Taiwan, officially known as the Republic of China (ROC), is an island off the southern coast of China that has been governed independently from mainland China since 1949. The People’s Republic of China (PRC) views the island as a province, while in Taiwan a territory with its own democratically elected government that is home to twenty-three million people political leaders have differing views on the island’s status and relations with the mainland.

Despite the sovereignty dispute, the economic ties between the island and the mainland have thrived in recent years. Yet political frictions still shadow the relationship, and China and Taiwan have experienced a renewal in tensions under new leadership.

‘One China’ Principle

Beijing and Taipei sharply disagree on the island’s status. The PRC asserts that there is only “one China” and that Taiwan is an inalienable part of it. Beijing says Taiwan is bound by an understanding reached in 1992 between representatives of the Chinese Communist Party (CCP) and the Kuomintang (KMT) political party then ruling Taiwan. Referred to as the 1992 Consensus, it states that there is only “one China” but allows for differing interpretations, by which both Beijing and Taipei agree that Taiwan belongs to China, while the two still disagree on which entity is China’s legitimate governing body. The tacit agreement underlying the 1992 Consensus is that Taiwan will not seek independence.

However, the island’s newly re-elected president, Tsai Ing-wen, leader of the Democratic Progressive Party (DPP), has rejected the consensus. In a January 2019 speech, she declared the “one country, two systems” framework advanced by Beijing unacceptable. Her rejection of the consensus, along with that of other leading voices in the governing DPP, leaves open the possibility of future Taiwanese independence. 

In 1979, the United States established formal diplomatic relations with Beijing by concluding a joint communiqué stating that “the United States of America acknowledges the Chinese position that there is but one China and Taiwan is part of China.” At that time, U.S. President Jimmy Carter terminated diplomatic relations with the ROC government in Taiwan. But months after, the U.S. Congress passed the Taiwan Relations Act (TRA), affirming important unofficial ties with the island. The legislation allows for arms sales to Taiwan for self-defense and does not rule out the possibility of the United States defending Taiwan from Chinese attack—a policy known as strategic ambiguity.

Since then, U.S. arms sales to Taiwan, totaling more than $ 25 billion  between 2007 and 2018, have led to U.S.-China friction and an upsurge in bellicose rhetoric across the strait. Political transitions in the United States have also prompted tensions between Beijing and Washington. Taiwan’s Tsai spoke with U.S. President Donald J. Trump by telephone ahead of his inauguration, the first such high-level contact between the two sides since 1979. The Trump administration also seems to be deepening ties with Taiwan over Chinese objections, proposing multiple arms deals and unveiling a new $250 million complex for its de facto embassy in Taipei.

Beijing has favored a steady deepening of ties with Taiwan, forging economic linkages that could ultimately become too costly for the island to sever, thus nudging it closer to unification. However, since the PRC’s own leadership transition in 2012, President Xi Jinping has embraced a tougher, nationalistic stance toward all of the special regions it claims, including Hong Kong, Tibet, Xinjiang, and Taiwan. President Xi has shown a willingness to use pressure to try to limit Tsai’s ability to reset the island’s relations with the mainland. For example, Beijing suspended a cross-strait communication mechanism with the main Taiwan liaison office in June 2016 because of Tsai’s reluctance to adhere to the 1992 Consensus. Beijing has also restricted tourism to Taiwan, excluded the island from international entities addressing civil aviation and global health issues, and pressured global corporations to list Taiwan as a Chinese province.

Meanwhile, Taiwanese leaders consider formal diplomatic relations with major powers and international organizations essential if Taiwan is to survive separately from the Communist mainland. However, only fifteen states maintain official diplomatic ties with the island.

Military Situation

China, as part of its continued military expansion, has deployed missiles along the Taiwan Strait and periodically conducts drills near the island. It has sent bombers, fighter jets, and its aircraft carrier over and around the strait as shows of force. According to a 2019 U.S. Department of Defense, China’s military, the People’s Liberation Army, continues to develop and deploy advanced military capabilities needed for a potential military campaign against Taiwan.

Beijing has refused to renounce the use of force to resolve disputes over the island’s status. The PRC’s introduction of the 2005 Anti-Secession Law, intended to strengthen Beijing’s approach to “peaceful national reunification,” included language stating that in the event secessionist forces seek independence, Beijing would “employ non-peaceful means” to protect its national sovereignty. In a 2019 speech, Xi reiterated this and added that Beijing would consider the use of force to prevent “intervention by external forces” on the island.

