Does Economic Integration Across The Taiwan Strait Make Military Conflict Less Likely

Does Economic Integration Across the Taiwan Strait Make Military Conflict Less Likely?
Author(s): Scott L. Kastner

Source: Journal of East Asian Studies, Vol. 6, No. 3 (SEPTEMBERDECEMBER 2006), pp. 319-346
Published by: Lynne Rienner Publishers
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Journalof East Asian Studies 6 (2006), 319-346
Does Economic Integration

Across the Taiwan Strait Make
MilitaryConflictLess Likely?
Scott L. Kastner
economic
ties across the Taiwan
Strait are widely believed
by ana
Deepening
relations.
Yet
to be a stabilizing
force in cross-Strait
lysts and scholars
political
within the broader
international
the relationship
between
relations
literature,
economic
This
interdependence
article
likelihood
examines
of cross-Strait
A description
erature.
and
of growing
military
of three
conflict
military
the impact
conflict
separate
continues
cross-Strait
within
causal
to be controversial.
economic
the context
links
on the
of this broader
lit
in the
mechanismsidentified
ties could promote

is fol
peace
are operating
in the Tai
processes
not rule out the possibility
that eco
which economic
existing
literaturethrough
lowed by a discussion
of how broadly
these
wan
Strait
nomic
case.
Although
integration
it shows
Keywords:
across
that the evidence

China,
Taiwan,
the article
the Strait
in support
economic
does
makes
a military
of such
confrontation
a proposition
interdependence,
less
likely,
is ambiguous.
trade,
conflict
eepening economic ties across the Taiwan Strait are widely be

lieved by analysts and scholars to be a stabilizing force in cross
Strait political relations, at least on the margins.1 The logic behind this
view is straightforward. By raising the costs of military conflict, eco
L-/
nomic exchange potentially encourages restraint in Beijing and Taipei.2

Over the longer term, increased contacts generated by growing eco
nomic linkages may also lay an "important foundation for political
community" across the Taiwan Strait.3 Official US policy is to encour

age cross-Strait economic integration for these reasons.4
Within the broader international relations literature, however, the
relationship between economic integration and military conflict contin
ues to be a hotly debated topic, and liberal arguments that trade pro
motes peace remain controversial. A growing body of recent scholarship
319
320
Does
Economic
Integration
Make
Conflict Less Likely?
the debate by considering more closely the precise causal

processes through which commerce could influence the propensity for
military conflict between states. This focus on microfoundations has im
advances
portant implications for studies that are trying to ascertain whether eco
nomic integration will facilitate peace across the Taiwan Strait. Know
ing that economic ties tend, on balance, to have a pacific effect is of only
limited use when considering a particular case, since it is certain that
sometimes economic ties fail to have such an effect: the outbreak of
World War I, despite extensive trade ties among the major European
powers at the time, is an obvious example. Without a clear specification
of the causal mechanisms linking economic interdependence to a re
of military violence, it is simply difficult to know

whether or not the relationship across the Taiwan Strait resembles fail
ures, like pre-World War I Europe, in that regard.
duced likelihood
Existing studies in the international relations literature have de

rived at least three broad causal mechanisms through which growing
bilateral economic ties can generate a reduced probability of military
conflict between states. First, economic ties can act as a constraint on
state behavior; the increased costs of military conflict in the presence
integration deter states from settling disputes using mili
tary force or engaging in provocative behavior that might invite mili
of economic
tary
retaliation.
Second,
economic
ties
can,
over
time,
change
the goals
that states pursue, so that they are less in conflict with the goals of other
states; as such, the underlying hostilities that are at the root of military
conflict can be reduced as economic integration deepens. Finally, eco
nomic integration can make it easier for states to signal their true level
of resolve, thereby reducing the dangerous uncertainties that can lead
to war in crisis situations. These three causal mechanisms are not mu
tually exclusive; rather, it may be that economic interdependence pro

motes peace through multiple channels.
The purpose of this essay is to reconsider, within the context of
this broader international relations literature, whether growing Main
land China-Taiwan
economic integration affects the likelihood of a

cross-Strait military confrontation. Each of the causal mechanisms out
lined above specifies a process, with observable implications, through
which growing economic ties yield a reduced likelihood of military vi
olence. I assess the extent to which these different causal processes are
operating across the Taiwan Strait. My conclusions suggest that caution
is warranted when considering the impact of economic integration on
the prospects for cross-Strait peace. While it may be that economic in
Scott L. Kastner
321
tegration across the Strait makes a military confrontation less likely, I

show that the evidence in support of such a proposition remains quite
ambiguous.
How
Lead
Might Economic
to Peace?
Three
Interdependence
Causal Arguments
The liberal argument that trade promotes peace has a long history, and a
series of recent works by John R. Oneal and Bruce Russett have con
firmed statistically that trade, along with democracy and international or
ganizations (the "Kantian tripod"), is correlated with a reduced likeli
hood of military violence between countries.5 But the idea that economic
ties facilitate peace remains controversial. Realist scholars sometimes
note, for example, that bilateral economic ties typically represent only a
small fraction of any two countries' economies; this is especially the case
with great powers, which typically have large internal markets and a
wide array of trading partners. Economic ties are thus unlikely to have
much of an impact on state behavior, particularly when great powers
compete over important issues.6 Others argue that economic interde
pendence can actually provoke conflict because economic ties cause new
frictions to develop between countries,7 and still others suggest that eco
nomic patterns are more likely a reflection of existing political relations
than an important determinant of those relations.8 Meanwhile, a number

of recent quantitative9 and carefully designed qualitative studies10 call
into question on empirical grounds the commercial liberal argument.11
As Edward Mansfield and Brian Pollins write, a growing number of
studies are advancing the debate by focusing more squarely on the con
ditions under which economic ties have an effect. That is, they ask not if
interdependence leads to peace but rather when it does, and
thus focus on the variables that might intervene in the relationship be
tween economic ties and conflict.12 This focus on boundary conditions
economic
serves to highlight the probability that economic integration does not al

ways lead to pacific political relations. And given that the effect is not
universal, if we are to have any ability to predict whether economic ties
will have a pacific effect in a particular caselike the relationship across
the Taiwan Straitit becomes imperative to have a clear understanding
of the microfoundations underlying any relationship that might exist be
and conflict. In other words, simply knowing that
ties
are present in a particular case should not convince
economic
strong
tween commerce
322
Does
Economic
Integration
Make
us that the likelihood of a military confrontation is therefore reduced in

that case. Rather, it would be better to be able to observe whether or not
the causal processes that link economic interdependence to a reduction
in military violence are operating in that case. Existing studies have
identified at least three non-mutually exclusive causal mechanisms
through which economic interdependence can yield a reduced probabil
ity of military conflict.

First, economic ties can act as a constraint on state leaders. Be
cause war is likely to be disruptive to trade and investment flows, the
expected costs of war rise as international economic flows increase.
Commercial
disruptions can impart substantial adjustment costs on na

tional economies; such disruptions could also be especially damaging
to business interests with strong political clout. Leaders should there
fore be less likely to risk military violence with countries with which
their home state is integrated economically.13 These sorts of constrain
ing effects may be more likely to take place in democracies, which pro
vide actors who benefit from trade with clear paths through which to
influence the political process;14 leaders in authoritarian states who
draw support from internationalist economic interests may also be
more susceptible to these effects.15
A second, less prominent, causal argument suggests that commer
cial integration can transform state preferences. Here, international eco
nomic ties push issues that previously had threatened to spark war down
the hierarchy of state goals. On the one hand, when two states have a
high level of economic integration, actors within their respective soci
eties will come into greater contact with each other and will interact on
a much larger scale. In this environment, they may come to view their
interests as shared and to see prior goals as less important than before.
Leaders, in turn, will over time respond to these transformed societal
preferences.16 On the other hand, international economic ties can spark

coalitional change at the domestic level, because groups with a vested
interest in foreign economic ties grow larger and more powerful than be
fore. These groups, in turn, are less likely to value foreign policy goals,
like territorial expansion, that can propel countries into military conflict.
If economic
integration is extensive, these prointernational coalitions

will grow large and will have the ability to influence state goals and per
haps effect a change in the makeup of the governing coalition itself.17
Military conflict then becomes less likely not simply because it is more
costly (as seen in constraint arguments), but because coalitional change
yields new leaders that place less emphasis on the clashing goals that
had threatened to lead to war to begin with.18
Scott L. Kastner
323
A third causal argument, relatively new, focuses on the added in

formation that can be communicated in the presence of economic inte
gration. The argument is an effortto deduce a causal link between com
merce and military conflict in a way that is consistent with bargaining
models of war.19 In these models, disputes sometimes escalate to mili
tary confrontations because it is difficult for the states involved to know

how committed the other side is to the issues at hand. As such, each
side has an incentive to overstate its commitmentor resolvein the
hope that the other side will concede more than it otherwise might; in
other words, both sides have incentives to bluff. Wars can occur when
one state believes the other to be bluffing, when in fact the other state
is highly resolved.
Consider
a hypothetical example concerning the Taiwan Strait.

Clearly, no Chinese leader wishes Taiwan to become independent. Un
fortunately, it is difficult for leaders in Taiwan to determine just how res
olute Beijing is on the issue; whether they mean it or not, all Chinese lead
ers have a strong incentive to say that they will fight a war to block
Taiwanese independence so as to deter the island from choosing that path.
Suppose, now, that a leader in Taiwan believes Beijing to be bluffing
knowing it has an incentive to do soand goes ahead and declares inde
pendence. If China was actually sincere in making the threatmeaning

that Beijing is in fact highly resolved to check Taiwan independence
then the declaration of independence provokes a war. War arises in this
scenario because it is difficult for Beijing to credibly communicate its true

level of resolve on the independence issue. The outcome is clearly sub
optimal: both sides would have been better off had Beijing found a way
to communicate its true level of resolve credibly, since war is costly.

