But what's interesting is that therelationship with Taiwan is equally
complicated because of the importance ofTaiwan economically, globally, and what
(12:39):
is the EU policy towards Taiwan evolving.
Taiwan's not only an important economicpartner for the EU and the US, 40% of
the EU's external trade is with Taiwan,but it's also because of, we get to
the chips question and the advancedtechnology, the major part of Taiwan's
trade relations with the world.
(13:02):
It's critical in terms of chipsupply and in terms of advanced
technology and electronics.
And you have the EU steadilydeepening its economic ties to
Taiwan in trade and technology.
And actually, in 2023, passed anon-binding resolution calling for strong
(13:22):
economic ties with Taiwan, stressingthe island's crucial role for Europe.
The situation in Europe is a littlebit more nuanced, as opposed to
that resolution with each individualcountry actually having very important
economic relations with China, aswell, and stepping somewhat gingerly.
(13:45):
But it still is an evolution in termsof how the EU has recognized, similar
to the US, the significance andimportance of Taiwan, particularly in
this advanced economy and the fact thatthey are the hub for advanced chips.
Steve Odland (14:01):
So China has described
Taiwan as a breakaway province.
How much of that is rhetoric and howmuch of that is their real view of it?
But their intent, they'vesaid that they're intent on
reincorporating Taiwan into China.
So how does all that work?
Does it go the same way thatHong Kong went, and then
(14:23):
Taiwan is just part of China?
Dr. Lori Esposito Murray (14:26):
Taiwan's role
in China's vision of its rejuvenation, Xi
Jinping's vision of China's rejuvenationby 2049, which he laid out as part of
China's Dream and linked in 2014 toTaiwan being reincorporated into China.
(14:51):
It is crucial.
It is the core of core principles, asthe Chinese have said, it is the crown
jewel in terms of the rejuvenation,of the national rejuvenation
of China and the China Dream.
So it's really central.
It's really core.
Just in November of 2024, Xi Jinping inhis last meeting with President Biden, set
(15:16):
it out as one of the four red lines forChina, and that was as much a messaging
for the incoming President Trump as itwas for the outgoing President Biden.
It's serious.
It's real.
It's one of their top, if nottheir top, military objective.
And in terms of being able by2027, is the objective that our
(15:40):
intelligence analysis analysts saythat President Xi has laid out, that
by 2027, that they will be militarilycapable of, overtaking the island.
Not that they would, but thatthey'd be military capable to
overtake the island by 2027.
Steve Odland (15:57):
And assuming they
did, what would change in Taiwan?
And then also, what isTaiwan's view of that?
Dr. Lori Esposito Murray (16:04):
So I
think that you could easily look at
the Hong Kong situation in terms ofseeing what would change in Taiwan.
Now what is, I think, absolutely keyin terms of how China is assessing how,
not if, but when and how to actuallyreincorporate Taiwan into China.
(16:28):
What's really key is the more advancedchips capacity, particularly with the
Taiwan Semiconductor ManufacturingCompany in Taiwan, is to not
actually destroy that capability.
And so that leads toa number of scenarios.
And of course, calculating the USresponse is also critically important.
(16:51):
But I think with the role that moreadvanced chips are playing, with the
constraints that the Biden administration,now the Trump administration, are putting
on China's ability to access thoseadvanced chips, and actually denying
that in terms of national securityreasons, has made that capability and
(17:12):
not destroying that capability reallykey, which opens up a number of areas.
And a number of analysts are sayingthat, if you're looking at the type of
exercises, training exercises, drillsthat China is doing even today or just
yesterday, having a major training drill.
That if you look at it, it seems to beconsidered more likely that they would
(17:35):
be looking at doing a blockade of theisland or quarantine, as opposed to an
actual takeover, to eventually lead tothe reincorporation of Taiwan into China.
Steve Odland (17:47):
Yeah.
And so they've been practicing blockades.
They now have, I think you said thelargest navy in the world to do that.
That's been part of the purpose of thisre-arming and this military buildup.
