The Lithuanian Gambit: Opportunities for Taiwan
There is a great deal of conjecture and analysis at present telling us there is emerging a Sino-Russian alliance. If it is so, and it looks to me like it is, despite some rising tensions also between the two which, frankly, might come down to growth pain. But what if, just say, many observers are right and we are in nascent days of a Sino-Russian Pact? What then? Well, allow me to speculate a little as it actually then ties more closely Europe’s position to Taiwan’s. And what then?
There have already been signs of tension between Europe and China, and a number of relationship dynamics at play. The trade relations are perhaps as telling as the diplomat; actions speak louder than words. In recent developments, Lithuania signalled a strategic recalibration of its relations with China, attributing this shift to the emerging Sino-Russian alliance. This move (I shall dub the "Lithuanian Gambit") presents a nuanced chessboard of diplomatic opportunities and challenges, particularly for Taiwan, but also challenging other EU member states. As Lithuania and potentially other like-minded Baltic or European Union members reconsider their stance towards China, Taiwan finds itself faced with some unique opportunities to enhance its international engagement and diplomacy. Let’s take a quick look at the dynamics of the Lithuanian Gambit, exploring its context, implications, and the strategic avenues it opens for Taiwan in global relations.
Historical Context
Lithuania's diplomatic relations with China, until recently, followed a cautious but increasingly wary trajectory, quite reflective of, but perhaps just an early mover, in broader European Union sensibilities towards Beijing. The Baltic state's move towards a more circumspect stance comes amid rising tensions and the crystallisation of what has quite clearly become an emerging Sino-Russian alliance. Such an alliance, with no end of truly credible threats from Russia directed at Europe, aligning China with precisely such threats, “twins” the strategic and security concerns for Taiwan and for the EU. Lithuania's recalibration of its China policy aligns with a historical pattern of the country taking bold diplomatic stances, especially in the context of its Soviet-era history and its more recent efforts to assert itself on the global stage. Lithuania does not see China as a trusted partner, and this will degrade further if China continues to align itself with a violent Russia. This contagion will definitely spread within the EU; there are already many trade signs.
Taiwan, on the other hand, has found itself in a precarious position internationally, with formal diplomatic recognition from a limited number of countries, due largely to, let’s call it “The Shifting One China" policy (shifting towards “assertive irredentism” (Mearsheimer 2014)) adopted by most nations under pressure from Beijing. Despite this, Taiwan has managed to maintain substantive, if unofficial, relations with a wide range of countries, focusing on economic partnerships, cultural exchanges, and participation in international organisations as a non-state actor. Countries to flip in China’s direction tend to be those suborned and also, quite frankly, tend in my opinion to be only marginal actors. Recent years have seen Taiwan pushing to expand their unofficial relationships, seeking to bolster its international presence and garner support against Chinese pressures.
An emerging Sino-Russian alliance marks a significant moment in global geopolitics, with China and Russia drawing closer in opposition to perceived American and Western hegemony. This alliance has wide-ranging implications, not least for countries like Lithuania, which find themselves reconsidering their diplomatic and economic ties with China considering new security realities. For Taiwan, the emerging geopolitical landscape offers both challenges and opportunities.
Lithuania's Diplomatic Manoeuvres
Lithuania's recent diplomatic manoeuvres, including its decision to allow Taiwan to name its representative office in Vilnius as "Taiwan" rather than "Chinese Taipei," a term commonly used to avoid offending Beijing, signify a bold departure from diplomatic caution. This diplomatic move led to significant economic and diplomatic retaliation from China, including downgrading bilateral relations and imposing trade restrictions on Lithuanian goods (Shirouzu & Sytas 2021). China is in fact the antagonist, the first to decoupled Lithuania from Chinese trade with a trade retaliation for a diplomatic posture. Since then, Lithuania's stance has also garnered support from other EU members and the United States, bringing into specific relief the growing concern among Western countries about China's aggressive foreign policy stance, growing ties to Russia, and human rights record.
The economic sanctions imposed by China were intended to isolate Lithuania economically by blocking its exports and affecting businesses involved in trade between the two nations. For example, China removed Lithuania from its customs system, which effectively halted all bilateral trade between the two countries. This drastic measure initially seemed like it could significantly harm Lithuania's economy (Andrijauskas 2022).
