Why should Americans be willing to expend blood and treasure—and possibly run the risk of nuclear brinkmanship—to stop Xi from seizing Taiwan?
Everyone knows Taiwan makes advanced semiconductors, but this is not the most important reason. This week, we’ll explore why.
Bottom line: the key U.S. national interests at stake in Taiwan relate to the shape of the regional and global economic order. Losing a conflict would be disastrous for these interests, but any US–China crisis would endanger them.
What does “free and open Indo-Pacific” actually mean?
The Indo-Pacific is big. It accounts for two-thirds of global GDP and 60% of maritime trade. It is the fastest-growing in both population and economic output. Geographically, it makes up over half the Earth’s surface.
U.S. Indo-Pacific Command, Area of Responsibility (Congressional Research Service)
In a region of islands and coastal states, most flows of goods and people travel on privately operated ships and aircraft. Interfering with these flows is relatively easy for big countries, because private operators don’t like going head-to-head against militaries.
Smaller, trade-dependent economies in the Indo-Pacific are acutely vulnerable to economic coercion. That’s why economic freedom must be a foundational principle of any regional order. In a free and open Indo-Pacific, goods and people can move freely through international waters and airspace without fear or favor. Every economy can set the terms of engagement with the global economy without coercion.
Sea lines of communication in the Indo Pacific (Marine Traffic)
The current order is maintained through a hodgepodge of institutions and norms. Multilateral institutions such as the World Trade Organization (WTO), International Monetary Fund (IMF), and World Bank were once at the heart of this system. Less so now. The G7, G20, and other more exclusive multilateral groupings play an increasingly role. But at its heart, the system is a set of norms and historical path dependencies implicitly backstopped by American power.
Why America cares
For all its flaws, the existing Indo-Pacific order provides enormous strategic benefits to the United States. These include:
Incentives and institutions designed to prevent a sudden collapse of international trade, which would devastate U.S. prosperity.
Structural guarantees that trading rules cannot be rewritten in ways that disadvantage the United States and its allies.
A mechanism for preventing U.S. adversaries from bringing smaller countries—including in the Western Hemisphere—under their control through economic coercion.
A mechanism for aligning interests between the United States and its allies and partners, signaling that it is safer to align with the United States than with U.S. adversaries.
A legal framework for imposing costs on U.S. adversaries when they violate the system’s rules and norms.
These strategic and material benefits underpin U.S. economic prosperity at home and facilitate U.S. action to protect its sovereign rights and strategic interests.
China’s challenge to Indo-Pacific order
After the Soviet Union collapsed, the United States pursued a vision of globalization that involved integrating former adversaries into the system. Russia and then China were invited to accede to the WTO, on the assumptions that history had repudiated Communist economics, that integration would make these countries more responsible stakeholders, and that ultimately these societies would see political liberalization. In the process, the United States and its allies and partners became economically dependent on Russia, and even more so on China. We all know this history.
This strategic bet has failed with respect to Russia. It has not yet failed in China’s case, though some commentators may think otherwise. The United States has an interest in keeping China as at least a quasi-responsible stakeholder rather than a rogue state. This is why there is a prominent place for China in a free and open Indo-Pacific. But any PRC attempt to seize Taiwan by force would prove that the bet had failed entirely. It would demand a fundamental re-evaluation of the U.S. strategy.
This focus on rules is not mere rhetoric. It is essential to establishing the principles that all countries should be able to use international waters and airspace without fear or favor, and that powerful states cannot coerce weaker ones by denying them access to the commons or interfering with their ability to trade.
China’s strategy to achieve hegemony in the region exploits the fact that most nations in the region are small and rely on maritime trade for their lifeblood. If China can stop these countries from organizing to enforce these principles, and block the United States from intervening, it could wield economic coercion directly against the United States. It could threaten to limit exports of goods and services, or denying U.S. firms access to one of the world’s largest markets. The Indo-Pacific would effectively become China’s sphere of influence. Americans would suffer vastly diminished prosperity and economic security.
Moreover, whether the economic system in the Indo-Pacific can remain free and open is a question with global implications. After reshaping the region to suit its preferences, China would extend its influence subsequently into South Asia, the Middle East, and Africa, and potentially strike a grand bargain with a weak and divided European Union. Other adversaries like Russia, North Korea, and Iran would be empowered to challenge U.S. interests in multiple theaters. If Taiwan falls by force, the future of the global economic order would likely turn in China’s favor, as well.
Technological security and AI primacy
The AI revolution clearly has profound implications for global governance, the economy, society, and national security. In the coming years, AI could transform the services sector, which accounts for 80% of U.S. GDP, disrupting entire industries and affecting tens of millions of jobs. U.S. allies and partners will also face significant AI impacts, both beneficial and harmful. U.S. leadership will be critical in shaping global AI governance to address unsafe and unethical applications as the technology advances and more sectors of the economy adopt it. In the military sphere, AI has the potential to revolutionize operations and deterrence. It could threaten nuclear command-and-control systems, enhance target identification, and enable sophisticated cyberattacks, making AI leadership essential for homeland defense.
The CCP’s pursuit of AI dominance poses a unique threat. The CCP is a Leninist organization that seeks to maximize its power and survival. It rejects individual liberty, freedom of conscience, and freedom of expression as legitimate values. We should all fear a future in which the CCP monopolizes advanced AI and uses it for societal control.