To overcome this problem, states that are truly resolute try to sig
nal that resolve by demonstrating a willingness to pay costs in order to
achieve a favorable outcome. By sending costly signals, states convey
information; since states that lack resolve are by definition unwilling to
pay costs to achieve a favorable bargaining outcome, a willingness to
send costly signals increases the likelihood that a country will be per
ceived as resolute, rather than as bluffing. Economic signaling argu
ments that link economic interdependence to peace suggest that high
levels of economic
integration make it easier for countries to send

allow
them to communicate resolve credibly. Absent
costly signals that
economic integration, nonmilitary signals are relatively uninformative
because
verbal threats or economic sanctions are cheap, meaning a

state that is bluffing could issue such signals at relatively little cost. As
economic integration deepens on a bilateral level, however, it becomes
324
Does
possible
Economic
for a country
Integration
to impose
Make
economic
sanctions
that
are
costly.
In
tegration into global markets more generally means that a country's

tough talk is no longer cheap, because it scares international investors
away. Economic integration, then, gives states more ways to demon
strate their true level of resolve in a credible fashion without having to
resort to military action, thus reducing the likelihood that a war would
arise because one state miscalculates the resolve of another.20
Each
of these three causal pathways linking economic interde

to
pendence
peace suggests a mechanism through which growing eco
nomic interaction across the Taiwan Strait could reduce the likelihood
of a cross-Strait military confrontation. But is there any evidence that
one or more of these causal processes are actually at work in Mainland
China-Taiwan
relations? If so, then we might feel more confident that

growing economic integration is indeed a stabilizing force in the cross
Strait relationship. However, if such evidence is lacking, then a more
cautious attitude would be warranted. I consider the issue more sys
tematically in the sections that follow.
Do
Economic
Constraint
The
constraint
Ties
Act as a
in Cross-Strait
argument
Relations?
suggests
that, as economic
integration
across
the
Taiwan Strait deepens, leaders in both Beijing and Taipei should become
more hesitant in pursuing policies that might trigger a strong response
from the other side, because they become more sensitive to the economic
consequences of conflict. Though the argument should applyperhaps
by varying degreesto both sides, space limitations lead me to focus

here on Taiwan. My choice of Taiwan, rather than the Mainland, is driven
by a theoretical expectation that constraining effects should be more
prevalent in Taipei, for at least two reasons. First, asymmetries in cross
Strait economic relations suggest that Taiwan's economy should be more
sensitive to disruption than Mainland China's. Cross-Strait trade repre
sents a much larger share of Taiwan's economy simply because China's
economy is much larger. Moreover, while Taiwan's approved direct in
vestments in China now represent more than two-thirds of the island's
total outward direct investment flows, those same investments represent
less than 15 percent of the foreign direct investment flowing into China.21
Second, some recent studies suggest that constraining effects are most
likely to occur within democracies. As Christopher Gelpi and Joseph
Scott L. Kstner
325
Grieco write, because democratic leaders are accountable to large selec

torates, "it is especially in democracies that the delivery of a public pol
icy success such as economic growth is likely to play an important role

in affecting the tenure of leaders."22 There is thus reason to believe that,
if cross-Strait economic
integration does indeed act as a constraint in

cross-Strait political relations, these constraining effects should be espe
cially evident in Taiwanese policy (though a more extensive study would
ideally consider both Beijing and Taipei in this regard, as in principle the
constraint argument clearly appliesat least to some extentto both).
An initial, cursory examination suggests that the constraint logic
does not mesh well with some broad trends in the cross-Strait relation
ship. As Yun-han Chu has written, cross-Strait relations represent a
"perplexing duality" characterized by "the concurrent processes of eco
nomic convergence and political divergence";23 such dichotomous ten
dencies, moreover, have only intensified since Chu made those obser
vations.24 At the root of cross-Strait political tensions is the issue of
Taiwan's
sovereign status. Beijing views reunification as a core long

term objective and has threatened to go to war to prevent legal Taiwan
both current
independence. But recent Taiwanese leadersincluding
president Chen Shui-bian and former president Lee Teng-huihave,
since the early 1990s, been more assertive of Taiwan's sovereign sta
tus, and Mainland Chinese leaders worry that their ultimate aim is in
dependence. Such assertiveness has occurred despite rapidly growing
cross-Strait economic integration since the late 1980s (see Figure 1).
During the 1990s, President Lee Teng-hui embarked on "a concerted
effort to establish a separate international identity" for Taiwan,25 a pol
icy that became especially clear when Lee took a highly publicized trip
to Cornell University in 1995which in turn precipitated a serious cri
sis in cross-Strait relations. Lee risked another crisis in 1999 when he an
nounced that prior changes to the Republic of China (ROC) constitution

established the Beijing-Taipei relationship as "state-to-state, or at least
special state-to-state relations." The move provoked outrage in Beijing,
which viewed the announcement as a step toward formalizing Taiwan's
de facto independent status. Cross-Strait relations initially stabilized
after the election of Democratic Progressive Party (DPP)26 candidate
Chen Shui-bian as Taiwanese president in spring 2000: at his inaugura

tion, Chen announced that his administration would follow a policy of
"5 No's," which included no official independence for Taiwan, no pub
lic referendum on the issue of independence, no change in the ROC's
name, no adding the "special
state-to-state" relations formula into the
Does Economic IntegrationMake ConflictLess Likely?
326
Figure
Trade
and
Investment
Trade(billionUS$)
Flows
Across
the
Taiwan
Strait
Year
million
TaiwanInvestments
(hundred
US$) I
Note: This figure is based on official Taiwanese statistics, available from the Mainland
Investment numbers likely underreport actual flows by a
Affairs Council (www.mac.gov.tw).
substantial margin, since much Taiwanese investment in China is not reported to the Taiwan
government.
ROC constitution, and no scrapping of the National Unification Council

(which had been established in the early 1990s). However, Chen's poli
cies
toward
economic
ample,
China
more
grew
Chen
suggested
provocative
over
time,
a formula
for cross-Strait
relationsone
the
as
bilateral
island's
sovereignty
than
Lee's
country
appeared to go farther
on each side of the Strait (yi bian, yi guo)which

in asserting
even
extremely rapidly after 2001. In 2002, for ex
ties expanded
state-to-state
argument
that had enraged Beijing in 1999. Chen's decision to hold a referendum

on issues relating to Taiwan's national security at the same time as the
2004
Taiwan
nounced
presidential election
intention
to revise
termination of Taiwan's
the ROC
National
(which ultimately failed), his an

and
constitution,
Unification
more
Council
recently
his
have likewise
been viewed by Beijing as highly provocative.27 On the surface, these

trends
seem
to call
into
question
the extent
to which
growing
cross-Strait
economic ties act as a constraint on Taiwanese
policymakers.
the
absence
of
a
counterfactual
makes it nearly im
Unfortunately,
inference
from
these
broad
trends. In the
to
draw
meaningful
possible
context of a single case, it is not feasible to hold all else constant while
assessing the marginal effect of growing economic ties; as such, Tai
wan's policies are consistent with multiple explanations. For example, it
Scott L. Kastner
327
is possible that Taiwan's policies are more consistent with the constraint
argument than they appear at first glance. Indeed, it may be that a newly
democratic Taiwan would have been even more forceful in asserting its
sovereignty had it not been for the constraining influence of economic
integration with China. Meanwhile, it is also conceivable that economic
integration has the effect of making Taiwan's policies more provocative
from Beijing's standpoint: since economic integration raises the costs of
military conflict for both Taiwan and Mainland China, Taiwanese lead
ers know that Beijing will be less willing to resort to force, and as such
the island can get away with more.
To sort through these different possibilities, it would be useful, as
Norrin Ripsman and Jean-Marc Blanchard write, to consider the willing
ness of Taiwan "decision makers to run the risk of war in moments of

heightened crisis."28 Is there any evidence that Taiwan's leaders, during
moments of heightened tensions, have tempered their policies toward
Beijing out of worry that a cross-Strait military confrontation would be
detrimental to the cross-Strait economic relationship? Or, alternatively, is
there evidence that they have completely disregarded such concerns? I
focus here on one episode in particular: Lee Teng-hui's July 1999 char
acterization of cross-Strait relations as "special state-to-state."
Chinese officials reacted strongly to Lee's announcement, empha
sizing that Lee was "playing with fire."29 Chinese president Jiang
Zemin, in a telephone conversation with US president Bill Clinton,

warned that Lee's statement was "a very dangerous step ... toward split
ting the country," that he should "rein in at the edge of the precipice,"
and that Beijing would not abandon the possibility that it would resolve
the issue with military force.30 China put its ground forces on height
ened combat readiness beginning July 13; at the same time, Mainland
fighters began conducting more frequent air exercises near the Taiwan
Strait. The Chinese
navy also conducted exercises during August and

