To defend Taiwan tomorrow, we must prepare to sanction China today

Taiwan is reportedly considering a $15 billion military package as an overture to President-elect Donald Trump. This comes just as the island nation agreed to spend over $2 billion in American weapons purchases next year. While such agreements may serve to warm relations with an incoming Trump administration and strengthen Taiwan’s military against an increasingly belligerent China, they will do little to address Beijing’s biggest vulnerability in a potential conflict with Taiwan — its “soft economic underbelly.”

This provides Trump a historic opportunity to not just support Taiwan militarily, but to capitalize on the deepening cracks in China’s economy that make it vulnerable to powerful, proactively developed American economic statecraft.

Slow growth, an unraveling real estate market, significant youth unemployment and plummeting foreign direct investment reveal deep vulnerabilities that threaten the Chinese Communist Party. These economic fissures give the United States and its allies a strategic opportunity: by publicly outlining the severe sanctions, export controls and investment restrictions China would face if it invades Taiwan, we can slow the pace of Chinese hostilities toward Taiwan — or even prevent them altogether. However, to ensure this approach succeeds, we must learn from recent history and act before it’s too late.

The war in Ukraine serves as a stark reminder of the costs of delayed action. In the aftermath of Russia’s invasion more than two-and-a-half years ago, the United States and a coalition of allied governments united to impose significant sanctions on Moscow. Since then, the United States, European Union, United Kingdom, Australia, Canada, Japan and others have collectively imposed nearly 20,000 sanctions on Russia. Yet, these measures were — and continue to be — too late to deter aggression.

It didn't have to unfold this way.

Following Russia’s 2014 annexation of Crimea, the international community could have publicly committed to impose significantly more drastic economic measures on Russia if it made further incursions into Ukrainian territory. By clearly outlining the severe economic consequences of further aggression, the deterrent effect might have altered the Kremlin's calculus.

Deterrence relies on the credible threat of significant repercussions, and pre-announced sanctions could have increased the perceived costs of invasion beyond acceptable levels for Russia. Nearly a decade later, approximately 1 million people have been killed or injured in the Russia-Ukraine war — and the conflict rages on. We must learn from that grave oversight and proactively plan to sanction key sectors of the Chinese economy if China invades Taiwan.

To the detriment of our national security, targets of economic statecraft are often identified only after a conflict has erupted. This reactive approach places incredible pressure on already under-resourced federal agencies responsible for executing this critical function. Planning for these eventualities must be done as early as possible. Our military forces regularly wargame scenarios for potential conflict and identify targets of attack; our economic security apparatus should do the same.

Some of these targets should be publicly identified to exert pressure on Beijing. Specific industries and major firms central to the Chinese Communist Party’s control can be spotlighted now, overtly increasing the potential cost of any action China may take against Taiwan. Third-country firms operating in China will also take note. The threat of possible secondary sanctions may compel them to reconsider doing business as usual if the United States communicates such intentions before a conflict arises. This proactive approach would represent a profound shift in our application of economic statecraft.

Legislation like the Sanctions Targeting Aggressors of Neighboring Democracies (STAND) with Taiwan Act is a significant step in the right direction. By proposing substantial sanctions on China in the event of a military invasion of Taiwan, the STAND Act sends a clear and credible message. It lays the groundwork for a deterrent strategy that could dissuade Beijing from taking aggressive actions by making the consequences unmistakably clear.

Historically, we have lacked a coherent strategy for deploying the disparate set of economic tools at our disposal. More critically, our government has not fully embraced economic statecraft as an effective deterrent. Many question the effectiveness of sanctions, but few consider how they could be more impactful if target states and market actors understood the conditions under which sanctions would be imposed before a conflict begins. Publicly stating these conditions and, importantly, preparing for the possibility that they are met should at the very least demonstrate a credible threat to our adversaries and prompt considerable market derisking from the private sector.

For an adversary like China, which faces significant economic headwinds, this is precisely the path the United States should pursue. While imposing severe sanctions on China would have substantial repercussions for the United States and its allies given the deep interconnections in global supply chains and trade, these costs may be a necessary price to prevent a catastrophic conflict over Taiwan. Such a conflict could destabilize the entire Indo-Pacific region and disrupt global markets far more severely than any sanctions regime.

We must also anticipate and prepare for potential countermeasures from China, such as restricting access to critical rare earth minerals or disrupting global supply chains. By investing in alternative sources, building strategic reserves, and ally-shoring with international partners to enhance economic resilience, we can reduce our vulnerability and demonstrate our readiness to withstand retaliatory actions.

While it's true that sanctions alone may not always compel an aggressor to change course, they can strain a nation's economy and limit its ability to sustain prolonged conflict. In China's case, where economic stability is paramount for the regime's domestic legitimacy, the threat of substantial sanctions could serve as a powerful deterrent and increase the likelihood that cooler heads will prevail within the Chinese Communist Party leadership.

Alongside economic sanctions, the United States should continue to increase economic support for Taiwan, enhance our military presence in the region, and engage in diplomatic efforts to create a multifaceted deterrent. By taking these proactive steps, we can send an unequivocal message to Beijing: Aggression against Taiwan will come at an unbearable cost.

Max Meizlish is a senior research analyst for the Center on Economic and Financial Power at the Foundation for Defense of Democracies. He previously worked as a sanctions enforcement officer at the Treasury Department’s Office of Foreign Assets Control. Elaine Dezenski is senior director and head of the Center on Economic and Financial Power at the Foundation for Defense of Democracies. She previously served as deputy and acting assistant secretary for policy at the Department of Homeland Security.

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