The United States therefore cannot let the semiconductor fabrication plants, or fabs, that monopolize production of essential AI hardware fall under CCP control. If China managed to take control of Taiwan’s fabs and industrial know-how, it would not automatically seize the commanding heights of chip production, since Taiwan’s fabs need continued access to equipment and technology that the United States and its allies could restrict. Still, it would take a big step towards parity and eventually leadership in chip production—and if Beijing took the lead, it could coerce the United States and its allies by restricting the supply of advanced chips.
The U.S. must deter Beijing from sabotaging Taiwan’s fabs out of fear of falling badly behind in AI. This too would be an economic disaster for the United States. Navigating between these two risks is challenging. Either side could easily disable, damage, or destroy Taiwan’s fabs. Few conflict scenarios would see them survive intact.
Keeping Taiwan’s fabs operational and out of China’s hands requires sustaining the regional economic order. America seeks to deter China from creating a crisis that threatens that order. China, meanwhile, continues to look for ways to undermine the order.
In short: chips are important, but the chip war is really a proxy fight over the shape of regional order.
Survival and health of U.S. alliances
The United States has five treaty allies in the Indo-Pacific. China sees these alliances as a threat and is working assiduously to undermine them. While Taiwan is not a treaty ally itself, its geographic position at the nexus of this alliance network means that U.S. allies would be far harder to defend if Taiwan fell under China’s control.
If Taiwan fell to PRC aggression, U.S. treaty alliances in the region would probably not dissolve, but they would be hollowed out. Allies would still want the U.S. engaged in the region, but they would have more reason to doubt the political credibility of U.S. security guarantees. Japan, South Korea, and potentially several other countries in the region and beyond might seek to acquire their own nuclear weapons. They might also form their own alliance groupings or trade and technology pacts without the U.S. These outcomes would be strongly counter to U.S. interests and would multiply the challenges facing U.S. statecraft in the region and beyond.
Global geopolitical stability
While Washington foreign policy analysts are often mocked for their obsession with U.S. “credibility,” a U.S. humiliation over Taiwan could have disastrous, cascading consequences for global geopolitical stability. Taiwan is not a treaty ally, but U.S. treaty allies are already losing confidence that Washington would fulfill treaty commitments it extended decades ago. If Washington allowed Taiwan to fall, its adversaries would have new reasons to test the boundaries of American commitments globally.
China would almost certainly not move against Taiwan without having reached an understanding with Russia, North Korea, and Iran. These countries could coordinate their actions during and after a crisis, testing America’s ability to respond to multiple simultaneous crises globally. North Korea might exploit the opportunity generated by a failure of U.S. deterrence over Taiwan to aggress against South Korea. If the United States showed itself unwilling to fight for Taiwan, Russia would have reason to doubt that Washington would fight for its NATO allies in Eastern Europe—especially the Baltic states, which are largely indefensible by conventional means. Iran may exploit the chaos by ramping up aggression and attacks by its proxy forces on merchant shipping in the Red Sea, as well as U.S. allies and partners and on U.S. forces in Iraq, Syria, and Bahrain. If Washington failed to respond effectively to these crises, it would lose further credibility.
A failure of deterrence over Taiwan could open Pandora’s Box.
A free and democratic Taiwan
Taiwan's democracy represents a beacon of liberal governance amid rising authoritarianism. It is no accident that the United States’ most trusted and important allies in the region are democracies.
Allowing Beijing to extinguish Taiwan’s democracy would mark a symbolic and strategic defeat. Why? Because Taiwan also represents an alternative pathway for China. Taiwan’s very existence as a prosperous, innovative, stable, and orderly liberal democracy rebukes the CCP’s claims that the Chinese people are not ready for democracy and that the Communist revolution is inexorably bound towards victory.
The CCP’s hold on power looks solid for now, but this may not be true forever. It struggles badly with succession planning and has faced severe internal challenges during leadership transitions, most recently in 1989. Indeed, one reason to remain committed to the One China Policy is that the best possible way to resolve the dispute may be cross-Strait unification in the context of a free and democratic China. This prospect may seem far-fetched today, but we can only imagine how the PRC may change after Xi Jinping eventually exits the stage.
To be clear, the U.S. interest in Taiwan’s democracy is important, but not vital. The United States had interests in peace and security in the Taiwan Strait before Taiwan transitioned to democracy in the 1990s. These interests will abide even if Taiwan’s democracy falters. For now, however, Taiwan has become a litmus test of the U.S. commitment to supporting democracy under pressure.
Conclusion
Do the chips matter? Obviously.
If an important decision-maker asks “why do we care about Taiwan anyway?” is “it’s the chips, sir” a convenient answer? Obviously.
Would Taiwan stop mattering if the fabs were somehow destroyed? Absolutely not.
Taiwan matters fundamentally because it is the linchpin of regional order. American interests cannot tolerate China overturning that order by force. It is about the principle and the precedent.
Suggested further reading
A powerfully argued case for why Taiwan matters to America:
Andrew Erickson, Gabriel Collins, and Matt Pottinger, “Taiwan: The Stakes,” in The Boiling Moat: Urgent Steps to Defend Taiwan, (Stanford: Hoover Institution Press, 2024), especially 35–37.
The most articulate expression of what the Biden administration meant by “free and open Indo-Pacific.” Most Trump administration officials would disagree with this book’s heavy emphasis on international law and multilateral institutions, but they will still find much to like here. A book worth re-reading, even as the world changes.
Mira Rapp-Hooper and Rebecca Friedman Lissner, An Open World: How America Can Win the Contest for Twenty-First Century (New Haven: Yale University Press, 2021).