Joshua Su-Ya Wu AACS, Panel 5D
“A Taiwan Strait bargaining power model” (draft)
THE DILEMMA OF THE TAIWAN STRAIT
Since 1949, when the Kuomintang relocated the Republic of China government to Taiwan following its defeat to Chinese Communists, who established the People’s Republic of China (PRC), the Taiwan Strait has emerged as not only a regional but a global flashpoint. Three cross-Strait crises have emerged, threatening the fragile peace in East Asia, and almost prompted the use of tactical nuclear weapons in the mid-1950s by the US against the PRC. In the decade since the last cross-Strait crisis of 1995-1996, an uneasy and uncomfortable peace has emerged in the Taiwan Strait. Constant saber-rattling by the PRC and independence rhetoric by Taiwan means that there is no permanent peace, but simply a lack of violence or aggression materializing in real military conflict. The almost surprising non-violence that has persisted in the Taiwan Strait can be analyzed from a variety of angles. One analytical tool that seems to be salient in describing the Taiwan Strait is game theory. Even notwithstanding its existing contributions to the study of international relations, which surely underpin its expanding application, game theory holds much analytical promise in describing, analyzing, and hopefully facilitating a solution to the Taiwan Strait dilemma.
TAIWAN STRAIT AS A PRISONER’S DILEMMA
Game theoretic analysis of the Taiwan Strait invariably begins by describing the dilemma as a classic Prisoner’s Dilemma (PD) game.[1] Though there are various modifications and more sophisticated extensions of the PD game, it is essentially a two-person game where each player has two choices, either to cooperate or defect. In the Taiwan Strait context, the two players, Taiwan and the PRC, have two choices, either to maintain the status quo or to change the status quo. A unique feature of the PD game is that it appears to be a zero-sum game. Since both players assume the worst of the other player, they choose their least bad option, which in this case, is for both parties to maintain the status quo. This is the most common perception of the dilemma as “propagandists and the media on both sides of the Taiwan Strait [consistently portray] the contest in the international arena as a zero-sum game.”[2] In the public understanding of the Taiwan Strait as a zero-sum PD game, there appears no little opportunity or incentive for cooperation. Scholars, too, have adopted this perception, arguing that unequivocally, the “political game across the Taiwan Strait [is a] deadlock game in game theory.”[3] However, that is in fact an erroneous misapplication and misunderstanding of the characteristics of the PD game. What the public and many scholars fail to realize is that the Taiwan Strait dilemma is a PD game in its true theoretical form, and as such, “may be zero-sum in the short run but [has] scope for mutual benefit in the long run.”[4]
Table 1: Taiwan Strait PD game payoff matrix
PRCTaiwan / Change status quo / Maintain status quo
Change status quo / (a) 1
1 / (b) -1
-2
Maintain status quo / (c) -2
-1 / (d) 0
0
As Table 1 shows, in the Taiwan Strait PD game, unilateral deviation, designated by (b) and (c), significantly reduces the payoff as it would most likely lead to military conflict, leading to loses for both parties; the initiating player would lose more, which is further incentive not to defect. As such, both players assume that the other player will assume the status quo, and so, in a self-fulfilling prophecy, both maintain the status quo, at (d). However, payoffs are maximized when both players decide to cooperate and both change the status quo, as seen in (a). Therefore, there exists a solution, a best strategy where “both players could benefit if they both changed their strategies together.”[5]
In the context of the Taiwan Strait dilemma, the basic PD game is insufficient because it does not properly specify the full range of strategic options that Taiwan and the PRC can execute. By better defining the strategies available to both players, a more refined Taiwan Strait PD game will provide more insight into possible non-zero sum solutions. Though enumerating more strategies does not necessarily ensure a solution, it does reveal more combinations that could emerge as equilibria solutions. As Table 2 below illustrates, a better defined Taiwan Strait PD game has nine possible solutions, instead of just four with the basic PD game as each player now has three playable strategies, to maintain the status quo, to move to a two-state option, or to move towards Taiwanese unification with the PRC.
