Taiwan Needs A New Deterrence Strategy

By Todd G. Buchholz, Project Syndicate

Emboldened by US President Donald Trump’s war in Iran, Chinese leaders have ramped up their gray-zone coercion against Taiwan in recent months. To avert a Chinese invasion, Taiwan must ensure that other democracies cannot function without it by providing them with more than just semiconductors.

SAN DIEGO—As the US-Iran war threatens to ignite a worldwide energy crisis, another hotspot may come to a boil: Taiwan. During a recent visit to Taipei, I didn’t need to read Mandarin to spot the lead news story every day: another step in China’s campaign to intimidate the island.

What once would have been deemed a crisis—People’s Liberation Army aircraft crossing the Taiwan Strait’s median line, PLA vessels and surveillance balloons pressing closer, or Chinese authorities interrogating commercial ship captains—has become a daily ritual. For the Chinese government, this is a victory in itself. Constant gray-zone coercion is designed not only to frighten Taiwan but also to numb the rest of the world, making Taiwanese President Lai Ching-te sound like the tiresome boy who cried dragon.

Meanwhile, Chinese President Xi Jinping’s strategists watch Hormuz and study something even more valuable than naval frigates: American decision-making. How quickly does the United States respond to threats and attacks? How much political backlash can President Donald Trump tolerate? And how much economic pain are US allies willing to bear? Every missile fired at Iran provides new information. Iran’s mullahs, scoffing at incoming fire and defying conventional political logic, have inadvertently become China’s defense research assistants.

But Taiwan is a different case. It’s too valuable not to be vulnerable. The country dominates in semiconductors, accounting for 92% of the world’s manufacturing capacity for the most advanced chips. If these factories shutter, the tremors will go far beyond Silicon Valley. Modern economies run on semiconductors, much like 19th-century economies depended on coal and whale oil. Without chips from Taiwan, refrigerators would stop cooling, and traffic lights would stop working. We would witness crashes on trading floors and at road intersections.

Decades ago, Kuwait and Saudi Arabia discovered that possessing the world’s most valuable commodity was both a blessing and a glaring vulnerability. Oil made these kingdoms indispensable, putting a target on their backs. In 1990, Iraq’s Saddam Hussein decided he could not resist trying to steal an entire country. Taiwan faces a similar dilemma, because China knows precisely the prize it seeks.

Reining in China’s designs on Taiwan requires a new kind of deterrence. Just as Saudi Arabia is spending trillions of dollars to be known as more than the world’s gas station, Taiwan must diversify. The country needs a second crown jewel to become indispensable to the democratic world. As I have recommended to Taiwanese officials, defense software offers the opportunity.

Future military advantage will depend less on steel than on code: battlefield networking, AI, cybersecurity, logistics, communications, and command-and-control software. While chip fabrication plants can be replicated—Taiwan Semiconductor Manufacturing Company itself is expanding abroad—trusted software ecosystems, engineering talent, institutional knowledge, and decades of collaboration cannot.

Economists call this moving up the value chain. I would also call it moving up the deterrence chain. Taiwanese leaders should call Palmer Luckey of Anduril and Alex Karp of Palantir for advice.

Equally important, Taiwan occupies an unusual position in Asia. Japan and South Korea have spent decades reopening and stitching closed the wounds of occupation. Taiwan is a regional player that neither side resents, making it a trusted intermediary—a rarity in global politics.

Rather than waiting for the US to take the lead, Taiwan should establish a “Committee for the Defense of Freedom.” This would be a practical institution devoted to defense technology and coordinated responses to economic coercion, not a formal military alliance requiring years of treaty negotiations, summit communiqués, and group photos in front of fancy hotels.

Eight centuries ago, the Hanseatic League connected independent cities around the Baltic and North Seas to share information and deter piracy. No emperor ordered them together; shared interests united them. Asian democracies need a 21st-century reboot—not to protect merchant ships from pirates, but to protect free societies from blackmail and invasion.

China has built artificial islands one dredge scoop at a time. Taiwan and its democratic partners can build deterrence in a similar fashion: one software platform, one intelligence agreement, one research partnership at a time.

Iran has been a practice test for the US military, and China’s leaders have been peering over Trump’s shoulder. Taiwan should not wait for the final exam. It should rewrite the syllabus.

Todd G. Buchholz, a former White House director of economic policy under President George H.W. Bush and managing director of the Tiger hedge fund, is the author of New Ideas from Dead Economists (Plume, 2021), The Price of Prosperity (Harper, 2016), and co-author of the musical Glory Ride.

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