So you think that basically they're goingto try to encircle the island and blockade
it in order to force the Taiwaneseto come to some sort of settlement.
(18:09):
So we've been arming Taiwan.
They have advancedfighters, fighting planes.
What would Taiwan's response be to that?
Dr. Lori Esposito Murray (18:21):
So
Taiwan has been, which gets us to
Taiwan's relationship with the newadministration and with President Trump.
Taiwan's response would be to, I believe,as many analysts do, is to obviously
fight back, to defend the island.
But the US relationship is absolutelycritical, and there's a lot of concern
(18:44):
in Taiwan as to how the president andthe administration is actually looking
at its relationship with Taiwan.
So the administration started out withthe president calling for Taiwan to
actually pay more for its defense.
And that got the Taiwanese nervous interms of the president's commitment
(19:05):
to Taiwan, as opposed to in thefirst administration, his first
phone call with an overseas leaderwas with Taiwan's President Tsai.
Taiwan's started out alittle bit more nervous.
There's recently been a leaked documentin terms of the strategic direction of the
Pentagon by Secretary of Defense Hegseth,which says that China is actually our top
(19:27):
priority and we are pivoting to China.
But nonetheless, Taiwan hasbeen trying to bolster its
relationship with the president.
They've said that they wereinterested in, I believe it's
a $15 billion military sale.
Their president, Lai Ching-te,has said that he will be
(19:49):
increasing defense spending to 3%.
That falls far short from thetestimony of President Trump's nominee
Elbridge Colby, who called for 10%increase in Taiwan's military budget.
But it's actually in play now in termsof trying to assure that the US will
(20:11):
continue to support Taiwan and as animportant deterrent to whatever the
Chinese might be considering doing.
Steve Odland (20:20):
OK.
So it sounds like that Chinese arecommitted to this being in place by 2027.
They're already runningdrills to blockade the island.
If they blockade the island,they cut off all imports to
Taiwan, which includes food.
So does this just create anothersituation, first of all, like the Berlin
(20:46):
Airlift, and would that be allowed?
Or would this just lead to a kinetic war,with Taiwan fighting back and then the US
having to help defend Taiwan militarily?
Dr. Lori Esposito Murray (20:58):
Also what's
happening in Taiwan from a Chinese
perspective, looking at in termsof what the Chinese may be thinking
or how they're approaching it, italso serves as a bargaining chip for
the Chinese with President Trump.
There's discussion out there, isPresident Trump trying to cut a
grand bargain with China or evena smaller bargain with China?
(21:20):
And what would that involve?
Obviously, concerns about tariffsare leading those efforts.
As far as the need for bargaining,discussing, basically President
Trump has taken a chessboard andhas added multiple plays to this.
And how it will come out may actuallybe part of a much larger picture in
(21:43):
terms of what role Taiwan plays in this.
But in terms of China, it couldbe a bargaining chip that China
has as leverage, if and when theyactually start considering or moving
towards really physically imposinga blockade or, probably even more
feasibly, even though this sounds likeangels on a pinhead, a quarantine.
(22:06):
So a quarantine would be led bytheir coast guard, not by their navy.
It would be not as much seen as a militaryaction as opposed to a commercial action
where they can actually put in regulationsin terms of what type of trade, what
type of ships can pass or pass through.
They could even consider taking ita step further and boarding ships.
(22:31):
So it becomes a bargaining chipin terms of how a larger agreement
with the US might play out.
Steve Odland (22:38):
Would the United
States involve itself in a shooting
war with Taiwan against China?
Dr. Lori Esposito Murray (22:45):
That's the
million-dollar question here, and one
that Taiwan is very concerned about.
And obviously one that China has tofactor in, what role the US might play.
That has always been a big question.
How would the US get involved?
And President Trump is confusing interms of the messages he's been sending
so far, as he is clearly committed tonot, committing US troops overseas.
(23:13):
On the other hand, he's also beencommitted, and you could see this with
the visitations of US Navy ships in theStrait of Taiwan, committed to making
sure that those waterways stay openand stay open to trade and commerce.
