Trump's war on Huawei is self defeating

First posted on Asia Times.

When the U.S. Trump Administration’s recently attempted to slam the door on Huawei, China’s leading telecommunication and technology loaded company, he and his China advisors broke the heretofore gold standard in international collaboration; and that has been the world’s semiconductor industry.

The U.S. Department of Commerce recently announced that henceforth, any semiconductor chips made with equipment built by American companies cannot be sold to Huawei without prior approval and license from the DOC.

This new regulation is unprecedented and in violation of normal sales contract between the buyer and seller of the equipment. And difficult to know if the DOC has any legal ground to stand on.

Depending on the complexity of integrated circuit, the manufacturing process could easily take a dozen steps or more. Many of the critical steps use high precision equipment designed and manufactured by American companies. In effect by requiring a license in order to sell to Huawei is to threaten the supply of semiconductors to Huawei. 

Silicon Valley in the San Francisco Bay Area gave birth to the semiconductor and American companies continue to dominate the manufacturing of equipment needed to fabricate the increasingly complex semiconductor devices. There are five major semiconductor manufacturing equipment (SME) companies in the world and three of them are American.

The mantra of the semiconductor industry is to make successive generations of integrated circuits that are faster, smaller, cheaper and more powerful, doubling in performance roughly every 18 to 24 months. To keep this trend going, the fabrication equipment has to become more intricate and more powerful and therefore more expensive.

Writing off an obsolete fabrication line and investing in the next generation technology became a hurdle only highly capitalized multinational companies can play. Along came Taiwan Semiconductor Manufacturing Company with a new and unique business proposition.

TSMC revolutionized the semiconductor business

They announced that they will invest and keep investing in the state-of-the-art equipment to make the semiconductor chips as a “foundry” service to anyone that wishes to take advantage of such “toll” fabrication.

Thus, TSMC irrevocably altered the business model for the industry. No longer having to invest in a “fab” (industry lingo for a production line), companies can concentrate on designing new chips to perform new functions and tasks. A million dollars for computerized design tools can now launch a startup with an idea to meet a market opportunity; whereas to own a semiconductor fab, the company would be looking at minimum investment well north of $1 billion around a decade ago to now north of $10 billion.

For the last 30 years, “fabless” companies proliferated. Some, such as Nvidia, concentrated on proprietary chip designs to be sold on the market. Others, such as Huawei, can afford to design specialized chips for their own internal use. 

With no exaggeration, the independent foundry model enabled the recent boom in the economy driven by high technology companies.

The entire world benefitted from the virtuous circle made up of innovative chip designs by fabless companies, to be made by independent foundries and then sold to gadget makers such as Apple and Huawei. 

Advances in chip design take advantage of advances in the semiconductor manufacturing equipment which are then incorporated into new end-uses and novel applications. Each step on the chain goads the next to stretch and attain the next level of technological advances.

Digital currency, autonomous driving and applications on the drawing board based on artificial intelligence are all waiting for the introduction of the next generation of semiconductor devices. 

That is, until the Trump administration abruptly changed the rules of the game. Suddenly, American made SME cannot be used to make semiconductor chips for Huawei.

In the process, TSMC became an unwitting victim caught in the squeeze play between the Trump White House and Huawei. Huawei has been one of the most important clients for TSMC accounting for as much as 20% of its annual revenue. 

TSMC may have decided to finally yield to the White House pressure and agree to locate a fab in Arizona to help Trump look good and hopefully in exchange for the good will that would allow the company to protect its business with Huawei. 

TSMC outsmarted by Trump?

Surprise, surprise. Just the day after TSMC signed the agreement to invest $12 billion and build a fab in Arizona, the DOC made the announcement that could force TSMC to stop selling to Huawei.

Less than two weeks earlier, the DOC also gave Huawei a head fake by signaling that American companies will be allowed to participate in organizations along with Huawei to set industry standards for 5G, the latest wireless technology. 

This action suggested that DOC had finally recognized how far Huawei has come to dominate the development of 5G. By agreeing to work with Huawei would seem to hint that some sort of peace agreement was in air.

Not so. It seems double dealing and in bad faith has become the hallmark of the Trump Administration.

Of course, the estrangement with Huawei will materially impact sales of all semiconductors to China. America has remained the world’s leader and biggest supplier of semiconductors and China has been America’s largest customer. Before the pandemic in 2018, US sold $75 billion worth of semiconductor chips to China or about 36% of the U.S. output.

