SPECIAL FEATURE

Taiwan’s Economic Nexus in US–China Competition: An Economic Interest Perspective

Ian Tsung-yen Chen is Professor and Director of the Institute of Political Science, National Sun Yat-sen University, Kaohsiung, Taiwan (ianchen@mail.nsysu.edu.tw).
Alan Hao Yang is Professor at the Graduate Institute of East Asian Studies, National Chengchi University, where he also serves as Executive Director of the Center for Southeast Asian Studies, Taipei, Taiwan (museiniir@gmail.com).

The Taiwan Strait has become one of the most closely watched fault lines in global politics. It sits at the centre of a fragile balance between the United States and China, where economic interdependence and strategic mistrust overlap. Much of the world’s trade, energy supply, and technological production now depends on peace around Taiwan. A crisis in the Strait would do far more than unsettle regional security; it would disrupt global supply chains, hinder the flow of food and energy, and interrupt the movement of semiconductors that sustain modern industries (Fong 2026a). For Washington and its partners, stability across the Strait is not only a security concern but a condition for keeping their industrial and technological strength intact. Taiwan’s importance lies less in its production capacity than in its ability to keep these systems running smoothly, allowing the global economy to function without interruption.

This article argues that the rivalry between the US and China is now defined less by territorial control than by the struggle to maintain stable and open economic systems. Using Taiwan as a focal point, it examines how stability in the Strait supports the material and technological foundations of power for the US and its allies, including Japan, South Korea, and Australia. The analysis combines trade and shipping data with evidence of Taiwan’s efforts to deepen cooperation in maritime governance, logistics, and semiconductor production. The findings suggest that Taiwan’s real influence lies in maintaining continuity: keeping trade routes, technology networks, and supply chains functioning even under strain.

The article begins by outlining how economic interests shape great power rivalry and how access to material resources underpins strategic influence. It then situates Taiwan within this framework through a historical overview of its strategic evolution. Next it moves on to examine Taiwan’s central role in global economic interdependence and explores how its stability affects the interests of the United States and its key allies, including Japan, South Korea, and Australia, chosen for their close security ties with Washington and significant economic exposure to the Taiwan Strait. The discussion then turns to Taiwan’s own agency in reinforcing US-led cooperation across the Indo-Pacific before concluding with reflections on what Taiwan’s experience reveals about the economic underpinnings of contemporary great power competition and how these insights contribute to both academic research and policy formulation.

Economic interests in great powers rivalry

As part of this special issue, the present article builds on the guest editors’ framework, which holds that great powers are most likely to compete in states and quasi-states where their prevailing national interests collide (Fong 2026b). In the Taiwan case examined here, China’s continued rise, which threatens Taiwan’s political autonomy, together with the relative decline of US influence, has altered the cross-strait balance and prompted both Washington and Beijing to intensify deterrent measures as they compete for influence over Taiwan’s future (Zuo 2019). From a strategic perspective, the extent to which either the US or China can dominate and shape Taiwan’s policy orientation will determine which side gains a decisive strategic advantage in the Indo-Pacific region (Green and Talmadge 2022). Against this backdrop, the study examines how Taiwan’s economic significance informs the national interests of the US and its key partners, and argues that clarifying the economic dimension of interest formation is essential for explaining when and why great power rivalry escalates.

To ground this analysis, the article draws on Nuechterlein’s (1976) classical typology, which categorises national interests into four dimensions: defence, economic, ideological, and overseas interests. The present discussion concentrates on the economic aspect of great power interests. As Luttwak (1990) observes, modern strategic rivalry often follows the “logic of conflict” but employs the “grammar of commerce,” thereby elevating the strategic weight of economic power. Economic interests constitute a fundamental element of a state’s pursuit of material well-being and relative advantage. When economic resources are sufficiently fungible and can be converted into military capability or used to secure technological and strategic leverage, accumulated wealth becomes a direct source of power (Gilpin 1981; Art 1996). In this sense, economic strength functions not only as a measure of prosperity but also as a foundation for geopolitical influence, allowing a state to gain the upper hand in competitive environments.

Recognising economic resources as a key dimension in which great powers seek to enhance their national power, this paper argues that both the possession and movement of such resources carry significance in at least two ways. The first concerns quantity. In anticipating potential conflicts, states must ensure both the fulfilment of their societies’ basic needs and the continuous production and accumulation of strategic materials. Resources that cannot be obtained domestically must be imported to sustain the minimum level required for national functioning, while an optimal condition is one in which a state can secure or accumulate more critical resources than its rivals. Previous studies have also pointed out that public concern often centres on how an adversary’s gains from international trade can free up economic resources that are subsequently channelled into its military capacity (Carnegie and Gaikwad 2022).

Since most international trade takes place by sea, a state’s ability to ensure uninterrupted access to maritime routes is closely tied to its prospects for economic growth (Lane and Pretes 2020). Government actions, including the use of sanctions or the control of strategic chokepoints that can disrupt shipping, also shape who ultimately benefits from global exchanges of goods and capital (Pratson 2023). As a result, the capacity to influence or manage the movement of economic resources becomes just as important as the quantitative possession or production of those resources.

The second aspect relates to the quality of power. Economic resources often have dual-use characteristics, serving both civilian and military ends. Critical materials and technological capabilities can be converted into sophisticated assets that strengthen a state’s position in international competition. Mineral and energy supplies sustain industrial output and defence activities, while advanced technologies support a wide range of strategic functions, including command and control, intelligence and surveillance, communications, precision targeting, and aerospace development (Chu 2008; Farrell and Newman 2019). Together, these capabilities form a core part of the technological base on which great powers build and maintain their advantage. Previous research also indicates that differences in technological progress and in the institutional capacity to absorb, adapt, and disseminate innovation largely shape a state’s relative advantage over its competitors (Kennedy 1987; Ding 2024). Consequently, smaller states capable of helping great powers consolidate these strategic interests become critical arenas of competition. As the case of Taiwan’s dominance in advanced semiconductors illustrates, control over such central nodes provides the structural leverage that enables great powers to exercise “weaponised interdependence.”