And it's, there's a lot of mixedmessaging going on here and concern
(23:34):
about what role the US could play.
This leaked document from the Pentagon,that in terms of the strategic view
coming from the secretary of defense,actually pivots the US away from
Europe and accepts more risk in Europeand calls on the allies to step up.
And pivots US assets towards theIndo-Pacific and the South and East
(23:57):
China Sea, as well as the Taiwan Straits.
Steve Odland (24:00):
And hence, you have a
situation where Russia is in Ukraine.
They're trying to solve thatbefore the China-Taiwan
situation heats up even further.
And the US is trying to get Europe totake over the European side of it so that
the US can focus on the Asian side of it.
(24:21):
This sounds a lot like what theworld faced with Japan and Germany
in those two neighborhoods backin the late '30s, which devolved
into, of course, World War II.
Do you see the similarities?
I suspect you do.
(24:42):
And do you see the devolutioninto a similar kind of war?
Dr. Lori Esposito Murray (24:50):
OK.
Obviously, given the type of militarytraining drills, the extensive
military training drills, with livefire and missiles being shot across
the Taiwan Strait, and the jointexercises—army, navy, air force, coast
guard—that the extent of the militarydrill is taking place, they seem to
be political responses, messagingresponses to political statements.
(25:17):
Whether it's Hegseth's visit toAsia, or whether, most importantly,
the president of Taiwan's positionsand statements, which have been
very concerning to the Chinese.
And they've been very responsivewith these type of intimidating,
but also live fire, jointexercises on a very large scale.
And they can easily flip the switch andgo from being an exercise to actually
(25:43):
being an actual military operation.
And so given that, this is a reallydangerous situation, what's happening
with Taiwan and in the Taiwan Straits.
You add to that how important theTaiwan Straits are to commerce, not
only for the US but for the world andfor China, as well, and for Taiwan.
(26:07):
So you have a very volatile situation.
Miscalculation and the potentialfor miscalculation is very high.
And so the potential forconflict is very high.
And here's where I think diplomacyhas to play a very important role.
And the US needs to be directly involvedwith the Chinese in terms of dialogue.
(26:32):
And I think the sooner thatPresident Xi and President Trump can
meet to discuss a whole broad rangeof issues in US-China relations.
I think the better off we will beglobally in terms of being able to
address what I think is one of themost serious and dangerous, potentially
(26:53):
kinetic conflicts regarding Taiwan.
Steve Odland (26:57):
Yeah.
And then you have the Russians and theChinese up in the Arctic, which is about
a stone's throw from North America.
And hence the issues over Greenlandand Northern Canada and the US
trying to force Canada to step up.
And hence the 51st state thing, ifyou're not going to defend your own
country, then why should there be two?
(27:17):
All of that is all interrelatedto the China-Russia situation.
But
back to your statementabout Trump's declarations.
He's been very clear that we don'twant us soldiers around the world.
He doesn't want to fight these wars.
He wants to end the killing that suggeststhat, as long as Russia and China continue
(27:41):
to rattle sabres, that there would be asettlement of some point of some kind,
including capitulation on their demandsfor land in Ukraine and land in China.
After all, why would the world,I'm just saying quote-unquote, why
would the world go to war over asmall island in the South Pacific?
You see what I'm saying?
(28:02):
And hence, that brings into focus the90% of the world's advanced chips, which
power all the military electronics,communications, the grids, and so forth.
So it really looks like China has theupper hand here, and particularly in
their partnership with Russia, can doalmost whatever they want together.
Dr. Lori Esposito Murray (28:23):
So
I would really caution that, becauseof the incredible power that the US
actually has and brings both economicallyand militarily, it's not an open
free reign for China and Russia.
They have to move carefully, and theyhave to move strategically, and we have
(28:46):
to move carefully and strategicallyand make sure that we deter actions
that we don't want to have happenthat could destabilize the world.