When China retaliates by buying less from the U.S., the generous trade surplus enjoyed by the American side will shrink. Lower sales mean less profit and less funds to spend on R&D and that will erode America’s leadership in this high-tech sector. 

Chips suppliers from Japan and Korea will be happy to fill the void left by the U.S. and China will be more determined than ever to invest in the development of semiconductor technology that will break the dependence from the U.S.

The short-term outcome is lose-lose, but the long-term consequences will be disastrous for both sides. The virtuous circle where everybody gains will be replaced by vicious competition and market fragmentation. 

At the so-called Rose Garden press conference on Friday, Trump read a statement on his position on China, World Health Organization (WHO) and Hong Kong. He didn’t specifically threaten to tear up the phase one trade agreement signed in January with China, but it would be difficult not to conclude that the bilateral relations are heading toward decoupling.

Painful future awaits both parties

Once Beijing gets weary of continuing to be conciliatory and hope for reconciliation, their retaliation will be nasty and directed to where it would cause most pain. It won’t just be not buying soybeans and Boeing aircrafts. 

As Macau News Agencypoints out, gaming licenses are up for renewal over the next two years. By merely starting rumors that the renewal for Sands China is problematic and it would devastate majority owner, Sheldon Adelson’s net worth.

Adelson has been Trump’s most important underwriter of his political fortune, to the tune of over $100 million for each election cycle. Trump will feel the sting of Adelson’s pain.

What will the world look like, when the bilateral relations split into an American sphere of influence and a Chinese sphere of influence?

The U.S. sphere is best represented by the “charm” of smooth-talking top diplomat, State Secretary Mike Pompeo. He struts around the world offering no carrot, just the threat of sanctions if the hapless country doesn’t go along with whatever is in American interest that he dictates. 

Some small nations do get intimidated and fall in line because they fear the might of U.S. sanctions. Under Trump, these sanctions can be arbitrary and at the whim of Trump.

Others fall in line because they feel the need for the security promised by the presence of American military, as for example the case for Taiwan. Despite the feckless nature of the Trump Administration, the Taipei government willingly submit to being violated by letting Washington coerce TSMC and their crown jewel to Arizona.

However, there is no reward to be an economic ally with the U.S. If you, such as Vietnam for example, sell more to us than buy from America, we get upset and put a tariff on your goods. If you happen to have a comparative advantage that we don’t have, we will ask Congress to enact a regulation to erase your advantage. We are the hegemon and we can do whatever we want.

Trump’s majority of one not looking great

But America’s presumption as the leader of the world is starting to breakdown, brick by brick. Whether the issue is climate change, weapon non-proliferation, open sky inspection, covenants with Iran and others, European Union nations resent having no say in America’s decision. They are expected to abide by whatever Washington decides as in America’s best self-interest, sometimes without so much as a courtesy consultation. 

Doesn’t matter to Pompeo if the interests of EU and the U.S. are not aligned. But with increasing regularity, when Pompeo makes a declaration, the EU members pretend to be hard of hearing.

As Asia Timespointed out, China and the Asian countries are far ahead of the West in recovering from the coronavirus epidemic and well on to economic recovery. China’s trade with Asian countries is three times what China has with the U.S. The writer goes on to say that the long-term driver of Asian growth is China’s emergence as a tech superpower. 

Certain members of Congress along with Trump seem to think that China desperately needs to send students to the U.S. to steal American technology. They probably don’t know that China is already first in the world in supercomputing, quantum computing, 5G telecommunications, hypersonic weaponry, civil engineering, high speed rail, electric vehicles, self-drive cars and buses, along with a myriad of other disciplines.

At the Friday press conference, Trump announced that he will sever the relationship and stop funding the WHO because, he claimed, WHO is in China’s pocket. He was not fooling anyone, of course. He has to double down on blaming WHO so that he doesn’t have to explain why more than 100,000 Americans have died from Covid-19.

At the World Health Assemblywith representatives from 194 nations that convened just 10 days earlier, every member expressed support for the WHO as essential to safeguard world’s health, except the U.S. 

China’s President Xi addressed the assembly. He didn’t know at the time that the U.S. was going to withhold more than $400 million per year of financial support to the WHO. He announced that China would contribute $1 billion per year for two years to help WHO fight the pandemic.

Xi also reported that China has five potential vaccines undergoing clinical testing. Should any emerge as a safe and effective vaccine, then he pledged that China will make the vaccine available to everybody. 