September.31 China clearly hoped to signal to Lee that his new formula
tion for cross-Strait relations was risking a military confrontation with
the Mainland.
However, rather than back down in the face of Beijing's response,
Lee stuck with his new formulation. In Lee's public statements, there is
no indication that he viewed cross-Strait economic ties as a constraint
or that he was deterred by the potential economic losses that Taiwan
would suffer if the crisis were to escalate to armed conflict. In fact, Lee
was openly dismissive of the possibility his actions would lead to a mil
itary conflict; when asked by reporters in August 1999 whether military
conflict was likely, Lee smiled and said "Don't worry!"32 The chairman
328
Mainland Affairs Council at the time, Su Chi, likewise

not
mention
the cross-Strait economic relationship as a constrain
does
ing factor in his own recent account of the episode.33
of Taiwan's
Interestingly, to the extent that Taiwanese officials referenced the

economic consequences of a military confrontation with China at all
during this crisis, it was to emphasize the economic costs that Mainland
Chinanot Taiwanwould
pay For example, Lee highlighted China's
problems as he downplayed the chances Beijing would
"willy-nilly take action against Taiwan."34 Taiwan's defense minister at
economic
the time, Tang Fei, similarly argued that for the Mainland, "using force
would be a last resort, because [China is] concerned about international
pressure and economic growth."35 These sorts of comments suggest that

it increases the
increasing cross-Strait economic integrationbecause
costs of war for Chinamay actually encourage Taiwanese leaders to
adopt more provocative policies than they otherwise might. Indeed,
since his presidency ended in 2000, Lee Teng-hui has been quite explicit
in promoting this underlying logic: that increased costs of war for China
allow Taiwan more leeway on the issue of the island's sovereignty. For
example, he has pushed for a new constitution and a change in the is
land's official name, suggesting that a window of opportunity exists be
tween now and 2010 to do so. Beijing, he argues, will be preoccupied
with the 2008 Olympics and the 2010 Shanghai Expo, both of which are
important
such,
to
it won't
China's
dare
economic
start
a war
prospects
because
doing
and
so
international
would
be
status;
too
as
costly.36
statements clearly suggest that he believes economic factors

do act as a constraint on the willingness of Chinese leaders to go to war.
However, even if Lee is correct in this assessment, the effect on the un
Lee's
derlying probability of war remains indeterminate: if Taiwan is willing

increased reluc
to exploit an (economic interdependence-induced)
tance to fight a war on the part of China by moving farther in the di
rection of independence, then the decrease in China's resolve can be
negated by increased dissatisfaction with Taiwan's policies.37 Lee's
public statements suggest that he was quite willing to exploit perceived

increases in China's costs of war by pushing farther in the direction of
independence than he otherwise might. This logic, incidentally, is not
lost on Beijing: Mainland leaders appear to be quite aware that factors
increasing the potential costs of war for China may also make it easier
for Taiwan to drift toward independence. As such, they have tried to
downplay the costs of war relative to the importance that they place on
the Taiwan issue, declaring that they are willing to pay "any costs" to
check Taiwan independence.38
Scott L. Kastner
329
Nonetheless, I do not wish to overstate this point. I am certainly not

suggesting that growing cross-Strait economic integration is a primary
cause of Taiwan's stance on the sovereignty issue; other factors, like
domestic political dynamics in Taiwan, are far more important. Fur
thermore, I have only presented evidence from a single episode. It is
not at all clear, for example, that current president Chen Shui-bian
shares Lee's views in this regard (I have uncovered no evidence that he
does), and it is certain that the current leadership of the Kuomintang
(KMT) does not; the following section considers events under Chen
more fully in the context of transformation arguments.
More fundamentally, constraining effects can also rise indirectly in
democracies, through voters who might punish leaders who endanger
the economy by adopting risky foreign policies. Such an indirect con
straint mechanism does not necessarily preclude leaders from occasion
ally ignoring international economic flows when making foreign policy
decisions; rather, it suggests that such leaders are likely to be punished
by voters in polls and elections. Over time, such a process should lead,
on balance, to a less provocative foreign policy, though not necessarily
in a linear fashion where growing economic ties lead directly to propor
tionately fewer provocations.39 And there is certainly some evidence
that such a process could be under way in Taiwan: most Taiwanese are
opposed to risk taking in relations with the Mainland, and voters have
expressed considerable dissatisfaction with Chen Shui-bian's recent
cross-Strait policies.40 Ultimately, to dismiss with any confidence the ar

gument that economic interdependence-induced constraints reduce the
probability of a cross-Strait war, it would be necessary to show that
Lee's statements in 1999 and after are not an aberration. In isolation,
Lee's 1999 behavior only provides some reason for skepticism.
Mainland
China-Taiwan
Prospects
for Preference
Economic
and
Relations
in Taiwan
Transformation
mechanism linking economic integration to peace

centers on preference transformation. The argument, if valid here, sug
gests that increasing economic integration between Mainland China
and Taiwan should facilitate harmonization in the foreign policy objec
The second causal
tives of leaders in Beijing and Taipei. That is, unlike constraint argu
ments, which assume static preferences but a changed cost/benefit
structure, transformation arguments suggest that economic integration
can yield changes in the preferences of foreign policy decisionmakers.
330
Does
Economic
Integration
Make
Such change might arise via broad public opinion shifts brought on by
increasing societal contacts. Alternatively, cross-Strait commerce
might empower new coalitions less interested in sovereignty issues and
more interested in stability and trade. In this section, I focus on the Tai
wan side for the same basic reasons I did when considering constraint
arguments: since cross-Strait commerce represents a bigger portion of

Taiwan's economy than the Mainland's, any transformative effects that
arise are more likely to materialize in Taiwan first. As with the con
of transformative effects in
straint logic described above, evidence

cross-Strait relations remains ambiguous.
Growing commercial relations across the Taiwan Strait have cer

tainly led to greatly increased societal contacts between Mainland
China and Taiwan, and some argue that these contacts lay the basis for
future political reconciliation (and perhaps reunification).41 And as
Chien-min Chao notes, economic exchanges to some extent "spilled
over" into politics during the 1990s. Chao links the formation of Tai
wan's Straits Exchange Foundation and Beijing's Association for Rela
tions Across the Taiwan Strait, and their subsequent quasi-official ne
gotiations in the early 1990s, to a need to manage growing cross-Strait
exchanges.42 These sorts of political contacts, over time, can potentially
have a transformative effect by facilitating a sense of shared commu
nity.
Unfortunately,
"special
state-to-state"
these
talks
statement,
ended
and
abruptly
they
have
after
Lee
not resumed
issued
under
his
the
Chen administration.
Moreover, as Chao emphasizes, growing economic exchanges and
personnel flows across the Taiwan Strait have not been correlated with
public support in Taiwan for reunification with the Main
land.43 For example, most Taiwanese (approximately 61 percent) fa
vored maintaining the status quo in cross-Strait relations when polled
increased
in 1997, and the same percentage held that position in 2004.44 At the
same time, support for the Mainland's "one country, two systems" for
mula has remained consistently low. Furthermore, the percentage of
Taiwan citizens who consider themselves to be Taiwanese, and not Chi
nese, has grown in recent years. One poll discovered that in 1992, 26
percent of respondents considered themselves "Chinese," 17 percent
considered themselves "Taiwanese,"
and 45 percent answered "both
those
Chinese and Taiwanese."
2005,
By
answering "Chinese" had
dropped to 7 percent, while those answering "Taiwanese" had risen to
47 percent, even more than those answering "both" (42 percent).45
Of course, the same problems of making comparisons to a counter
factual, emphasized
in the previous section, apply here as well. Indeed,
Scott L
Kastner
331
it may be that burgeoning economic ties across the Taiwan Strait have
slowed the development of a separate Taiwanese identity. This point is
made by Yun-han Chu: though he concludes there is little evidence that
economic
integration is transforming Taiwan public opinion in a deci

sive way toward a prounification consensus, he does argue that growing
economic integrationand the changed image of China as a vibrant
economy to which Taiwan's future will be hitchedhas acted as a brake
on the growth in a separate Taiwan identity.46And even though the per
centage of Taiwan citizens self-identifying as exclusively "Taiwanese"
has grown in recent years, most Taiwan citizens continue to oppose the
adoption of policies that might trigger war with China (as noted in the
previous section).47
While evidence of broad economic interdependence-induced opin
ion shifts in Taiwan remains, in my opinion, quite limited, it is nonethe
less clear that expanding cross-Strait economic ties have generated a
growing constituency in Taiwan with a direct stake in the cross-Strait
economic
advocated
relationship. Moreover, this constituency has, by and large,

a foreign policy less confrontational toward China than that
of the current Taiwan leadership. The Taiwanese government estimates

that roughly 1 million Taiwanesemostly
and their
businesspeople
familiescurrently live in Mainland China,48 while a 2004 Ministry of
Economic Affairs poll found that nearly 77 percent of Taiwan manu
facturers have investments in Mainland
China.49 A recent media poll

likewise found that a majority of Taiwan-listed and over-the-counter
companies surveyed had invested in Mainland China in 2002.50 The
poll found that 80 percent of those surveyed believed that economic
and political relations across the Taiwan Strait are closely related and
that improved political relations are essential for Taiwan's economy.
Meanwhile, 73 percent supported resumption of cross-Strait talks
under the rubric of the 1992 consensus.51
Anecdotal evidence tells a similar story. Business leaders often em
phasize the importance of maintaining good relations with the Main
land. After Chen's 2004 reelection, a spokesman for the General Cham
ber of Commerce suggested that "empowered by the people's mandate,
President Chen should strive for better cross-Strait relations."52 In the