Table 2: Re-specified Taiwan Strait PD game payoff matrix
PRCTaiwan / PRC
Taiwan / Two states / Status quo / Unification
Two states / (a) 0
1 / (b) -1
-1 / (c) -2
-2
Status quo / (d) -2
0 / (e) 0
0 / (f) -1
-1
Unification / (g) -2
-2 / (h) 0
-2 / (i) 1
0
In the payoff matrix for this redefined Taiwan Strait PD game, the current status quo is at (e), where both players both marginally seek to maintain the status quo. As in the basic Taiwan Strait PD game, unilateral deviations from the status quo, as seen in (b), (d), (f), and (h), lead to negative payoffs for both parties, with the initial defector suffering the most. The strong disincentive to act means that all the unilateral defections from the status quo are not equilibria solutions. Beyond the four combinations of unilateral deviations from the status quo, there are also four solutions where both Taiwan and the PRC simultaneously deviate from the status quo. When both states play different strategies, as in (c) and (g) when one state moves towards unification and the other towards a two-state solution, both players experience very negative payoffs. Points (c) and (g) represent impossible solutions, since at these combinations both players suffer the greatest loss. Conversely, though (a) and (i) are not equilibria solutions, they are still more optimum than (e) because at these combinations, total payoff for both players are maximized. At (a), where both states adopt a two-state strategy, Taiwan experiences a positive payoff. While Taiwan gains full independence, a “normal” international status, and a cessation of uncertainty regarding its future, the PRC would suffer a net payoff of zero. Though the PRC would lose all claims over Taiwan, and its associated effects of solidifying nationalistic sentiments, it would no longer have to deal with criticisms of its aggression towards Taiwan. Moreover, relations with the US would undoubtedly improve since the Taiwan issue is one of the most prevalent sticking points in the bilateral relationship. At (i), a mutual move towards unification, the PRC would gain a positive payoff while Taiwan experiences a net zero payoff. Under unification, the PRC would now possess Taiwan, which would then rival Hong Kong as one of the nation’s crown jewels. Though Taiwan would lose what sovereignty it has, a voluntary acceptance of unification means that it would be able to insure some favorable terms, perhaps even a limited degree of political and economic autonomy. Both parties would also benefit from a greater degree of certainty over the Taiwan Strait. However, though there are two combination points where the total payoff is maximized, (a) and (i), the negative payoffs associated with the rest of the defection strategies are strong disincentives for any deviation from the status quo. Therefore, though this redefined payoff matrix shows more combination points, it does not reveal a more salient equilibrium.
In game theory, a solution to the PD game comes through cooperation and communication. With the key assumption that there are an indeterminate number of future plays, three strategies for cooperation are often suggested, the trigger method, tit-for-tat, and the leader initiative. However, each of these is insufficient and ineffective in the cross-Strait context. The trigger method fails because the threat of permanent punishment, triggered by an inevitable incident of PRC antagonism or Taiwanese provocation, would eliminate permanently the possibility of future cooperation. Tit-for-tat and the leadership initiative also fail because there is no incentive for either Taiwan or the PRC to make the first move towards cooperation, as the payoff matrix demonstrates. For the PRC, offering an olive branch to Taiwan or assuming the leader initiative as the stronger party is irrational. Indeed, “no Chinese leader…can afford to be cast as a lishi zuiren (a person condemned by history) for not acting to prevent the split of the nation.”[6] Similarly, “Taiwan’s leaders will see no opportunity for moderating their own activity”[7] especially since “electoral considerations [are] the most powerful force in Taiwanese politics,”[8] and having a soft stance towards the PRC can be politically fatal. Not only are prospects for cooperation weak, but differences between Taiwan and the PRC are increasingly divergent. As the PRC remains insistent on unification, the evolution of Taiwanese political and cultural identity has caused it to move ever away from the PRC. Exacerbated by the “PRC’s rather ham-handed management of the return of Hong Kong to its jurisdiction,”[9] unification is now all but been dismissed in Taiwan. Indeed, given the dynamics of the Taiwan Strait, there are grim prospects for increased cross-Strait cooperation and communication in the near future.
FOCAL POINT SOLUTION TO THE TAIWAN STRAIT PD GAME?