The U.S. also has vaccines under development. However, their position is that the owner of the intellectual property for that vaccine will decide. Asia Times has an excellent analysis of the vaccine “war” here.

If you are one of the 190+ nations having to decide which sphere of influence to become a part of, which would you choose?

Twists and Turns of Taiwan Politics

This was first posted on Asia Times.

The twists and turns of Taiwan politics

Disarray is a frequently used description for Taiwan politics. The aftermath of the mid-term defeat of the Democratic Progressive Party (DPP), the party in power, by the opposition party, Kuomintang (KMT) in just the latest case in point.

The unexpected avalanche against her ruling party just two years after her landslide victory has badly weakened Tsai Ing-wen, the sitting president. Her former number two, William Lai, was emboldened to publicly declare his candidacy to unseat Tsai in the forthcoming primary election and lead the DPP ticket for 2020.

To challenge the incumbent president of one’s own party is extraordinary and an indication of Tsai’s badly wounded position. Her response was to attempt to cancel the primary so as to give herself an automatic nomination into the general election, failing that, to delay holding the primary election in hopes of Lai running out of steam. If Lai should win, Tsai has threatened to run as a third-party candidate, thus ensuring a lose-lose outcome for the DPP.

The KMT has a dilemma of its own, namely how to pick the strongest candidate to lead the presidential ticket and maximize the party’s chance of not only to regain the presidency but also to use the coattail to capture a strong majority in the legislature.

KMT needed Han Kuo-yu to run

The party elders had been casting a covetous eye on Han Kuo-yu, the newly elected mayor of Kaohsiung. His surprising win in the heart of the DPP stronghold has thrusted him to the forefront as the most charismatic and logical candidate to lead the KMT ticket.

The KMT expectation for Han to assume the leadership has put him in an awkward position. Having just been elected as mayor, Han is expected to make good on his campaign promises for the people of Kaohsiung and can’t very well openly commit to running for president.

Even with a divided DPP, running for president won’t be a slam dunk. Han is probably also mindful of the fate of Eric Chu, who led the KMT ticket during the last presidential campaign. At the last moment, Chu was asked to replace a weak candidate at the top of the ticket in order to give the rest of the ticket a decent chance to succeed. 

At the time, Tsai was regarded as the overwhelming favorite and even though Chu as the mayor of New Taipei City was considered the strongest possible candidate to run against her, he was nevertheless regarded as a sacrificial lamb. Sure enough, the outcome was a disaster for KMT and a costly setback for Chu’s political career.

With Han not willing to declare his candidacy in a primary election, KMT would have to draft him without his consent. At this critical juncture last Wednesday, Terry Guo, CEO of Foxconn and richest man in Taiwan, made the surprising announcement that he is a candidate in the KMT presidential primary. He further pledged his unconditional support to the winning candidate if he does not win.

Guo’s pledge to win fair and square was seismic. He is on friendly terms with all the other already announced candidates as well as non-candidate Han. If he wins the primary, Guo will not cause rancor and resentment among the other candidates and offers the best chance for a united party in the general election.

Terry Guo took pressure off Han 

Han’s public reaction was one of relief. He welcomed Guo’s entry and said having two giants to shoulder the mantle of KMT leadership was much better than just one. Now he can go back and concentrate on being the mayor he promised.

Guo’s high public profile with a clean, no preexisting political baggage works to his advantage. He already enjoys high name recognition among the public as a highly successful corporate CEO.

Analysts have identified the following positive attributes to his candidacy:

(1)After four years of economic stumble under Tsai, Taiwan is in badly need of someone who can rejuvenate the economy. Guo’s life from rags to riches is testament that he has the credentials.

(2)Guo’s personal conduct and accomplishment suggest that he can be a positive role model for Taiwan’s youth befitting the leader of his country.

(3)With his success in establishing manufacturing operations on the mainland, he understands the Beijing leadership and the PRC government. He is best positioned in maintaining a peaceful, cross-strait relations.

(4)From his past commercial activities, he has a worldview and an international stature. He is said to enjoy a personal friendship with China’s Xi Jinping and is personally acquainted with Donald Trump. 

(5)Having grown his company into a multi-billion enterprise, he has demonstrated proven management ability and is well qualified to run the Taiwan government.