run-up to that election, numerous Taiwan businesspeople in China ex
pressed dissatisfaction with Chen's confrontational cross-Strait policies,
many emphasizing that Chen's policies caused instability, which was
bad for the economic relationship.53 Noting that many corporations
backed Chen in 2000, the secretary-general of the Taiwan Business
men's Association
in Dongguan (a popular investment locale for Taiwan
332
firms), concluded that "they made a mistake and they see that cross
Strait relations have only got worse in the past four years."54
Furthermore, as the constituency with a stake in the cross-Strait
economic relationship has grown, politicians in Taiwan have appealed
to that group more directly. In the 2000 presidential election campaign,
all three main candidatesChen
Shui-bian, Lien Chan, and James
the
to
cross-Strait
improve
political and economic
Soongpromised
environment. Chen, the least likely to take such a position given his
party's proindependence platform, told a group of Taiwan businesspeo
ple with interests in China that "the two sides should cooperate on a re
ciprocal basis and remove the political factors hampering their eco
nomic
that they
development."55 All three candidates emphasized
would liberalize cross-Strait investment policies and strive to open di
rect links between the two economies.56 In 2004, the pan-blue57 ticket
of Lien and Soong made even broader appeals: they promised, for ex
ample, to help build schools to educate the children of Taiwan busi
nesspeople in China so that those children would have the same educa
tion as children in Taiwan.58
Nevertheless, though Chen did liberalize investment policy early in
his first term, he has continued to pursue a political agenda clearly at
odds with Beijing, despite the opposition to that agenda from those
with
an
economic
stake
in China.
In a 2003
interview,
Chen
was
blunt
when asked about business demands for closer ties across the Taiwan
Strait: "As for the welfare of some businessmen, or politicians, or indi
viduals, these must absolutely come after the welfare of the overall na
tion."59 In part because of his cross-Strait policies, Chen's support in
the business community was more tenuous in 2004, and he ran his re
election campaign without the backing of some prominent magnates
who had supported him in 2000.60 Yet Chen's campaign was still suc
cessful; indeed, he increased his vote share from under 40 percent in

2000 to over 50 percent in 2004. Chen succeeded in part because he
was able to craft a winning coalition that included both those seeking
to build a stronger Taiwanese identity and those who are threatened,
economically, by growing commercial links with Mainland China. The
same cross-Strait policies that have managed to alienate those with in
vestments in China from Chen have likely served to increase his sup
port among protectionist interests (such as farmers and relatively un
skilled laborers) who are more concentrated in southern Taiwan.61
Whether economic integration across the Taiwan Strait will effect a
broader transformation in Taiwan's
objectives
foreign policy goals, bringing those

into greater harmony with Beijing's own goals, remains un
Scott L. Kastner
333
clear. However, growing economic ties have certainly generated a new

constituency in Taiwanese politics that has a vested interest in cross
Strait stability and that favors foreign policy goals that are less at odds
with Beijing than the goals of the Chen administration; this con
stituency, moreover, has clearly become an important component of the
KMT-centered pan-blue coalition.62 Though Chen Shui-bian won re

election in 2004 while making only limited appeals to actors with a
vested interest in China's economy, as cross-Strait economic ties con
tinue to develop, it is quite plausible that this constituency will become
an indispensable component for future winning coalitions in Taiwan.
The
Economic
in Cross-Strait
Signaling
Relations
Argument
The information effects of economic
interdependence can potentially

arise through two distinct processes. First, integration into global mar
kets can make threats more costly, and hence more credible, by scaring
off international investors.63 Second, economic interdependence, by
making it possible to impose costly economic sanctions, gives policy
makers a greater range of signals through which to demonstrate resolve
without resorting to war. My focus here is on this second process, since
it arises from bilateral economic
flows rather than integration into

markets
In
the
more
cross-Strait context, the argument
global
generally.
that
economic
reduces
the likelihood of war be
integration
proposes
cause Mainland China now has the ability to impose very costly eco
nomic sanctions against Taiwan, giving it the capacity to display a high
level of resolve; if it were not for extensive cross-Strait economic ties,
Mainland China would have to rely on military force to signal a simi
lar level of resolve. In other words, the argument does not predict that
crises will necessarily be less likely as a result of economic integration.
Rather, it suggests that when crises do emerge, they will be less likely
to escalate to military conflict. An examination of Mainland China's in
centives and actual signaling behavior vis--vis Taiwan, however, pro
vides reasons to be at least somewhat skeptical of the argument's rele
vance in this case.
I have already described, briefly, Mainland China's response to Lee
Teng-hui's two-states theory in 1999. Chinese leaders had responded in
a similar fashion after Lee's Cornell trip four years earlier. China un
dertook missile tests in the sea north of Taiwan in summer 1995 and in
August and November staged two large-scale military exercises. In the
334
run-up to Taiwan's firstpresidential election in early 1996, the Mainland

undertook two more sets of military exercises, along with missile tests
only 35 kilometers off the Taiwanese coast.64 In both 1995 and 1999,
Chinese leaders canceled quasi-official talks scheduled to be held be
tween the two sides. In early 2000, moreover, Beijing issued a strongly
worded white paper that was highly critical of Lee Teng-hui. The paper
also suggested that the island's continued delay on reunification would
be a legitimate cause of war, a possibility that had not been emphasized

in previous statements on the matter.65 Both the 1995-1996
and the
1999-2000
episodes are representative of Beijing's general efforts to

signal a resolve to fight a war rather than accept a formally independent
Taiwan.
In light of the economic signaling argument, however, what is most
striking about Mainland China's signaling behavior is the extent to
which Beijing tries to avoid spillover into cross-Strait commercial rela
tions. Even as cross-Strait relations declined drastically throughout the
second half of 1995, China tried to assure Taiwanese investors that their
rights and interests on the Mainland would not be affected. For exam
ple, Association for Relations Across the Taiwan Straits (ARATS) pres
ident Wang Daohan told Taiwan investors that "although political rela
tions across
the Taiwan Straits are strained, economic and trade

...
are not strained and are still developing."66 Tang Shubei,
cooperation
then executive vice-chairman of ARATS, likewise noted that despite
tensions, "Taiwan investors' rights and interests on the Mainland are not
affected in any way."67 A similar pattern emerged during the 1999 crisis.
Deputy director of the Taiwan Affairs Office Li Bingcai remarked, for
that
example,
"no
matter
what
happens
...
we
will
continue
our
un
remitting efforts to promote the development of cross-Straits economic

relations."68
These
sorts
of assurances
appear
at least
somewhat
incon
sistent with the economic
signaling argument. Rather than take advan

of
the
increased
tage
opportunity afforded by economic integration to
send credible signals by imposing or threatening economic sanctions,
Beijing sent signals that emphasized military threats and exercises.
This pattern of separating economics from politics changed some
what after Chen Shui-bian's victory in the 2000 election. In the months
following both the 2000 and the 2004 Taiwan presidential elections,
Mainland officials targeted "green" Taiwanese businessesthose
that
had supported Chen and the DPPfor harassment.69 In spring 2000,
several prominent businesses that had supported Chen in the election
faced unexpected audits and surprise inspections in China.70 After
Chen's
win in the 2004 election, Mainland
officials were somewhat
Scott L. Kstner
335
more explicit, warning that China "does not welcome" green busi
nesses, while openly attacking one such business by name: the Chi Mei
Corporation of prominent Chen supporter Hsu Wen-lung.71
Nonetheless, while China's behavior here suggests a greater will

ingness to interfere in the development of cross-Strait economic rela
tions for political reasons, only a small number of prominent Chen sup
porters have been affected. Taiwan businesses in China generally
denied that they faced increased harassment after Beijing's 2004 warn
ings directed at green Taiwan investors.72 This view was echoed by the
chairman of Taiwan's Mainland Affairs Council, Joseph Wu, who em
phasized in June 2004 that Beijing had "done little to harass" pro-DPP
Taiwan businesses
in China.73 Even the Chi Mei Corporation stressed

that its operations were running normally in Mainland China.74 Cer
tainly Beijing has given no indications that its criticism of green Tai
wan businesses is a harbinger of a greater willingness to sanction Tai
wan investors in order to signal resolve. To the contrary, top Mainland
officials, in fall 2004, redoubled their efforts to reassure Taiwan busi
nesses operating in China. Politburo Standing Committee member Jia