Though there appears to be slim prospects of increased cooperation and communication to coordinate strategies, and there is no internal solution to the Taiwan Strait PD game, there is nonetheless another means by which a cooperative solution may be achieved. Thomas Schelling, in his classic Strategy of Conflict, suggests that cooperation is possible even in situations where there is no meaningful communication. He argues that since “people can often concert their intentions or expectations with others if each knows that the other is trying to do the same, [there is] some focal point for each person’s expectation of what the other expects him to expect to be expected to do.”[10] In the absence of direct communication, Schelling instead focuses on expectations and perceived expectations of behavior as a means of players independently arriving at a common solution, the focal point. Finding a focal point requires analysis of the cultural norms and behavioral identities prevalent in the Taiwan Strait. Analysis in the constructivist tradition may be the key to finding a solution to the Taiwan Strait dilemma because the dynamics of the Strait are such that “emotion supplants reasoned debate…given history, the growing Taiwan identity, PRC actions, and the fear of outsiders that many feel.”[11]
In Taiwan, two behavioral norms, political liberalization and economic liberalization with the PRC, dominate. As one of the shining beacons of democracy in Asia, Taiwan’s domestic society is increasingly marked by a “new way of life for which democratic politics, respect for human rights and the upholding of the rule of law are becoming entrenched, [making] it increasingly difficult for people in Taiwan to see why it would be in their best interest to risk them all to join the PRC.”[12] One consequence of increased political liberalization and democratization is the emergence of domestic politics as a shaper of foreign policy. Since “electoral considerations [are] the most powerful force in Taiwanese politics, no government in Taipei…can afford not to push to the limit of Beijing’s bottom line through Taiwan’s assertion of its sense of national identity.”[13] Simultaneously, while Taiwanese nationalism is rising, which can but antagonize the PRC, there is also a recognized need for greater economic engagement and trade with the PRC. Since PRC liberalization that opened its market to Taiwanese investors, Taiwanese FDI into the PRC has topped $100 billion.[14] Taiwanese firms have also invested “on a per capita basis…more capital to China than has any other country”[15] while “almost three-quarters of Taiwanese firms that had invested overseas had investments in the PRC.”[16] This trend shows no sign of relenting, as in the first five months of 2006, the flow of Taiwanese FDI into the PRC was up 46% from the same period in 2005.[17] Qualitatively, this means that “Taiwan is now China’s third-largest trade partner, and China is Taiwan’s second-largest trade partner.”[18] The simultaneous existence of two conflicting norms, one that risks antagonizing the PRC and another that seeks greater PRC engagement, means that it is difficult to identify a single dominant behavioral norm in Taiwan. It is unclear how Taiwanese policy will balance these conflict norms. Even the growing assumption that most Taiwanese have rejected unification with the PRC cannot be taken for granted, given the volatility and unpredictability of Taiwanese domestic politics, which is both a sign of democratic maturity and a constraint on governmental statecraft.
By contrast, the PRC’s behavior seems to be dominated by a single norm of nationalism, as reflected in an uncompromising insistence on unification of Taiwan to the mainland. As the PRC moves away from its communist ideological roots, nationalism and territorial integrity has become a key source of future regime legitimacy. Ensuring unification of Taiwan is the PRC’s “sacred duty”[19] as “regaining Taiwan is the chief goal as well as the leading symbol of that reborn nationalism and assertiveness.”[20] Since a conciliatory stance towards Taiwan may cause “secessionist movements in Tibet, Xinjiang, and other parts of China [to] be emboldened to escalate their resistance to Chinese rule,”[21] the Taiwan issue is effectively the means of consolidating power domestically. As power begins to transition from the fourth generation of PRC leadership to the fifth generation, the need to consolidate power domestically means that Chinese leaders will continue “to compete fiercely to be seen as most hawkish on Taiwan [to] gain more credit through nationalist appeals.”[22] Yet in the opaque halls of PRC decision makers, there may be internal disagreement on a timetable and means of achieving unification, as PRC policy seems to vacillate between emphasizing the stick (holding military exercises simulating a potential invasion of Taiwan) or the carrot (reaching out to Taiwanese business interests). Nonetheless, the official PRC governmental position remains an iron-clad commitment against Taiwanese independence dictates policy, even if its associated costs “may appear prohibitive in the assessment of academics, military analysts, and government officials outside of the PRC.”[23] Therefore, this domestic norm is a strong determinant and guiding principle of the PRC’s cross-strait policy, resulting in a cross-Strait policy largely “influenced by the emotionally blinding force of Chinese nationalism.”[24]