In stepping forward, Guo told the audience that Mazu appeared in his dream to urge him to run. Mazu is Taiwan’s most popular deity that looks after fishermen and sailors at sea.

Divine guidance aside, Guo said that peace across the straits will on top of his agenda, that Taiwan will continue need to develop home grown innovation and that Taiwan need to address the world as its market, not just dependent on mainland China.

Furthermore, Guo said Taiwan must take control of its own fate and cannot count on the US to provide its security.

While Guo’s surprise entry has brought new energy to Taiwan’s presidential race, It’s a long way to the actual election and far from a done deal.

Assuming that Guo wins the primary and becomes the head of the KMT ticket, he will need to rally and unite the followers of contending candidates, especially persuading Han’s supporters to swing over to him. 

Taiwan’s history of twists and turns

The first time DPP came to power, Chen Shui-bian eked a thin plurality with barely 40% of the votes when the KMT self-destructed by dividing into two contending camps. Guo will have to make sure the KMT does not repeat such splintering again.

A divided voter sentiment does exist in Taiwan now. Taipei mayor, Ko Wen-ji, ostensibly an independent but considered DPP leaning, commands roughly one-quarter of popular support. A DPP ticket that includes Ko would become much more formidable opposition to the KMT. 

Taiwan also has a history of strange happenings around their election and not just divine intervention by Mazu. Chen Shui-bian was on the verge of going down to defeat in his bid for reelection, when an alleged assassination attempt on the election eve changed the voter sentiment.

Taiwan people are still scratching their heads on how an assassin bullet managed to graze Chen’s belly and turned in mid-flight to nick his running mate on her knee. Suffice it to say, the ensuing confusion allowed the DPP to squeezed out another win.

Eight years of Chen’s corrupt and ineffectual regime paved the way for eight years by Ma Ying-jeou and the KMT. Ma did a good job in rebuilding Taiwan’s economy and maintaining peaceful relations with Beijing but was a weak and ineffective political leader. He was frequently pummeled by the opposition and by factions within his own party.

The end of Ma’s administration led to a landslide victory by Tsai and the DPP in 2016. Unfortunately for Tsai, she failed to grasp that economy trumps ideology and proceeded to make hash out of the economy. Consequently, she opened the door for massive disaffection and defection from the DPP as shown by the December mid-term election. 

Guo’s announcement is the curtain raiser for a new political show in Taiwan. There will be many twists and turns yet to come in the ensuing acts before the final curtain, i.e., the actual election. It will be interesting to see how Guo will handle the inevitable mudslinging directed his way during the campaign leading to the general election in January 2020.

Taiwan is the favorite showcase to watch democracy in action for many in the American academic circles. This time around they may be in for one heck of a show.

Chinese American Community Wounded by Latest Paranoia

The SF Chronicle asked me to write this piece. When Professor Larry Diamond declined to submit his side of this controversy, the Chronicle decided not to post mine.
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A working group of 32 China hands published an assessment of possible infiltration of operatives from China in the US. In the 200+ page report published by Hoover Institution, the section on the PRC influence on Chinese American community raised concern and objections from the community.

The report listed a bunch of organizations and associations, primarily located in Chinatown of major US cities, San Francisco being most prominent, as likely being directed or influenced by China’s Communist Party.

Given America’s history of McCarthyism and xenophobia, the Chinese American community was understandably alarmed by the specter of mass arrest and concentration camps that could be just steps away.

Among the reaction of outrage, SB Woo, president of 80/20 Education Foundation, demanded that the working group provide evidence to back up their accusations that I am sympathetic to the goals of the CCP—I was the only individual named in the report.

In response, the co-chairs of the Hoover working group, led by Professor Larry Diamond at Stanford replied and offered as evidence that I have been listed as an advisor to the Australian Council for the Promotion of Peaceful Reunification of China since the founding of the organization.

It’s true. I did attend the inaugural conference in Sydney and my friend who organized the event listed me as an advisor. I had good company as a number of former prime ministers of Australia were also named advisers.

Former President Bill Clinton gave the keynote at the conference—this was in 2002. Apparently he also endorsed the idea of the peaceful reunification of Taiwan with the mainland.

Diamond sees the CCP in Beijing as the behind the scenes organizer and instigator of these reunification councils. Promoting unification or advocating one China is antithetical to his strong feelings for the independence of Taiwan.

On the other hand, to the millions in the Chinese diaspora, no matter their family history, they remember the Ming dynasty general that evicted the Dutch and retook Taiwan in the 17th century. Zheng Chenggong is one historical figure still revered by the people on both sides of the straits today.