Qinglin visited Taiwanese factories in Fujian province and encouraged
local officials to protect the rights of those investors. Director of the
Taiwan Affairs Office Chen Yunlin likewise
emphasized the impor

ties: "We must step up co-operation to
create better conditions for Taiwanese investment in the motherland."75
tance of cross-Strait economic
Vice-premier Wu Yi expressed similar sentiments in her own trip to Fu

jian province in September.76
What are we to make of Beijing's general aversion to signaling re
solve via economic sanctions against Taiwan? One possible interpreta
tion of this behavior is both straightforward and consistent with the eco
nomic signaling argument. Sanctioning Taiwanese businesses would be
extremely costly for Beijing. Sanctions would undermine an economic
relationship from which China has benefited enormously and might also
hamper China's ability to attract investment from other locations. As
such, China might view this signaling device as a last resort, something
to be used only when war is imminent. Indeed, some Chinese analysts
clearly view economic sanctions as a potentially useful coercive device
that could be deployed instead of or prior to military force. For exam

ple, a 2004 China Daily article noted that several Taiwan affairs experts
in China supported economic sanctions against Taiwan as a means to
halt the island's drift toward independence.77 A 2004 report issued by a
Chinese Academy of Social Sciences Institute of Taiwan Studies analyst

concluded that full-scale economic sanctions could paralyze Taiwan's
Does Economic IntegrationMake ConflictLess LikelyP
336
economy within two months and suggested that Beijing could use eco
nomic sanctions instead of war as a way of blocking Taiwanese inde
pendence.78 Hu Angang, director of the Center for China Studies at
Tsinghua University, recently echoed these sentiments by arguing that
comprehensive economic sanctions could be used to block Taiwan in
dependence: "We don't need to attack [Taiwan]. We just [need to] sus
pend trade for one week."79 To the extent that Beijing views economic
sanctions as a last-resort measure to signal resolve before undertaking a
military attack, deepening economic ties make war less likely by mak
ing this last-resort signal more credible.
But a second interpretation strikes me as equally plausible: leaders
in Beijing view economic sanctions against Taiwan as extremely unap
pealing not simply because they are costly and would damage China's
economy, but also because the nature of cross-Strait political relations
makes economic
sanctions counterproductive to Beijing's cross-Strait

is
not simply trying to deter Taiwanese independence.
policies. Beijing
China's long-term goal is reunification, and the actors in Taiwan who
would be hurt most by economic sanctionsthose businesses with a
large stake in the China marketalso happen to be, on balance, quite
pragmatic on the issue of Taiwan's sovereignty (as discussed in the pre
vious section). Ultimately, if Beijing is going to achieve its goals vis-
vis
Taiwan,
ercion
unless
it hopes
to conquer
the island
and
rule
it through
co
alone
(which would be extraordinarily costly), it needs

allies
there (or, if not allies, at least actors who might acqui
long-term
esce to Mainland authority). Taiwan businesses with Mainland invest
ments are the most obvious
stake in China.
candidates,
because
they already have a
Indeed, it is clear that Beijing has promoted cross-Strait economic

integration at least in part because it hopes to encourage the sorts of
transformative effects discussed in the previous section. A slogan com
monly used to describe Beijing's strategy in this regard is to "peddle
politics through business, to influence government through the people

[yi s hang eu zheng, yi min eu guan]."so In other words, Beijing may be
reluctant to signal resolve using economic sanctions in part because it
hopes that economic ties will ultimately have a transformativeor at
least a constrainingeffect on Taiwan politics. And such reluctance
could carry over into a serious crisis, even though such a crisisif pro
voked by Taiwanwould
indicate that economic ties had failed to
achieve
a transforming effect on Taiwanese politics. Given Beijing's

long-term goal of unification, Chinese leaders would have strong incen
tives to avoid antagonizing the Taiwan business community even in the
Scott L. Kastner
337
event of war. Viewed in this light, Beijing might well do its best to pro
tect Taiwanese investors even if a war were to erupt in the Taiwan Strait.
Of course, my discussion here is highly speculative. In the end, it is

probably not possible to determine, definitively, whether the signaling
logic applies in this case unless a serious cross-Strait crisis actually
erupts. Only then would it be possible to observe whether Chinese lead

ers would in fact be willing to utilize economic sanctions as a means to
signal their resolve before resorting to military force. But there is good
reason to be at least somewhat skeptical that they would.
Conclusion
While increasing economic integration across the Taiwan Strait is typ
rela
ically viewed as a stabilizing force in Mainland China-Taiwan
tions, my analysis here suggests that a more cautious attitude may be
warranted. I have considered
three distinct causal pathways through

which growing economic ties could yield a reduced likelihood of mili
tary violence in cross-Strait relations. While I did not rule out any of
the three causal pathwaysand it is quite possible that one or more is
in fact operating to reduce the probability of military conflict in the Tai
wan Straitneither did I find unambiguous
evidence in favor of any of

the three pathways.
First, I found reason to be skeptical that the constraining properties
of economic interdependence are reducing the danger of military con
flict in the Taiwan Strait. Indeed, some statements by former president
Lee Teng-hui suggest that Taiwanese leaders may paradoxically be

come marginally more willing to take a strong stance on the sover
eignty issue as deeper economic integration increases the costs of mil

itary conflict for both sides. However, my analysis did not rule out a
constraining effect either: for example, in choosing to focus on Taiwan,
I did not consider whether economic ties act as a constraint on Beijing.

Moreover, I suggested that Lee's behavior could have been an aberra
tion, and it is also possible, of course, that constraining effects have be
come more salient as economic
ties have continued to develop during
the Chen administration.

Meanwhile, though there is little reason to believe that cross-Strait
economic ties have so far induced a transformation in the foreign pol
icy goals of either China or Taiwan, there is some evidence that the
processes that could produce such a transformation may be
under way in Taiwan. Surging cross-Strait trade and investment flows
causal
338
have generated a growing constituency in Taiwan that has a vested in

terest in cross-Strait peace and stability. Politicians, particularly from
the pan-blue camp, have appealed directly to this constituency during
election campaigns on the island. If the number of voters and busi
nesses in Taiwan that have a stake in the cross-Strait economic rela
tionship continues to grow, it may become more difficult for politicians

who take a strong stance on the sovereignty issue to win future elec
tions in Taiwan. Here too, however, caution is warranted. Many in Tai

wan are also threatened by cross-Strait economic integration, and Chen
Shui-bian was able to win the 2004 presidential campaign in part be
cause he appealed to these voters. It is thus still too early to tell whether
a new constituency benefiting from cross-Strait economic integration
will become an essential part of future winning coalitions in Taiwanese
politics. But while such an outcome is not inevitable, an economic in
terdependence-induced transformation in the goals of Taiwanese poli
cymakers does appear to be a very plausible future possibility.

Finally, it is not clear that the causal mechanism specified in the bi
lateral version of the economic signaling argumentthat economic ties
make it possible to demonstrate resolve by imposing costly economic

sanctions, thereby reducing uncertainty that could lead to waris op
erative in the Taiwan Strait. Indeed, Mainland China has generally tried
its best to avoid signaling resolve in a way that harms cross-Strait eco
nomic ties. It is possible, of course, that Beijing is simply reserving a
signal like economic sanctions for a worst-case scenario as a last resort
before turning to military force. If so, then economic ties are in fact a
stabilizing force in cross-Strait relations for the reasons specified in the
economic signaling argument. But it is not clear that China would ever
use economic sanctions as a signal. While sanctions would undoubt
edly be a strong signal that might lead Taiwan to back down in a crisis,
such a signal would also harmand likely alienateTaiwanese
actors
in the business community, who tend to be least supportive of indepen
dence to begin with. As such, economic sanctions could be counterpro
ductive to Beijing's longer-term goal of reunification. In other words,
it is quite plausible that Beijing would try to protect Taiwan businesses
operating in China even in the event of a cross-Strait war; if so, the

processes specified in the argument would not prevent military conflict
in the Taiwan Strait.
This study seems to suggest that optimism concerning the stabiliz
ing impact of economic integration on cross-Strait relations may be
misplaced, but I do not wish to be overly pessimistic on this score.
Though I found only limited evidence that any of the causal processes
339
Scott L. Kastner
linking economic integration to peace is currently operating in the Tai

wan Strait, my analysis did not rule out any of these processes, and I
also did not rule out the possibility that these effects will arise or be
come more pronounced in the future. It remains quite plausible, for ex
ample, that economic integration may come, over time, to have a trans
formative impact on Taiwanese
hence on Taiwan's
politicsand
foreign policy. Nonetheless, my analysis does suggest reason for cau
tion; at a minimum, it should not be taken for granted that economic in
tegration does indeed reduce the likelihood
confrontation.
L. Kastner
Scott
Politics
is an assistant
at the University
in the Department
professor
of Maryland,
of a cross-Strait military
Park.
College
of Government
and
the 2005-2006
During
academic
China
His
research
fellow
in the Princeton-Harvard
year, he was a visiting
and the World Program,
Woodrow
Wilson
Princeton
School,
University.
research
interests
include
international
and Mainland
political
economy
China-Taiwan
Political
relations.
His
articles
International
Studies,
have
Studies
recently
in Comparative
appeared
and
Quarterly,
Studies.
Security
Notes
For helpful
Chad
I wish
comments,
Xu
to thank Thomas
Christensen,
Stephan
Haggard,
and the anonymous

reviewers.
1. See, for example,
Tain-Jy Chen and C. Y. Cyrus Chu, "Cross-Strait
nomic Relations:
Can They Ameliorate
the Political
Problem?"
in Muthiah
Rector,
Xin,
Presidential
gappa, ed., Taiwan's
tions in the Twenty-first Century
Karen
M. Sutter, "Business
for Cross-Strait
"Growing
Paul J. Bolt,
Issues
mise,"
Asian
and
NY:
Across
42,
Survey
Economic
"Economic
Ties
Studies
and Cross-Strait
Democratization
(Armonk,
Dynamism
Relations,"
Cross-Strait
Politics:
Integration,"
Across the Taiwan
37, no. 2 (2001):
Eco
Ala
Rela
M. E. Sharpe, 2001), pp. 215-235;

the Taiwan
Strait: The Implications
no. 3 (2002):
Cal Clark,
522-540;
46, no. 4 (2002):
Orbis
Strait: Buying
80-105;
Quansheng
Time
753-766;
for Compro
Zhao,
"Beijing's
Dilemma with Taiwan: War or Peace?" Pacific Review 18, no. 2 (2005): 238;
Qingxin
Ken Wang,
in the Taiwan
111-124;
'Taiwanese
Greg Mastel,
and the Prospect
NGOs
Strait," Australian
Journal
"China,
Taiwan,
of International
and the World
"Economic
Ties";
Chen
and
Chu,
Reunification
Affairs 54, no. 1 (2000):
Trade
ingtonQuarterly24, no. 3 (2001): 45-56.