In response, Taiwan continues to purchase weapons, primarily from the United States. Between 1979 and 2018, Taiwan ranked as the ninth largest recipient of arms globally. During the same period, the United States supplied more than three-quarters of Taiwan’s imported weapons, according to the Stockholm International Peace Research Institute’s arms transfers database. 

Taiwan’s strategic security rests heavily on guarantees offered by the United States under the Taiwan Relations Act. Yet in recent years, security analysts have cited concern over the emerging military imbalance between Beijing and Taipei. “Given the pace of PLA(N) [People’s Liberation Army Navy] modernization, the gap in military capability between the mainland and Taiwan will continue to widen in China’s favor over the coming years.

In 2019, Taiwan’s defense budget stood at $11.3 billion and accounted for 2.16 percent of its gross domestic product (GDP). President Tsai and the DPP have emphasized plans to raise annual defense spending incrementally, with the aim of an increase of 20 percent, or $2.1 billion, by 2025. Part of this expanded military budget will be dedicated to investment in advanced weapons systems, training, and new equipment, including missiles, electronic warfare technology, and missile defense systems.

Economic Rapprochement

Taiwan began investing in China after reform policies were implemented by PRC leader Deng Xiaoping in the late 1970s. Despite intermittent friction, the cross-strait economic relationship has blossomed. China entered the World Trade Organization in 2001 and, within a month, Taiwan entered as “Chinese Taipei.” The island holds member, observer, or other status in more than fifty organizations, such as the Asian Development Bank, APEC, OECD committees, and regional fishery organizations.

China is Taiwan’s largest trading partner, accounting for nearly 30 percent of the island’s total trade, and trade between the two reached $ 150.5 billion in 2018. China and Taiwan have also agreed to allow banks, insurers, and other financial service providers to work in both markets. Nevertheless, the economic relationship has experienced some hiccups in recent years. Taiwanese investment in the mainland declined for its fourth consecutive year in 2018, and mainland investment in Taiwan has increased at a slower rate than before. In an effort to avoid outright economic dependence on the mainland, Taiwan has sought to diversify its commercial partnerships and has signed a handful of free-trade pacts, including a deal with New Zealand in 2013—Taiwan’s first with a developed economy. The government in Taipei will likely expand other economic partnerships: investments by Taiwanese firms in Southeast Asia’s six largest economies doubled between 2011 and 2015, reaching more than $13 billion.

Rise of Taiwanese Identity

Generations of democratic practices seem to have bound together the Taiwanese people and polity. Though most people across the Taiwan Strait speak Mandarin as their first language, more than a century of separation has led a growing number of Taiwanese to feel they deserve the right to continue a separate existence. Almost 55 percent of the island’s residents regarded themselves as exclusively Taiwanese, according to a survey conducted by National Chengchi University in 2018. By comparison, 38 percent identified as both Taiwanese and Chinese, down from 43 percent in 2008, while only about 4 percent considered themselves only Chinese, a figure that has dwindled since 1994.

The political awakening of youth in Taiwan was driven as much by practical frustrations as by political ideals. Frustrations over financial insecurity and economic inequality, as well as dissatisfaction with Taiwan’s political factions, have given birth to a groundswell of domestic political activity—often referred to as Taiwan’s “third force.”

Meanwhile, China’s Xi has emphasized the need for Taiwan to adhere to the One China principle. He has said that Taiwan must be unified with the mainland and that the island’s “different systems are not an obstacle to unification.” China-based experts say that the election of pro-independence leaders in Taiwan may shift Beijing’s top security concern from territorial disputes in the East and South China Seas to defending territorial integrity across the Taiwan Strait.

The recent re-election of Taiwanese President Tsai Ing-wen who won almost 8.2 million votes in total (more than any Taiwan president since the island held its first direct election in 1996) could fuel further tension. Tsai’s win, combined with more comprehensive links between Taiwan and the United States, could make the China-Taiwan relations one of the most tense in 2020.

Though Taiwan’s main political parties diverge on how best to manage the island’s relationship with Beijing, experts caution that both Beijing and Taipei must take responsibility for avoiding a crisis. The status quo is admittedly imperfect, is far less imperfect than what would follow unilateral actions and attempts to resolve a situation that doesn’t lend itself to a neat solution.

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