That China had to recover Taiwan from Japan after WWII became that much more a matter of emotional ethnic pride to think of Taiwan as part of China. Unabashedly, I consider myself one of them. Only a small fraction of those born in Taiwan would deny their Chinese heritage and roots.

In the Bay Area, supporters of the peaceful reunification come from all sorts of background. Allegiance to the CCP is not a necessary condition or a valid presumption.

Diamond’s field of study is democracy in governments and not on China. He sees Taiwan’s evolution toward democracy as all positive. I see Taiwan’s economic linkage to the mainland as far more crucial to Taiwan’s future than a government beset with its indigenous forms of corruption.

The best and brightest of graduates every year—some say around 30%--leave Taiwan for China to find their job and begin their career. Unless Taiwan can find a way to collaborate with Beijing, its outlook will remain bleak.

As a bicultural person, I see the perspective from both sides of the Pacific and I believe a Chinese American point of view can add greatly to the public discourse about the US China relations. I strongly object to having my loyalty impugned because I am willing to speak up.
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 George Koo writes regularly for online Asia Times. Before his retirement, he advised US companies on doing business in Asia.

You are invited to leave your remarks on this blog or contact me at geopkoo@gmail.com

SB Woo and the 80/20 Education Foundation has a running compilation of his blog kept in chronological order, most recent one being on top of the list. The series of his dissatisfaction with the Hoover Report can be found listed in the compilation.

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Lessons from recent Taiwan election

This was first posted in Asia Times.

Taiwan concluded its version of midterm elections about two weeks ago. The defeat of the ruling Democratic Progressive Party (DPP) was as one-sided as was the reverse outcome four years earlier when it beat the Kuomintang (KMT).

Among 22 seats at the mayoral level for counties and cities, the DPP lost seven after holding 13 seats in 2014, while the KMT gained nine, to end up with 15 seats, from six in 2014. The mayor of Taipei municipality remains a non-affiliated Independent.

In terms of total votes cast, the KMT got 6.1 million while the DPP garnered fewer than 4.9 million. Four years earlier, the DPP got 5.8 million votes while the KMT received nearly 5 million.

Prominent American observers of Taiwan such as Kharis Templeman at Stanford University and Richard Bush at the Brookings Institution were quick to claim that the results were not because of external factors linked to cross-Strait relations but were strictly because of domestic issues.

I beg to differ.

When Tsai Ing-wen ran for president in 2016, she ran on an uncompromising platform of independence for the island and Taiwan not being part of “one China.”

After she won the election, she tried to walk back from being out so far on a limb, but so long as she was unwilling to recognize the “1992 Consensus,” Beijing was not going to throw her a lifeline.

Her predecessor as president, the KMT’s Ma Ying-jeou, had quite willingly abided by the Consensus, meaning that both sides of the Strait believe there is “one China” but each side is free to make its own interpretation as to what that means.

With a one-China agreement under Ma, cross-Strait trade flourished and a healthy surplus accrued to Taiwan. Without that agreement under Tsai, mainland tourists stopped coming and trade slowed to a trickle.

Taiwan’s cream of the crop goes to Shanghai

A professor friend in Taiwan tells me that as many as 30% of the annual university graduates now leave an economically depressed Taiwan for the Greater Shanghai area to seek entry-level jobs and the start of their careers. The salaries are better and the future prospects more promising.

The best and most advanced Taiwanese companies have already established factories and service centers on the mainland, some have even completely moved off the island.

If the best and brightest talents have left Taiwan, for China or even the US, and if the most promising companies are focused elsewhere, then Taiwan is left with second-rate talent and enterprises, a mere shadow of its former “little tiger” self.

Tsai Ing-wen does understand what’s going on and has been making conciliatory gestures toward Beijing, but to recant and mouth the line, “I buy the one-China consensus,” is simply too much to ask for, and her hardcore support base would abandon her. She is indeed between a rock and a hard place.

Just as earlier president Lee Teng-hui tried to do in the late 1990s, Tsai is promoting the idea of Taiwanese companies expanding to the south and west, meaning the Philippines, Indonesia, Vietnam and Thailand.

But Taiwanese companies enjoy the advantages of common language and culture with the mainland, not to mention favorable policy; those advantages do not exist in other countries.

Just as it was under Lee, Taiwanese companies diversifying to other countries have not met with success.