2. Bolt,
of National
Organization,"
"Cross-Strait
Economic
Wash
Rela
tions."
3. Clark,
2004
tant secretary
of state
ical
we
dialogue,
Cross-Strait
"Growing
4. In his April
Economic
on Taiwan
testimony
James
encourage
Kelly
Integration."
before
former assis
Congress,
that "in the absence
of a polit
interactions
of
to increase
bilateral
emphasized
the two
sides
Does Economic IntegrationMake ConflictLess LikelyP
340
sort.
every
ceeding
contacts
ple
there
Clearly,
also
may
and
See
Times,
Taipei
exchanges
no.
41,
Quarterly
sessing
Bruce
International
Oneal,
and
Peace:
Organizations
Norton,
6. John
J. Mearsheimer,
Norton,
2001);
York:
mercial
Still
Under
M.
Peace,"
and John
Russett
and
Tragedy
of Great
and Jean-Marc
Power
International
from
Evidence
1914
Politics
(New
F. Blanchard,
Ripsman
Fire:
John R. Oneal
Bruce
Interdependence,
"As
Reduces
2001).
The
Norrin
Liberalism
Russett,
Trade
of the Liberal
Effects
469-485;
Democracy,
York:
(New
Fixed
55, no. 2 (2001):
Organization
Triangulating
The
Clean:
Right:
Studies
Bruce
Specifications:
36, no. 4 (1999):
423^442;
Research
"Clear
Were
International
and
Oneal
eco
political,
mutual under
Liberals
Classical
1950-1985,"
John R.
267-294;
of Peace
Russett,
"The
Conflict,
spokesman
or misunderstand
with Alternative
Peace
Journal
Conflict,"
at increasing
to increasing
Russett,
and
2 (1997):
the Liberal
aimed
p. 1.
by pro
of transportation
with a view
1, 2006,
sides
Department
expansion
support
of miscommunication
the chances
Interdependence,
Democracy,
for both
increasing
people-to-peo
at www.state.gov/p/
online
a State
2006,
"We
the Strait
across
February
and Bruce
5. John R. Oneal
and
as follows:
cultural
The
Comments
In January
and diminishing
standing
ing."
and
benefits
links.
shipping
tensions."
links
communication
social
and
ease
eap/rls/rm/2004/31649.htm.
summarized
US policy
nomic,
be economic
would
aviation
with direct
and
1936,"
"Com
Security
Stud
ies 6 (1996/97): 4-50.

7. Kenneth
N.
Waltz,
of International
Theory
Politics
(Princeton:
9. See,
Path
to Peace
33, no.
1 (1996):
Peace?
10.
Model
66, no. 4 (2004):

and
Ripsman
of Peace
Illusion:
Research
Does
Trade
of Michigan
Omar
Press,
2002);
"Trade
Still Follows
the
Reuveny,
in a Simultaneous
of Politics
Journal
Interdependence:
Journal
The Liberal
Barbieri,
University
and Rafael
Pollins,
of Politics
for example,
See,
11. For
Gerald
Study
of Interdependence
and
1155-1179.
Liberalism
"Commercial
Blanchard,
and
and
duction,"
Recent
Journal
and
Brian
in Mansfield
Conflict:
Mansfield
Conflict:
Research,"
Mansfield
Conflict,"
D.
New
economic
linking
and
Peace:
and
Brian
Advances,
of Conflict
Assessing
of Peace
Journal
M.
Open
36,
Pollins,
"Interdependence
Pollins,
Economic
and
and
Debate
4 (1999):
Directions
for
Edward
An Intro
Conflict:
(Ann
and
in the
of Interde
834859;
Interdependence
Enduring
no.
Study
45 (2001):
and
Barbieri
Directions
"The
Questions,
Resolution
on an
New
Research
Pollins,
M.
Perspectives
interdependence
Katherine
Interdependence";
"Globalization
Edward
Future
arguments
"Economic
Barbieri,
of Trade
pendence
of various
reviews
see
Schneider,
387^104;
tional
M.
Conflict?"
Fire."
to peace,
D.
Arbor:
(Ann
Brian
G. Keshk,
Katherine
29^4-9;
Flag: The Primacy

Armed Conflict,"
Under
of Interstate
or a Source
Promote
M.
and International
for example,
Joanne Gowa, Allies, Adversaries,
Princeton
Press,
1994).
University
"Economic
for example,
Katherine
Barbieri,
8. See,
Trade
MA:
(Reading,
Addison-Wesley, 1979).
and
Interna
Arbor:
versity of Michigan Press, 2003), pp. 1-28.
Uni
L. Kastner
Scott
12. Mansfield
consider
and Pollins,
and Conflict."
Studies
that
"Interdependence
effects include
Dale C. Copeland,
'Trade
types of contingent
the Outbreak
of Peace:
Dtente
1970-74
and the End of the
different
and
Expectations
341
Cold War 1985-91," SecurityStudies 9, no. 1/2(1999/2000): 15-58; Christopher

Interdependence,
Gelpi and Joseph M. Grieco, "Economic
and the Liberal Peace,"
in Mansfield
and Pollins, Economic
International
and
tutions,
national
the Balance
"Trade
Trade
Blocs,
of Power:
20 (1996):
Security
Paul
pp. 4459;
Conflict,
42-76;
A. Papayoanou,
and World
Britain,
Germany,
D. Mansfield
13. This
sort of argument
liberals
Oneal,
Triangulating
dorsed
by Jacob
such
can
War
International
Conflict,"
Peace,
in the works
be found
as Richard
Cobden
I," Inter
Organiza
of nineteenth-century
see Russett and
(for an overview,
More
127-129).
pp.
Viner, International
and
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and Jon C. Pevehouse,
tion 54, no. 4 (2000): 775-808.

commercial
State,
Interdependence
"Interdependence,
Edward
and International
Flows,
the Democratic
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the argument
recently,
IL:
(Glencoe,
is en
Free Press,
1951),
in Solomon
William
"Con
Polachek,
p. 261. The argument is further developed
24 (1980):
and Solomon
flict and Trade," Journal of Conflict Resolution
55-78;
William
John Robst,
Polachek,
and Yuan-Ching
the Trade-Conflict
dependence:
Extending
The argument
405-422.
36, no. 4 (1999):
sett and Oneal
"Economic
Interdependence,
Economic
Pollins,
14. Papayoanou,
and
Gelpi
Liberal
Grieco,
15. Paul
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and
Costs,
and Oneal,
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157-187.
L.
in Mansfield
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and
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and
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Triangulating
and
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tial Enemy:
the U.S.
Assessing
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9, no. 1/2 (1999/2000):
by Rus
see Jack Levy,
the Democratic
Interdependence,
Inter
Research
in work
analysis,
Peace,"
International
Institutions,
"Interdependence,
"Economic
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and
and
of Peace
prominently
For a critical
Opportunity
Interdependence
Journal
appears
Peace).
Triangulating
(e.g.,
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with
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the Poten
China,"
Security
16. On this version

field
of the preference
transformation
see Mans
argument,
and Conflict,"
"Interdependence
p. 3. Viner (International
to endorse
it himself, attributes this sort of
p. 261), while declining
of Cobden's
to the Manchester
school.
Some
writings
argument
and
Pollins,
Economics,
sociological
do indeed
this type of effect, though constraint

are more
arguments
suggest
1
See Richard
Political
vol.
Rout
Cobden,
(London:
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prominent.
The
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School
Karl
Elsewhere,
1960).
nication
as a condition
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Deutsch
W.
lantic
Area
On the Manchester
pp. 465-466.
1995),
ledge,
and
(Princeton:
of Economics
Deutsch
facilitating
the formation
collaborators,
Political
Princeton
Commerce
and
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on domestic
How
of social
Press,
commu
communities.
See
the North
At
1957).
political
Trade
D. Grampp,
University
and
Community
Press,
University
Coalitions:
see William
Stanford
the importance
emphasizes
17. On the effects of commerce

Rogowski,
school,
(Stanford:
coalitions,
Affects
see Ronald
Domestic
Political
Alignments(Princeton: Princeton UniversityPress, 1989).

18. Etel
ton University
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Regional
1998);
Etel
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at Century's
Dawn
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Prince
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and
342
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Regional
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dependence
economic
National
of California
ley: University
and
Press,
1945);
Relations,
rity Studies
9, no.
1/2 (1999/2000):
and Foreign
Economic
itics
Uses
of Economic
sula
Patrick
523-541.
Abdelal
British
McDonald
Trade
(Berke
and Jonathan
Kirshner,
Interests,"
S. Skalnes,
"Grand
19.
On
World Pol
Strategy in the 1930s,"
and Scott L. Kastner,
"Strategic
Policies
on the Korean
Penin
Engagement
of Peace
Research
that free trade
Erik Gartzke,
no.
tional
3 (1999):
Annual
20. Erik Gartzke,

About
(low
43, no. 5 (2006):

barriers),
protectionist
and
"War,
International
national
"How
4 (1999):
D.
Interna
1-30.
Thoughts
Gartzke
and
Externalities
Inter
Quan
Li,
of Economic
Erik
561-586;
"Economic
and Inter
Interdependence
James
55, no. 2 (2001):
391-438;
Organization
James
and
A Few
47, no. 4 (2003):
Quarterly
Affect Conflict?"
Trade
481489;
Source
of Costly
and International
Morrow,
Journal
"Assessing
of Peace
Research
36,
the Role
of Trade
as a
and Pollins, Economic

