When I was in college, I spent some time in Taiwan doing volunteer work. It was a neat experience to get to know a culture very different from the American and Mexican cultures I grew up with, but car enthusiast me noticed a lot of familiar things.
For one, there was a Ford testing facility of some kind right around the corner from my apartment. I’d regularly see upcoming vehicles that weren’t out yet testing their mettle against Taiwan’s sometimes rough and crowded roads. They usually wouldn’t mind when I took out my phone and snapped a photo, but one test driver shouted a bunch of obscenities in a mix of Mandarin and Taiwanese. My native friends said I didn’t want to know what exactly the man said.
In the country, I was surprised at how many American vehicles I saw on the streets. I saw Fords, GMs, lots of Dodge Neons, and even one Pontiac Fiero (a car I’m a big fan of). I didn’t know at the time just how involved American automakers were in Asian markets, and in the following years I watched an increasing number of manufacturing operations shift to Asian countries, especially Mainland China.
Given all of this, it was largely inevitable that a company like Tesla would expand there. Not only is China a big and expanding market, but general industry trends pull everyone in the industry in that direction.
The Dark Cloud That Hangs Over Everything
Aside from the rampant pollution in 2004, there was a dark cloud that hung over everything in Taiwan. Imagine if a whole country doomsday prepped, and you’d have a pretty good idea of what it was like. I frequently saw military bases with tanks, helicopters, and warplanes in every city. They even regularly hold exercises where planes take off from and land on freeways.
There are armories and supply depots everywhere, and most men had performed mandatory military service of two years at that time, with periodic refresher training. Today, the mandatory military service is a lot shorter, and there are real questions about whether some frontline military units are prepared in any way for a military conflict, but millions of barely-trained people would quickly get a rifle in their hands in the event of war. History shows us that these minimally trained civilian-soldiers would serve better in a disruptive and irregular bushwhacker role (the oft-misquoted “rifle behind every blade of grass” concept), but Taiwan wants to maintain the illusion (read: delusion) that they will have millions of real, professional soldiers in the event of a conflict.
Taiwan does all of this because the whole island (along with smaller islands) is disputed. When communist forces (backed by the Soviet Union) won the civil war in 1949, nationalist leaders (backed by the United States), military forces, and loyal civilians fled to Taiwan, which is just off the coast of the mainland. While the United States didn’t initially continue to back the nationalist leaders, the Korean War led to Taiwan becoming a front in the wider Cold War, and U.S. support resumed.
In 1955, a formal treaty obligated the United States to come to the aid of Taiwan’s government in the event of invasion. This obligation partially survives in an ambiguous form as part of the Taiwan Relations Act, which governs U.S.–Taiwan relations after the U.S. stopped openly recognizing Taiwan’s government as the legitimate government of China. Today, the U.S. maintains a policy of “strategic ambiguity” with regards to Taiwan, and supports a “One China, Two Systems” policy, which opposes both the mainland taking control of Taiwan by force and any official declaration of Taiwanese independence.
In the interest of truth and fairness, it’s worth noting that the nationalist government in Taiwan was basically a military dictatorship, and continued to rule Taiwan harshly (including civilian massacres) until after the death of Chiang Kai-Shek. In the 1980s and 1990s, democratic reforms were instituted. This may be a big part of why the United States continues to support Taiwan despite the end of the Cold War.
In recent times, tensions in the region have been rising, and the risks of an invasion of Taiwan continue to grow with Beijing’s military power. The unilateral rejection of obligations with regard to Hong Kong brought little in the way of meaningful foreign consequences. While there’s no formal obligation for the United States to come to the defense of the island today, whoever is president of the United States would be under immense pressure to intervene militarily in the event this occurs, but with real questions of whether the United States can even win such a conflict.
How This Affects Businesses
On top of the political pressure, Taiwan supplies a large portion of the world’s semiconductors, and losing access to TSMC would put the U.S. in a position that makes today’s semiconductor shortage look tame. Many other economic effects, combined with the rising tensions, add up to a growing number of business writers saying companies need to come up with a plan for this scenario.
The good news is that a short conflict, which gets resolved quickly and ends in restored peace, might not have any effect on American companies operating in China. The economy is important to both sides, and cutting off foreign trade would be like shooting one’s self in the foot, so there’s a lot of pressure to restore peace as soon as possible, even if shots are initially fired.
Tesla’s China manufacturing operations are particularly vulnerable to an extended military conflict, though. A skirmish that develops into a short war could cut off trade and shut off the flow of supplies and finished product in and out of the Shanghai factory. If things get more nasty, the company could completely lose control over their properties in China through nationalization. Tesla’s factory may continue to operate, but it might no longer answer to Elon Musk. At absolute worst, Shanghai is only a little over 400 miles from Taipei, and a large-scale war could subject the area to direct military conflict, such as bombings.
Planning Is A Real Challenge
Once such a conflict gets started, nobody knows in advance how bad it will be. That leaves companies in a tough planning situation, and also leaves them with the possibility that they really can’t plan for it. A private company like Tesla might not be able to do anything about what’s happening at all, making all planning basically useless. The best they can likely do is make sure that they don’t have too many eggs in the China basket so that the company can survive in the event the worst happens.
Another article says that companies doing business in China need to prepare to quickly move people and operations out of China in the event things start getting too bad. Tesla is even mentioned as a company that risks a reputation loss in other countries, even short of war if it fails to speak out against aggressive Chinese moves. Beyond what they’re saying, should a large war break out, with thousands losing their lives, people outside of China won’t be happy with companies that are perceived to have been too cozy with “the enemy.”
But this fundamentally presents a Catch-22. Should the Chinese government get wind that a company is preparing to be able to flee the country, or if they’re seen making plans or public statements against Beijing, the risks of retaliation are very real. Statements in state-run media against the company, allowing bad word about the company to spread on social media (only that which is approved goes viral), and other soft measures have already been used against Tesla in the past. We’d be fools to assume they won’t take harsher measures.
All of this puts Tesla at significant risk, and also leaves it unable to publicly discuss any plans or measures it may be taking to reduce those risks. That’s a tough spot to be in, but we need to keep this in mind before judging the company. Tesla really doesn’t have a lot of control over that at this point.
The best we can do for the company is to help encourage political leaders to stay away from such a war.
Featured Image: Tesla Giga Shanghai. Image courtesy Tesla.