So while American pundits like to hold up Taiwan as Asia’s shining beacon for democracy, the recent election result still boils down to one universal condition needed for democracy to succeed. “It’s the economy, stupid.”

Han Kuo-yu represents a new approach

No election result bears this simple truth more emphatically than the election of Han Kuo-yu as mayor of Kaohsiung, the second-largest city in Taiwan.

At the start of the election season, nobody gave Han a remote chance of winning, not even his own party, the KMT.

The DPP has been firmly entrenched in Kaohsiung for two decades. The KMT nominated a political nobody as a pro forma placeholder candidate and gave him no support. He literally was unemployed at the time he was picked to run.

But Han ran hard based on his promise to make Kaohsiung rich again and create jobs so that the young people don’t have to go to Taipei to look for employment.

Han won with 54% of the vote. He immediately declared that he looked forward to working with the mainland and regardless of Tsai’s position, he has no problem with the 1992 one-China consensus.

Other newly elected KMT mayors also declared that they were ready to follow Han’s lead and work directly with the mainland.

This election in Taiwan was an important lesson for Beijing as well. Past missile threats and rhetorical bluster only stiffen the Taiwanese people’s back.

The pro-independence Sunflower Movement born of resentment toward Beijing that disrupted the Ma Ying-jeou administration has been a non-factor in this election. Young people today are ignoring the Sunflower Movement as irrelevant. They are more concerned about their careers and making money.

Let the Han Kuo-yus of Taiwan show the people that working with the mainland is the win-win solution. The widespread recognition of the benefits of positive cross-Strait relations will bring both sides closer together until that day when de facto unification becomes a reality.

Is Tsai Giving up Claims in South China Sea?

This first appeared in Asia Times.

The soap opera known as the South China Sea dispute apparently has more to run. The proverbial fat lady that sings the finale is nowhere in sight.

Taiwan president Tsai Ing-wen has taken the lead role in the latest episode. While her initial objections to the Permanent Court of Arbitration (PCA) ruling were regarded as consistent with general expectations, her subsequent action surprised many.

Taiwan’s President Tsai Ing-wen (C) visits a La Fayette-class frigate at a naval base in the southern county of Kaohsiung, Taiwan July 13, 2016. Military News Agency/ via REUTERS

She objected to her government not being invited to the proceedings. She resented being called the “Taiwan Authority of China,”—she doesn’t even like to be known as leader of Republic of China on Taiwan. Lastly, she objected to the judges blithely ignoring Taiping’s natural features of a real island. So far, so good.

Then a strange thing happened. Almost immediately after the PCA ruling was made public, Taiwan’s coast guard boats set forth to patrol the waters around the Taiping Island as an expression of defiance. But Tsai’s military head commanded the boats already at sea to return to Taiwan.

The reason for a vigorous protest was that if the PCA ruling was allowed to stand, Taiwan was at risk of losing the internationally accepted 200-mile economic exclusion zone that goes with an island but not with any reefs, rocks or sandbars.

Taiwan fishermen defied Tsai

Five boats of Taiwanese fishermen, festooned with the blue, white and red national ROC flags, also set forth on the six-day, one-way voyage from Taiwan to reaffirm Taiwan’s ownership of the island. The Tsai government forbade the sailing claiming that they needed to apply for a permit 45 days in advance.

Half of the original ten fishing boats were intimidated by the government threat of punishment and did not sail. The other five decided to ignore the unreasonable regulation retroactively imposed. Upon arrival, one of the boats was not allowed to dock at the pier on Taiping.

Tsai’s reasoning for keeping the people on the fifth boat from going onshore was that the boat had working journalists for “foreign” entity on board. The so-called foreign journalists were well known Taiwan citizens based in Taiwan and employed by Hong Kong-based Phoenix TV.

All of a sudden, Taiping Island in the middle of South China Sea has become a militarily sensitive area in need of security measures against Taiwan’s own citizens. Pundits in Taiwan accused Tsai of not wanting any exhibition of nationalism that would offend the U.S. and Japan.

The fishing boats returned in triumph with samples of potable water taken from the wells on the island and sand from the island as trophies of their high seas journey. The fishermen received a hero’s welcome from the people but faced an uncertain future as they wait to hear the fine the Tsai administration will levy on them for their so-called breach of security.