Interdependence
Arthur A. Stein, "Trade and Conflict:
Un
pp. 89-95;
and
Interstate
in
Mansfield
and
Pollins,
Strategic
Signaling,
Disputes,"
and International
On sanc
Interdependence
Conflict, pp. 111-126.
certainty,
Economic
tions
Could
Political
"Ra
Economic
Pollins,
Erik
or
3 (1995):
2002):
Just Lucky:
and
of
Organization
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pp. 96-110;
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D. Morrow,
Were
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Li, and Charles
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Liberals
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Conflict,
49,
clout
Trade
Fearon,
no.
International
"Bargaining
of Political
Peace,"
and the Invisible
Peace,
Powell,
Classical
and
James
Organization
Is in the Error Term,"

Robert
"The
for example,
see,
International
Review
Interdependence
dependence
no.
"War
567-587;
Conflict,"
of war,
for War,"
Explanations
379-414;
53,
models
bargaining
Secu
Strategy
rather than trade per se, has the effect of increasing

the relative political
actors most likely to oppose
war: Patrick J. McDonald,
"Peace
Through
Free Trade?"
Journal of Conflict Resolution
547-572.
48, no. 4 (2004):
tionalist
Al
effect. See
Kahler
Journal
argues
Inter
cultivate
Grand
Miles
582-616;
Economic
sometimes
of National
Lars
119-156;
Interdependence:
the Taiwan
Strait,"
and Across
Rawi
and the Definition
Policy:
no. 4 (1998):
50,
Countries
a transforming
the Structure of Foreign
Power
Economic
"Strategy,
and Pollins,
pp. 60-85.
in order to harness
ties with other states
bert O. Hirschman,
in Mansfield
Conflict,
as costly
Princeton
in Mansfield
Signals,"
Conflict,
see also
signals,
Press,
University
rots: Transaction
David
Conflict
Costs,
Economic
Baldwin,
Daniel
1985);
Statecraft
W. Drezner,
"The
and Economic
Expectations,
(Princeton:
Trouble
with Car
Inducements,"
Se
on the Mainland
Af
curityStudies 9, no. 1/2 (1999/2000): 188-218.

21. According
fairs Council
to official
page:
investments
approved
percent
Web
of the island's
11.5 percent
Taiwan
statistics
in China
totaling
total approved
of total foreign
direct
(available
in 2004,
www.mac.gov.tw),
US$6.94
outward
investment
22.
Gelpi
Papayoanou,
and
Grieco,
Peace,"
"Economic
p. 49.
"Interdependence,
See
also
which
billion,
Institutions,
67
represented
in China
in that year, but only

(which totaled over $60
Interdependence,
Russett
government
investment
billion in 2004).
and the Liberal
the Taiwan
and Oneal,
the Democratic
Triangulating
and the Balance
State,
Peace;
of Power."
Scott L. Kastner
343
23. Yun-han
of Taiwan's
Mainland
Chu, "The Political
Economy
Policy,"
in Suisheng
the Taiwan
Strait: Mainland
and
China,
Zhao, ed., Across
Taiwan,
the 1995-1996
Crisis (New York: Routledge,
1999),
p. 164.
24. On these dichotomous
see also Suisheng
tendencies,
Zhao, "Economic
and
Interdependence
wan
Strait
25. Yun-han
and Yun-han
26. The
DPP
that direct
for future
precedent
1991
officially
the questions
worries
Beijing
ical
Strait,
because
it was
28. Norrin
M.
asked
referenda
referenda
widely
on
national
on Taiwanese
and
F.
29.
for example,
See,
Xinhua
Remarks,"
30.
"Jiang
"China's
News
Overcoming
and
over
Taiwan
Inter
Leader's
an Option
Taiwan,"
Against
France
Agence
July 19, 1999.
Presse,
31. 'Taiwan
British
32.
Defence
Broadcasting
"Lee Tells
33. Indeed,
Corporation
Taiwan:
Don't
Su writes
of the two-states
envoy
Worry,"
that the group
China
harmful
were
approaching
News,
responsible
viewed
critical,
argument
Daohan's
Wang
More Serious,"
Report: Threat from Beijing
Worldwide
October
31, 1999.
Monitoring,
Ministry
theory, of which he is highly

ing economic
exchangesas
land
Methodolog
Interdependence
Indignant
Re
"Qualitative
July 14, 1999.
Agency,
of Force
Use
Says
Military
referendum
voters.
and Conflict:
national Conflict, p. 315.
set
may
The
Blanchard,
Economic
innocuous,
issues
independence.
Jean-Marc
Interdependence
in Mansfield
and Pollins,
independence.
appeared
security
by Taiwanese
boycotted
Ripsman
Taiwanese
supported
in the referendum
on Economic
Hurdles,"
ment
of the Tai
Analysis
21-40.
pp.
Sense of Beijing's
Taiwan:
The
"Making
Policy Toward
Relations
the Jiang Zemin
Era," in Hung-Mao
During
Under Jiang Zemin (Boulder:
Chu, eds., China
Lynne Rien
has since
27. Though
search
the Taiwan
Chu,
ner, 2000), p. 205.
failed
A Background
Divergence:
Across
of Cross-Strait
Prospect
Tien
Political
in Zhao,
Crisis,"
12, 1999.
August
for crafting
cross-Strait
for Taiwan.
As
to interfere
with
the two-states
exchangesinclud
if the announce
such,
events
such
this would
trip to Taiwan,
as Main
not be a bad
thing.See Su Chi, Weiji bianyuan: Cong liangguolun dao yibian yiguo (Taipei:
Tianxia, 2003), p. 85.
34.
Taipei
35.
Times, August
31,
Taipei
See Taipei
Times, October
36.
37. The
Affect
dence
and
40.
International
Xuetong,
thank
S. Niou,
p. 1.
p. 4.
p. 1.
13, 2003,
that developed
Li,
and
in Morrow,
Boehmer,
"How
Could
"Economic
Trade
Interdepen
Conflict."
of the Policy
"Origins
China
one
Taiwanese
cent are opposed
1999,
in Gartzke,
Strategy
reviewer
an anonymous
For example,
dents support
M.
and
Independence.'"
39.1
10, 1999,
September
here parallels
logic
Conflict?"
38. Yan
wan's
Times,
recent
for making
found
Price
Any
July 20,
to Contain
2004,
72 percent
be achieved
of respon
peacefully,
73 per
See Emerson
trigger a war with China.
and
Its
Policy
Implications,"
Independence
would
Taiwan
Tai
pp. 39-42.
this point.
that, while
if it could
independence
if independence
"Understanding
study
to 'Pay
Newsletter,
Does
344
Asian
no.
44,
Survey
Chen's
Economic
recent
4 (2004):
one
policies,
Make
Integration
voter unhappiness
Regarding
that only 15 percent supported
555-567.
found
survey
with
Chen
Shui-bian's 2006 decision to abolish the National Unification Council, while 57

would
percent were at least a little worried that the decision
Poll conducted
sion in cross-Strait
relations.
by the local TV
able
online
cause
increased
station
ten
avail
TVBS,
at www.tvbs.com.tw/FILE_DB/DL_DB/sophia_tsai/200602/sophia
_tsai-20060209124200.pdf (accessed June 21, 2006). Meanwhile, Chen's ap

even before the first family became
engulfed
plummeting
and electoral
Robert Ross attributes recent public opinion
proval ratings began

in scandal
allegations.
setbacks
for Chen
and
the DPR
in part to the KMT's
(KMT),
Chen's
continued
dence
Movement,"
41.
See,
42.
Chien-min
China
Foreign
Chao,
Poll
Robert
Party
by the Nationalist
the Mainland
(in contrast to
'Taiwan's
Ross,
85, no. 2 (2006):
Fading
Indepen
141-148.
NGOs."
Economic
to a Congenial
"Economic
successes
to engage
"Taiwanese
Wang,
"Will
Chao,
2 (2003): 285-286.
44.
See
Affairs
for example,
Lead
recent
willingness
provocations).
and Taiwan
43.
and
Between
Integration
Political
Culture?"
Asian
Mainland
Survey
43, no.
Integration."
conducted
for the Mainland
Affairs
Council
(www.mac.gov.tw).
The
61 percent who favored

the status quo includes
both those who say they
want to maintain
and those who want to maintain
the
the status quo indefinitely
status quo for now and decide
sometime
in the future which path to pursue.
45.
See
in
"Changes
the
Taiwanese/Chinese
of Taiwanese
Identity
Tracked
in Surveys
National
by the Election
Study Center,"
Chengchi
available
at http://esc.nccu.edu.tw/eng/data/data03-2.htm.
sity, Taiwan,
cites other polls that point to similar trends.
("Economic
Integration")
46.
Yun-han
Cross-Strait
that members
view
nese,
Asian
National
44,
Survey
younger
generation
as both Chinese
and Taiwanese:
under
are more
likely than others to

for example,
58 per
as both Taiwanese
and Chi
in 2002,
thirty-five saw themselves

who identified
themselves
age
to 35 percent
compared
47. See note 40.
48.
Far
Economic
Eastern
Review
(FEER),
only
as Taiwanese.
p. 23.
19, 2004,
February
49. Taipei Times, November 13, 2004, p. 10.

