US economic deterrence failure will have repercussions beyond Taiwan: Hoover fellow

As China expands its gray-zone pressure campaign against Taiwan, Eyck Freymann, a fellow at the Hoover Institution at Stanford University, warned that a failure of US economic deterrence would reverberate far beyond the Taiwan Strait, reshaping the balance of power across the Indo-Pacific and threatening the foundations of the global economy.

Taiwan at the center of the AI era

Speaking at forums hosted by the Hudson Institute, Columbia University, and the Commonwealth Club World Affairs of California, Hoover Institution fellow Eyck Freymann argued that Taiwan occupies a uniquely consequential position in the emerging artificial intelligence era.

“Taiwan is as essential to the AI revolution as any country has ever been in any technological revolution in history,” Freymann said at the Hudson Institute, underscoring the island’s dominance in advanced semiconductor manufacturing and its centrality to global supply chains.

For Freymann, the stakes surrounding Taiwan extend far beyond the prospect of a conventional military invasion. He argued that Washington’s objective is not merely the absence of war, but the preservation of what he described as an “honorable peace” — one in which disputes are not settled through coercion or force.

That distinction, while subtle, carries profound implications. In Freymann’s framing, a scenario in which Taiwan is compelled into political submission through sustained economic or legal pressure — even without open warfare — would still constitute a failure of deterrence.

Gray-zone coercion and the erosion of autonomy

Freymann contended that Beijing is already engaged in an expansive “all-domain pressure campaign” against Taiwan, encompassing cyberattacks on critical infrastructure as well as Taiwanese firms, information warfare, united front operations, legal warfare, undersea cable disruptions, and systemic efforts to deter or complicate potential US intervention in a cross-strait crisis.

He further warned that China’s rapid nuclear buildup and growing spectrum of coercive options have rendered traditional deterrence models increasingly insufficient.

Freymann added that historically, deterrence over Taiwan has centered on “deterrence by denial” — convincing Beijing that a military invasion or occupation was not viable. But Chinese leader Xi Jinping (習近平) now commands a broader and more nuanced toolkit, Freymann said.

As a result, Freymann argued, the United States and its allies must develop robust “economic deterrence” strategies and contingency planning alongside military responses.

Central to his analysis is the concept of a Chinese “quarantine” against Taiwan — a gray zone operation distinct from a traditional blockade.

In a blockade scenario, Freymann argued, China would physically control what enters and exits Taiwan, potentially severing energy imports and crippling industrial production. Such a move, he noted, could halt production at TSMC fabs given Taiwan’s heavy industrial energy demands.

Under those conditions, Freymann suggested Taiwan should prioritize strategic leverage over short-term economic continuity. Rather than continuing semiconductor exports, Taiwan could allow the resulting global supply shock to demonstrate the island’s indispensability, galvanizing international support and emergency resupply efforts.

Rocky Uriankhai (烏凌翔), CEO of SciTech Power Research and a Taiwanese expert on semiconductors, told TCN that Taiwan has mastered key technologies and capabilities for producing critical components vital to advanced weapons and cutting-edge technologies — a fact that has drawn concern from the international community, including the US government.

For example, Uriankhai cited Gina Raimondo, the former US Secretary of Commerce in the Biden administration, who repeatedly expressed her anxiety and concern about this issue.

Freymann concluded that in a blockade scenario, the extremely high financial stakes worldwide would make it politically straightforward for the US and its allies to mobilize public support against China's actions.

A quarantine, however, would pose a subtler challenge, according to Freymann.

The danger of normalization

Freymann described quarantine operations as legal-political maneuvers intended to establish the principle that Beijing holds authority over goods entering or leaving Taiwan. Rather than immediately halting commerce, such gray zone measures would gradually normalize Chinese inspections and regulatory oversight.

At the Commonwealth Club forum, Freymann highlighted that Beijing frequently invokes the language of “peaceful” unification. He cautioned, however, that “peaceful” should not be conflated with genuine voluntary consent.

He likened the concept to having a gun pointed at someone while being told the choice is voluntary — a formulation that most would recognize as coercion rather than consent.

The danger of a quarantine scenario, he argued, lies precisely in its seemingly benign and incremental nature — coercion advancing without a shot fired.

China would not need to impose a dramatic rupture overnight. Instead, Beijing could advance its control step by step until the erosion of Taiwan’s economic autonomy becomes internationally normalized.

Companies wary of antagonizing Chinese authorities or losing access to the Chinese market might simply comply.

In such a scenario, Freymann warned, the global economic consequences may initially appear limited — making it politically difficult for democratic governments to explain to their publics why these measures represent a grave strategic threat.

Yet over time, he argued, the implications could extend far beyond Taiwan. If successful, similar mechanisms of economic and legal coercion could eventually be applied to countries such as South Korea or Japan, particularly in sectors linked to semiconductor supply chains and advanced manufacturing.

Beyond Taiwan: a regional and global reckoning

Freymann repeatedly stressed that the issue is inseparable from America’s broader alliance architecture in Asia.

US economic deterrence, he argued, is intertwined not only with Taiwan, but also with treaty allies including Japan and South Korea — countries Washington increasingly relies upon as part of efforts to reindustrialize and secure critical technology supply chains.

Should China succeed in subordinating Taiwan through coercive means, Freymann warned, Beijing could demonstrate a template for extending hegemonic influence across the region without resorting to outright invasion or bombardment.

Such an outcome, he said, would threaten US national security, American commercial interests, technological leadership, and the future trajectory of AI development.

Despite ongoing efforts to expand semiconductor manufacturing in the United States, Freymann expressed skepticism that Washington could achieve genuine self-sufficiency within the next decade or more. He noted that TSMC outpaces rivals such as Intel in advanced chipmaking, while the cost structures and yields of Taiwanese fabs remain difficult to replicate abroad, including at TSMC facilities in Arizona.

Pierre Yang Tzu-pao (楊子葆), an engineer-turned diplomat who once served as Taiwan's acting foreign minister, shared similar observations with TCN.

Yang said that Taiwan’s education system places heavy emphasis on mathematics, science, and quantifiable subjects with standardized answers — an approach that has proven particularly effective in cultivating engineering talent suited to industries such as semiconductors, where ultra-high yields and manufacturing precision are paramount.

Beyond educational structures, he added, Taiwan’s deeply ingrained work culture — characterized by long hours and a willingness to place work at the center of daily life — also helps explain why the island’s semiconductor ecosystem remains difficult to fully replicate in places outside of Asia.

Freymann further argued that as a consequence, the United States is becoming more — not less — dependent on Taiwan as demand for AI chips accelerates.

He said that while China remains constrained in certain areas by limited access to advanced computing power, control over Taiwan’s semiconductor ecosystem could fundamentally alter the strategic balance in the global AI race.

Freymann concluded that the US must build an integrated deterrence strategy spanning diplomacy, legal action, economics, and military and nuclear capacity.