Derision from the media has been growing daily. They accuse Tsai of giving up claims of sovereignty and the livelihood of current and future generations of fishermen in order to please her masters in Tokyo and Washington—hugging Uncle Sam’s thigh was their colorful expression.

Tsai’s approval rating plummeted

At the outset, 70% of the people in Taiwan were in favor of Tsai leading a contingent to the Taiping Island to plant the ROC flag for the world to see. She evaded the public clamor and did not make the flight. Instead, eight legislators from KMT side of the aisle did.

According to one of the latest polls, in just two months in office, Tsai’s approval rating has already plummeted to a record low of 8.4%. It took her predecessor, Ma Ying-jeou, four years to drop to a single digit.

Others credit Tsai with more devious scheme than just being weak and indecisive. Even though the airstrip on Taiping was constructed under Taiwan’s first DPP administration, by Chen Shui-bian, Tsai’s inner circle has been revisiting the question as to whether the U-shaped, dash-line claims of South China Sea continue to be relevant to DPP interest.

They concluded that by giving up on Taiping and claims of the U-shape boundary on South China Sea, DPP could make a clean break from the historical ties to ROC and common cause with Mainland China.  It would facilitate Tsai breaking away from the need to acknowledging the one-China consensus and finally laying a claim for an independent, albeit slightly smaller, Taiwan.

By allowing the only naturally occurring island to be redefined as a rock, no one can lay claim to a 200-mile economic exclusion zone in the South China Sea. Thus, in helping the U.S. and Japan accomplish their objective, which is to declare South China Sea as belonging to no one, Tsai is counting on the two “friends” in the event of armed conflict with Beijing.

Whether the people of Taiwan will go along with her strategy remains to be seen and whether Beijing will continue to allow Taiwan to enjoy a subsidy in the form of near $30 billion trade surplus also remains to be seen. Given her remarks in the exclusive interview with the Washington Post, which aroused the ire of the people both in Taiwan and across the strait, the future seemed dark.

Philippines having second thoughts

On the other hand, the Philippines is one country having second thoughts of being a proxy for the U.S. in the South China Sea dispute.

The U.S. has not ratified the United Nations Convention on the Law of the Sea (UNCLOS) and has no claims in the South China Sea, not even a submerged coral reef. America needed a stand-in to litigate against China’s claims. That was Philippines.

Rigoberto Tiglao, formerly in charge of Philippines’ presidential office, now writes for Manila Times. He said the suit for arbitration was filed at the behest of the United States. He suggested that Washington needed to reimburse Manila for the $30 million spent on the arbitration suit.

The Permanent Court of Arbitration charged about $3 million for secretarial services that included the use of the hearing room at a rate of Euro 1,000/day. Besides the generous compensation for the American lawyer acting for Philippines, how much of the rest went into the pockets of the judges, he wondered.

That the American intervention has been way over the top is also the judgement of Alberto Encomienda, former official of Philippines Foreign Affairs department.

Antonio Valdes, former undersecretary of education, said a one-sided arbitration without the agreement and participation of the other party to the arbitration was meaningless. The ruling was merely a legal opinion without the force of law.

The PCA has been around for more than 100 years. On the average, it provided arbitration services for about three cases every 20 years. Most of the times, major powers ignored rulings that they didn’t like. The body rents space at the building in The Hague belonging to the International Court but PCA has no connection with the international court or with the UN.

Kerry saw the wisdom of bilateral talks

Even Secretary John Kerry saw the futility of pursuing the PCA sham ruling when the closing statement of the ASEAN conference in Laos omitted any mention of  the arbitration ruling that the Philippines just won. The closing statement was supposed to represent the consensus of the ASEAN members. He now liked the idea of bilateral talks between Philippines and China.

Does that mean he will honor the $30 million invoice from Manila? Who knows. At least the Philippines government by looking forward is betting that collaboration with China will lead to infrastructure investments worth many times the fee paid to PCA.

At this point, Tsai might be feeling a bit lonely. When the Post asked her about the decline of tourists from mainland, a non-trivial part of Taiwan’s local economy, Tsai rather lamely hoped that Taiwan could attract tourists from elsewhere.

As for the trade surplus with the mainland, Tsai said to the Post that the surplus is declining and in any case the mainland is becoming more of a competitor. She bravely claimed that Taiwan could develop its economy via other avenues independent of the relations Taiwan has with the mainland.

Tsai is no fat lady and she is not ready to sing the finale in triumph or tragedy. The drama rolls on.