50.
The
Government's
poll
was
conducted
Mainland
by TVBS.
Policy:
See
Legislators,"
"Business
Dissatisfied
Central
Taipei
News
April 25, 2002. In Foreign Broadcast Information Service-China

China), April 26, 2002.
51.
Central
tions
"Business
News
at Hong
Kong,
The
held
interpretation
as to what
nies
a consensus
that such
with
Dissatisfied
Agency.
1992
China"
ever
was
Government's
consensus,
that there
"one
was
Mainland
supposedly
one
means.
Chao
and the Prospect

of
Identity Politics
no. 4 (2004):
Chu notes
484-512.
of Taiwan's
themselves
cent of those
"Taiwan's
Chu,
Relations,"
as
Univer
China,
Chen
but each
(FBIS
Policy,"
reached
Shui-bian's
with
Agency,
side
Taipei
in negotia
had
its own
government
reached.
52. Taipei Times, March 21, 2004, p. 24.
de
Scott L. Kastner
345
53. See, for example,

remarks by Yangda
Air Conditioning
man
general
in "Investors
Commercial
Ties with China
Fu
ager Liu Zhenlong,
Say Close
ture of Taiwan,"
March
In FBIS
16, 2004.
France-Presse,
Hong Kong Agence
China, March 17, 2004.

54.
South
55.
'Taiwan
Presidential
Agence
France-Presse,
China,"
56.
South
57.
The
coalition
China
China
58.
The
businesses
Lien-Soong
in China)
is blue.
coalition
is called
politics
The
DPP-centered
because
the DPP's
printed a pamphlet
list of promises.
campaign
that had
a long
Business
Ties
with
p. 11.
12, 2000,
in Taiwan
flag
the pan-green
for Closer
8, 2000.
March
Post,
alliance
the KMT's
because
Calls
February
Morning
p. 6.
10, 2004,
February
Candidate
KMT-centered
is called
while,
Post,
Morning
the pan-blue
mean
alliance,
flag is green.
for Taishang
(Taiwan
59. FEER, July 31, 2003, p. 12.

60.
FEER,
other
prominent
Chen
thor's
interviews
with officials
and
Taiwan's
kept
analysts,
"Sinicization
Chen,
Ming-chi
Integration
and
and
2004
of the Evergreen
Yung-fa,
March
Times,
in 2000
supporters
head
Chang
shipping
company),
Lien in 2004.
Taipei
but endorsed
61.
The
largest
2000
nomic
p. 22.
19, 2004,
February
tion (Taiwan's
20,
a lower
Chen
in 2004.
profile
in
p. 5. Some
2004,
Au
June 2004.
Taipei,
Its Discontents:
Presidential
Corpora
supported
Cross-Strait
Eco
and
Issues
Election,"
Stud
ies 40, no. 3/4 (2004): 334-341.

62.
for example,
See,
63. Integration
sons
other
that China
and
was
(PNTR)
authors
harm
gress
would
hence
more
(New
Taiwan
York:
PNTR.
approve
to Taiwan.
Reduce
International
and
Katherine
Rowman
64. Sheng
States
This
the US
Taiwan
against
and hence
make
danger
Erik Gartzke
See
eds.,
& Littlefield,
2003),
Dilemma:
and
pp.
relations
Organization.
at the time
it less
Quan
Petter
and
Globalization
at the
Congress
trading
the threats
in Nils
Conflict,"
Barbieri,
China's
Lijun,
a military
made
for rea
Li
normal
permanent
to enter the World Trade
directed
credible
argue, for example,

confrontation
during the
in part because
in the United
image
and
more
China
prepared
threats
Movement."
Independence
threats
Gartzke
to avoid
able
elections
granting
that Chinese
Fading
can make
investors.
credible
Can
Schneider,
markets
scaring
were
considering
status as China
argue
China's
ization
simply
Taiwan
to the 2000
run-up
time
than
"Taiwan's
Ross,
into global
likely
The
would
Con
more
Li,
and
costly
"How
Global
Gleditsch,
Armed
Gerald
Conflict
123-140.
The Taiwan
Issue
Institute
(Singapore:
of Southeast Asian Studies, 2001); Michael D. Swaine, "Chinese Decision

making Regarding Taiwan, 1979-2000," in David M. Lampton, ed., The Mak
ing of Chinese
(Stanford:
Foreign
Stanford
and
University
65. For the white
paper,
Security
Policy
in the Era
Press,
2001),
pp. 289-336.
"Text
of PRC
White
Paper,"
of Reform,
1978-2000
in FBIS-China,
Feb
ruary23, 2000.
66. Xinhua, October 29, 1995. In FBIS-China, October 31, 1995, p. 71.
67. Tzu-li wan-pao, July21, 1995. In FBIS-China, July 31, 1995, p. 90.
346
68.
"Official
Taiwan
Assures
Investors
of Greater
Xinhua,
Protection,"
13, 1999.
9, 1999. In FBIS-China,
September
September
69. Why "green"?
See note 57.
70. International
Herald
Tribune, June 28, 2000, p. 1 ; author's
interviews
with officials, Taipei, winter 2001.

71.
bu
Women
"Zhang
Minqing:
"Taiwan
Businessmen
'lse'
huanying
taishang,"
Renmin
Heat
from Bei
Wang, May 31, 2004 (www.people.com.cn/GB/shizheng/1026/2533052.html).

72.
jing,"
Central
Taipei
News
in Mainland
June
Agency,
China
23,
Not
2004.
Feeling
In FBIS-China,
June
24,
2004.
73. Taipei Times, June 9, 2004, p. 3.
74.
"Chi
Central
Taipei
75.
South
76.
"Wu
ation,"
Beijing
September
77.
2004
Mei's
Plant
in China
News
Agency,
China
Morning
Operating
June 7, 2004.
October
Post,
Yi Urges
Improvement
Xinwen
Zhongguo
Normally:
September
Spokesman,"
June 9, 2004.
p. 7.
Economic
22, 2004,
in Cross-Strait
She,
Group
In FBIS-China,
Trade,
13,
Cooper
In FBIS-China,
2004.
29, 2004.
"Pro-independence
Investors
Not
Welcome,"
China
Daily,
June
22,
(www.chinadaily.com.cn/english/doc/2004-06/22/content_341316.htm).
78. Ibid.
79. "China
8,
2006.
In
Economist
Taiwan
Says
Security
Trade
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Research
Break
Taiwan,"
Reuters,
March
(http://taiwansecurity.org/Reu/2006/
Reuters-080306.htm).
80.
vergence,"
CNN.com,
for example,
p. 27. See also
June 6, 2001
See,
Zhao,
Willy
"Economic
Wo-Lap
Lam,
Interdependence
"The Business
and Political
of Reunification,"
(http://archives.cnn.com/2001/WORLD/asiapcf/east/
06/06/willy.reunif).
Di

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Does Economic Integration Across The Taiwan Strait Make Military Conflict Less Likely

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Does Economic Integration Across the Taiwan Strait Make Military Conflict Less Likely?

Author(s): Scott L. Kastner

Journalof East Asian Studies 6 (2006), 319-346

Does Economic Integration

ties could promote

that the evidence

eepening economic ties across the Taiwan Strait are widely be

nomic exchange potentially encourages restraint in Beijing and Taipei.2

community" across the Taiwan Strait.3 Official US policy is to encour

Conflict Less Likely?

the debate by considering more closely the precise causal

of military violence, it is simply difficult to know

Existing studies in the international relations literature have de

tually exclusive; rather, it may be that economic interdependence pro

economic integration affects the likelihood of a

tegration across the Strait makes a military confrontation less likely, I

than an important determinant of those relations.8 Meanwhile, a number

serves to highlight the probability that economic integration does not al

Conflict Less Likely?

us that the likelihood of a military confrontation is therefore reduced in

ity of military conflict.

disruptions can impart substantial adjustment costs on na

preferences.16 On the other hand, international economic ties can spark

integration is extensive, these prointernational coalitions

had threatened to lead to war to begin with.18

A third causal argument, relatively new, focuses on the added in

tary confrontations because it is difficult for the states involved to know

a hypothetical example concerning the Taiwan Strait.

pendence. If China was actually sincere in making the threatmeaning

scenario because it is difficult for Beijing to credibly communicate its true

to communicate its true level of resolve credibly, since war is costly.

integration make it easier for countries to send

verbal threats or economic sanctions are cheap, meaning a

Conflict Less Likely?

tegration into global markets more generally means that a country's

of these three causal pathways linking economic interde

relations? If so, then we might feel more confident that

by varying degreesto both sides, space limitations lead me to focus

Grieco write, because democratic leaders are accountable to large selec

icy success such as economic growth is likely to play an important role

integration does indeed act as a constraint in

sovereign status. Beijing views reunification as a core long

nounced that prior changes to the Republic of China (ROC) constitution

Chen Shui-bian as Taiwanese president in spring 2000: at his inaugura

state-to-state" relations formula into the

Does Economic IntegrationMake ConflictLess Likely?

ROC constitution, and no scrapping of the National Unification Council

on each side of the Strait (yi bian, yi guo)which

extremely rapidly after 2001. In 2002, for ex

that had enraged Beijing in 1999. Chen's decision to hold a referendum

(which ultimately failed), his an

been viewed by Beijing as highly provocative.27 On the surface, these

economic ties act as a constraint on Taiwanese

ness of Taiwan "decision makers to run the risk of war in moments of

Zemin, in a telephone conversation with US president Bill Clinton,

navy also conducted exercises during August and

Does Economic IntegrationMake ConflictLess Likely?

Mainland Affairs Council at the time, Su Chi, likewise

Interestingly, to the extent that Taiwanese officials referenced the

pressure and economic growth."35 These sorts of comments suggest that

statements clearly suggest that he believes economic factors

derlying probability of war remains indeterminate: if Taiwan is willing

public statements suggest that he was quite willing to exploit perceived