As Tehran tests whether the West can withstand economic pain in the Strait of Hormuz, Beijing may be drawing conclusions about how far democracies would really go to defend Taiwan
Let’s try a thought experiment: suppose China were contemplating an aggressive military action to take Taiwan, but was concerned about what the West would do, especially as China is now profoundly intertwined with the global economy,
In such a scenario, it would be reasonable to assume that China would appreciate a test case on whether the “Free World” might be willing to absorb economic pain for a principle like defending Taiwan (or any other principle). As became clear at a geopolitics convention I apoke at in London this week, there could hardly be a more convenient such test case before China than the standoff between the US and Iran over the Strait of Hormuz.
The early signs are troubling, and this is why Chinese leader Xi Jinping went out of his way to humiliate President Trump during his China visit by responding to his sycophantic declarations of friendship with a public warning about how the United States had better be careful about its handling of the Taiwan issue.
What are the Chinese seeing in the Strait of Hormuz crisis? It is that the Iranian regime, having been thrashed militarily, can nonetheless feel that it is winning. So much so that it is confident in betting that as long as it impedes maritime traffic through the choke point off its coast, the rest of the world will buckle first.
What are the Chinese seeing in the Strait of Hormuz crisis? It is that the Iranian regime, having been thrashed militarily, can nonetheless feel that it is winning. So much so that it is confident in betting that as long as it impedes maritime traffic through the choke point off its coast, the rest of the world will buckle first.
Famously, about a fifth of global crude oil flow comes from the Persian Gulf – most of it headed to Asia, but all of it able to raise fuel prizes by reducing global supply. But it’s not only about oil . The waterway is also a critical artery for the global fertilizer market, both because Gulf states export key fertilizer components and because nitrogen fertilizer production depends heavily on natural gas shipped through the region. Any disruption there would ripple far beyond energy prices, driving up the cost of agriculture products and food.
The Iranian bet is that the West cannot tolerate any harm and therefore will capitulate and indeed, the Trump administration is signaling that it intends to end the crisis by the end of next month. That could mean an upgraded and more brutal military campaign, or a retreat. And either way, incredibly, it seems the peevish Europeans will leave America still going it alone (except for Israel).
The Chinese and Western economies are far more intertwined than Iran could ever match. China is deeply embedded in global supply chains, manufacturing everything from pharmaceuticals and electronics to industrial components and consumer goods relied upon across Europe and the United States, while Western markets, technology, finance, and consumers remain essential to China’s growth. Even as governments speak of “decoupling,” the reality is that Apple still assembles products in China, European industry depends on Chinese materials and manufacturing capacity, and China in turn depends on Western demand, advanced semiconductors, and access to global capital markets.
So if you are Xi Jinping, and you want to move on Taiwan — as he very much appears to (which seems related to his purge of generals) — you may be thinking a number of things.
Yes, that might include some trepidation about the idea that this would be the largest sea assault since D-Day not far from US bases (and also would endanger critical shipping through the Taiwan Strait). And that in this era of asymmetric warfare, with cheap and deadly drones outperforming multimillion-dollar interceptors, you might end up enduring the kind of humiliation Russia has in Ukraine (or, more arguably, the US in Iran).
But mainly it would include the following two calculations:
- First is that the United States doing what it wanted, without any international backing, in Venezuela and Iran, and threatening the same in Cuba, puts paid to the idea that China cannot act as it wishes in its own neighborhood – specifically against an island about 80 miles off its coast. Sure, the arguments are not the same. But arguments are like excluses … everybody has one.
- Secondly, if the West could not put up a unified from against Iran for fear of a minor increase in the price of oil, there is no way they will break ranks with their international factory floor in the form of China.
The composition of Trump’s delegation underscored the deeper reality of the US-China relationship. Walking behind the president on the red carpet in Beijing were not generals or ideological cold warriors, but some of the most powerful figures in American finance and technology. The big win, or at least spin, after the meeting was that China would buy some more US oil. Trump likes exports.
So for the West to truly impose an embargo on China in the event of a Taiwan crisis would entail an economic rupture on a scale modern globalization has never experienced. Unlike Iran or even Russia, China is a central pillar of the global economy: responsible for roughly a quarter to nearly 30 percent of global manufacturing output, over $6 trillion in annual goods trade, more than 70 percent of global electric-car production, more than three-quarters of battery-cell production, and 91 percent of refined rare-earth output. It is the manufacturing base for everything from electronics and pharmaceuticals to industrial machinery, batteries, consumer goods, and the minerals processing on which the energy transition depends.
And at the center of Taiwan itself sits TSMC, the world’s indispensable advanced semiconductor producer, whose fabrication plants manufacture the cutting-edge chips powering everything from smartphones and artificial intelligence systems to military hardware and global data infrastructure. Any invasion, blockade, or sabotage that disrupted TSMC’s operations would send shockwaves through the global economy almost immediately, crippling supply chains for major American, European, Japanese, and even Chinese firms.
So any major and prolonged global dispute over Taiwan would amputate a major organ of the world economy, unwinding enormous commercial relationships and creating severe shortages, inflation, factory disruptions, market panic, and potentially a global recession or worse. American and European companies dependent on Chinese manufacturing, from tech giants to retailers and automakers, would face immense pressure, while governments would confront popular anger over soaring prices and supply shocks.
Meanwhile, China has taken steps toward increasing self-reliance.
And what would it all be for? For decades, the American position on Taiwan has been deliberately mealy-mouthed — a carefully engineered ambiguity designed to avoid both war and clarity. Washington officially adheres to the “One China” policy, recognizing Beijing as the sole legal government of China and declining to formally recognize Taiwan as an independent state. Yet at the same time, the United States arms Taiwan, maintains close unofficial relations with its government, and leaves open the possibility of military intervention under the Taiwan Relations Act. Diplomatic elegance — or an absurd contradition?
The “strategic ambiguity” is meant to deter both sides simultaneously: warning China not to invade while also signaling to Taipei that it should not formally declare independence expecting automatic American backing. The problem, however, is that ambiguity can look like hesitation. The Hormuz situation is hesitation on steroids.
The good news is that Xi did not confront Trump over his latest threats against Iran, delivered in China. But to really do that, Trump will need to wider the alliance. If Trump does not find a way to make up with Europe and NATO, and confront Iran with an iron fist of Western resoluteness on the Strait of Hormuz, this could be the inflection point on a Chinese decision to finally attack Taiwan.
