Taiwan’s Greatest Vulnerabilities Extend Beyond Its Military

In recent years, Taiwan wargames have become standard practice from Capitol Hill to Wall Street. The exercises model pathways China might pursue to achieve its desired end goal: bringing the island democracy, which Beijing still considers to be part of its territory, under its political control.

Over the years, such wargames have played out different military scenarios, from a Chinese blockade of the island to a full amphibious invasion, and assessed the capacity of Taiwan and the United States and its allies to respond.

But these games tend to focus primarily on hard power. And in recent years, when Chinese President Xi Jinping has spoken about so-called reunification, he has repeatedly said that although China does not rule out using military force to achieve that end goal, it seeks a “peaceful reunification.” Thus, many Taiwan experts contend that while the island must prepare itself for a military confrontation, not enough attention has been paid to likelier scenarios in which Beijing weaponizes nonmilitary “gray zone” tactics.

A recent tabletop exercise, the results of which were first shared with Foreign Policy, was designed to focus on those overlooked areas: specifically, how China could use economic and cyber-coercion to compel Taiwan into reunification.

“If reintegration is central to Xi’s ideological and geopolitical goals, then prioritizing economic and cyber-coercion over military confrontation seems the most logical to me. It’s aimed at weakening Taiwan, forcing its political submission while avoiding global escalation—at present, it seems like a scenario that’s sort of already underway,” said Craig Singleton, the senior director for China at the Foundation for Defense of Democracies (FDD), a Washington-based think tank.

FDD conducted the exercise in Taipei this August at the request of the Taiwan Academy of Banking and Finance (TABF), a nonprofit research, training, and advisory organization affiliated with Taiwan’s financial regulator. 

TABF’s interest in undertaking such an exercise reflects a shift in thinking among Taiwan’s leaders. President Lai Ching-te of the Democratic Progressive Party (DPP), who came into office in May, has directed the government to focus on “whole of society” resilience and established a committee to coordinate these efforts across agencies.

The tabletop exercise identified several clear priorities for Taiwan’s government as it takes on the tall task of bulletproofing its society across the board. The recommendations emerged from four scenarios that the group played out, with 20 people from FDD and TBAF playing the Chinese, Taiwanese, and U.S. sides. 

The first scenario was a multiyear campaign in which Beijing exerted pressure on Taiwan through a combination of tariffs on key Taiwanese imports as well as disinformation and cyber-operations to spur bank runs and stock market instability. The second was a sharper campaign spanning several weeks that involved Chinese cyberattacks on Taiwan’s banking network and electric grid, which caused widespread power outages in the simulation, as well as the use of civilian vessels to sever undersea internet cables to Taiwan. 

Finally, the group grappled with two final scenarios that layered on more aggressive gray-zone tactics, one involving incursions into Taiwanese territory by Chinese coast guard and law enforcement and another involving a 90-day military exercise that effectively blockaded the island.

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The overarching logic is that if China timed some version of these scenarios to align with Taiwan’s election cycle, the campaigns could help shift the island toward political leadership, the opposition Kuomintang or otherwise, more favorable to reunification. Specifically, the chaos and instability could cause Taiwanese voters to lose faith in the ability of the DPP to govern the island and manage cross-strait relations or, relatedly, cause them to conclude that reunification with Beijing was inevitable and therefore not worth resisting.

To get ahead of these risks, the report based on the tabletop exercise recommends patching Taiwan’s most glaring vulnerabilities, with a focus on the financial sector. The authors advise Taiwanese financial institutions to repatriate as much of their capital as possible from Hong Kong and China to reduce Chinese leverage. They also suggest these institutions stress-test their operations to prepare for sudden Chinese restrictions or interference. 

At the governmental level, they recommend that Taiwan create a mirror of the Taiwanese stock exchange in the United States so that the exchange is less vulnerable to cyberattacks. Another idea they put forward would be to create a deal with the United States to facilitate an emergency currency swap if Taiwan were to ever face a rapid selloff of New Taiwan dollars in a crisis. To that end, the report’s authors also suggest that Washington help promote Taiwan’s inclusion in the International Monetary Fund, which Beijing has opposed, citing the “One China” principle.

Other key resiliency takeaways focus on cyber- and energy security—topics that have also received increased attention from other Taiwan- and Washington-based think tanks in recent years. Taiwan has boxed itself in when it comes to energy by shutting down its nuclear power plants—it is now heavily reliant on energy imports, particularly for its supply of liquefied natural gas (LNG). The authors suggest that the Lai administration consider reversing its nuclear policy while also boosting security by increasing LNG storage capacity and rapidly scaling up development of distributed solar power coupled with batteries.

On the cybersecurity front, Taiwan is already taking a lesson from Russia’s war in Ukraine, building its own version of Starlink, a satellite internet network. To fend off cyberattacks, the report authors advise Taiwan to do more to protect critical infrastructure and propose that the U.S. Defense Department should step up its support for Taiwan in this domain, including by providing increased training. They also suggest that Taiwan should bolster its offensive cyber-capabilities. 

Of course, wargames and tabletop exercises are merely simulations and thus are not necessarily indicative of reality. And the policy recommendations that flow from them are shaped by the perspectives of the participants as well as the organizations running the simulations. 

Taiwan experts have different views regarding what combination of actions by China, short of an invasion, might compel the Taiwanese population to shift toward reunification. A poll conducted last year showed that less than 1 percent of respondents supported immediate unification and 11.5 percent supported maintaining the status quo while working toward unification. 

“If the only action was on the economic side, and you didn’t have any physical movement of either Chinese coast guard assets or [People’s Liberation Army] assets, I’m not sure that that by itself would be sufficient in any major Chinese operation to seek to unify with Taiwan,” said Bonny Lin, the director of the China Power Project at the Center for Strategic and International Studies. She added that scenarios involving a quarantine where Beijing used nonmilitary vessels to disrupt trade between third countries and Taiwan might up the pressure. 

Although Beijing may not ultimately pursue any of the exact scenarios that FDD and TBAF gamed out, their recommendations generally align with the wide consensus in Washington that China’s gray-zone activities are a growing threat to Taiwan—one that Taiwan, the United States, and its allies need to better prepare for.

Indeed, the island has already experienced similar disruptions. Last year, Chinese fishing and cargo vessels severed internet cables to the Taiwan-governed Matsu Islands; although there was no evidence that the incident was intentional, it caused significant outages. And ahead of former House Speaker Nancy Pelosi’s visit to Taiwan in August 2022, televisions inside some 7-Eleven convenience stores, which are ubiquitous in Taiwan, were hacked to display the message “Warmonger Pelosi, get out of Taiwan!” Taiwanese officials didn’t link those attacks to China directly, but they did say that attacks that occurred at the same time on Taiwanese government websites originated from internet addresses in China and Russia.

Those incidents, among many others Taiwan has confronted in recent years, have served as a wake-up call that the island’s security needs extend beyond missiles and submarines.

“We’re already seeing Chinese economic and cyber-coercion, and that will, of course, be elevated if cross-strait relations further deteriorate,” Lin said.