Also, the other piece of this, asyou mentioned, is the importance
of Taiwan in terms of the advancedtechnology economy and its role in
(29:10):
that in terms of controlling, as you'vementioned, 92% of the world's advanced
semiconductors and how importantthat trade is to not only the US
but to our allies across the globe.
Taiwan is more than it was inthe 1950s to us and more even
(29:31):
then in the '60s, '70s, and '80s.
It has really developed as a key pivotalpoint in terms of the global economy.
And that requires a level of attentionand commitment and deterrence on the
part of the US and working with ourallies in Asia and in the Indo-Pacific
as far as making sure that the stakesare really clear if China and Russia
(29:53):
are going to take certain actions.
Steve Odland (29:56):
So given all of these
possibilities on the horizon, and hoping,
of course, for diplomacy to settleall of it, but hope is not a plan.
What steps should businesses betaking to prepare for possible
gray swan outcomes here?
Dr. Lori Esposito Murray (30:16):
Yeah,
and I would say it's diplomacy plus
deterrence, which is absolutely key.
But which completely raises thestakes terms of the business
stakes and the stakes for privateenterprises and businesses and business
leadership in terms of this issue.
And I would really recommend startingwith business entity and business
(30:40):
leadership and C-Suites looking atwhat's actually at stake for them.
They have to look at the situationas one, as you said, Steve, can
easily become a kinetic situation.
War can easily break out.
Violence, disruption can easily breakout, where you're either talking about
disrupted trade because of quarantinesor blockades, or you are looking at
(31:03):
actually the beginnings in terms of whatcould become a world war, World War III.
Steve Odland (31:11):
And these supply
chains, then you can't assume
that the supply chains betweenthe West and Taiwan will continue.
And so they need to besecured in other ways.
Dr. Lori Esposito Murray (31:21):
I think C-suites
and boards really need to look at what the
particular enterprise's vulnerabilitiesare if something should happen in Taiwan.
So that's a starting point.
Look at how it would actuallyaffect your business.
And obviously, some would be verydirectly affected if you're in the
shipping industry and actually involvedin trade, either through air or sea.
(31:45):
Or how would disruption in the tradein terms of the areas that Taiwan
is absolutely key in terms of itstrade relations, obviously starting
with chips and advanced electronics,but also looking at the other
areas where they supply imports.
So look at the vulnerabilities,also, in terms of how Taiwan
(32:07):
is involved in what you sell.
So looking at your own vulnerabilitiesin terms of a company, but it
has to go larger than that.
And looking to see where arethe alternative supply chains.
Figuring out, even if you're notdirectly affected, there is clearly
going to be shortages and priceincreases, just how that affects you.
(32:28):
But going even further, lookingat, I think, the lessons of COVID
and how we responded to crises.
We did find alternative ways todeal with the chip shortages.
Look at those lessons of COVID, ofhow the economy kept going and what
were the workarounds as solutions.
(32:49):
But I think it actually goesto even a higher level here.
I think it just begs the issue ofbusiness leaders being involved, directly
involved in terms of policy and engagedin policy, and playing an important
role in discussing the importance ofTaiwan, the need for deterrence, how
(33:13):
the US government needs to help orsupport alternative supply chains.
And then, business leadersalso have traditionally and
historically played a very importantrole in terms of diplomacy.
Where actual diplomacy between governmentshas ended, business leaders have played a
(33:36):
role in terms of talking to the leadershipin the countries that they're involved in.
And you look at Russia and Armand Hammer,and there are many other examples of
the importance of business leadership interms of keeping a dialogue and making
the Chinese leadership understand thenegative ramifications of their policies
and what they may lead to, and theimportance of how to resolve those crises.
Steve Odland (34:01):
Dr. Lori Esposito Murray,
thanks for being with us today and
helping us to understand this crucialrelationship between China and Taiwan.
Dr. Lori Esposito Murray (34:10):
Thanks, Steve.
Appreciate being here.
Steve Odland (34:12):
Thanks to all of you
for listening to C-Suite Perspectives.
I'm Steve Odland, and this series has beenbrought to you by The Conference Board.