However, the overall economic impact on Lithuania has been much less severe and more short term than might have been expected. This is partly because the actual trade volume between Lithuania and China was not substantial relative to Lithuania's total international trade. Moreover, Lithuania has received support from the European Union, which has challenged China's actions at the World Trade Organisation (WTO), helping to mitigate the immediate effects of the sanctions. Lithuania's strategic pivot towards enhancing economic and diplomatic relations with Taiwan also indicates a shift in its international trade and economic policies (Janeliūnas, T., & Boruta, R. 2022).
This strategic pivot, while rooted in Lithuania's unique geopolitical considerations, bottomless and justified mistrust of Russia, raises the potential of its replicability and potential resonance among other states growing increasingly sceptical or wary of the burgeoning ties between China and Russia. Both China and Russia rely on quantity over quality, using old Russian and Chinese Communist Party “proletariat as cannon-fodder” warfighting models. Together, both adopting this strategy, and while costly in lives, intends to overwhelm defences and whither ammunition supply. We have seen this in Ukraine, and the idea of Russia aligned in this way with China really does speak to the nightmare of “swarms” many countries have feared over the centuries from both Russia and China.
If a Sino-Russian Pact does more fully come out of its cave, the Lithuanian Gambit's chances of catching on hinge on several factors, including geopolitical alignments, economic dependencies, and the broader international context of China-Russia-West relations. Let’s take a quick look at these.
Geopolitical Alignments and Security Concerns
The Baltic states, sharing historical and security concerns vis-à-vis Russia, will (do?) find Lithuania's approach appealing. Their strategic positioning on NATO's eastern flank renders the Sino-Russian alliance particularly unsettling, given its potential to reshape security dynamics in the region. China bolstering Russian arms and munitions supplies on this border will not thrill the Baltics. Estonia and Latvia, much like Lithuania, have expressed concerns over Russia's actions in Ukraine and the broader implications of Russia's partnership with China. The collective memory of Soviet control, extreme destabilisation efforts of Russia, and the desire to support democratic norms could motivate these countries to adopt a stance like Lithuania's, especially under the umbrella of both EU and NATO solidarity. Both have a similar balance of trade as Lithuania, that is their trade volumes with China are not large in context. A Baltic weaning from national reliance on Chinese trade will happen, without any doubt in my mind. It is only how many States will do it, and how soon. The more tightly China hitches its wagon to Russia’s engine, the more everyone else will seek distance. This is not directly in China’s long-term interest but is evidently happening regardless. Is China sleepwalking into it? Maybe.
Beyond the Baltics, countries within Eastern Europe, which have historically oscillated between seeking closer ties with China through mechanisms like the 17+1 initiative (EU China Commission) and maintaining their allegiance to European and transatlantic institutions, are likely to reassess their positions. The Czech Republic and Poland, for instance, have shown signs of growing wariness towards China, influenced by the same security concerns as Lithuania as well as the push for greater technological sovereignty. The Lithuanian Gambit does serve as a model for these countries, offering a way to navigate their complex relationships with China and Russia while affirming their Western alliances. Indeed, these countries do not even need to take trade measures to decouple; China will do it for them simply by kneejerk if they adjust their diplomatic posture on Taiwan.
Economic Dependencies and Considerations
The feasibility of adopting Lithuania's approach for any country is significantly influenced by economic ties with China. Countries with deep economic dependencies on China, especially those within Western Europe like Germany and France, would find it more challenging and more gradual to fully embrace the Lithuania model. Their political motivation to adopt a stance needs to outweigh their economic vulnerability. Their weaning will be slower perhaps because of the simple trade volume with China, but that is not to say it won’t happen. I believe it will, but more gradually than those with less trade reliance on China. ?
Yet, even with the news from Lithuania showing this deepening diplomatic decoupling, is it borne out by trade facts on the ground? ?The trade data and recent developments do suggest that Lithuania has indeed made progress reducing its economic ties with China, particularly after political disputes intensified. But that things may not have stayed so.
As mentioned, following Lithuania playing their gambit, China responded with substantial economic sanctions, including a virtual blockade on Lithuanian exports. This led to a dramatic decline in Lithuanian exports to China, which plummeted from €350 million in 2020 to just €100 million last year (Askew 2023).
While the initial impact of these sanctions was rather harsh, causing some economic damage to Lithuania, there seems to me to have been a recent shift towards recovery and normalisation of trade relations. As of December 2023, China imported $14.2 million worth of Lithuanian products, which, although well below the levels before the dispute, marked a significant increase compared to the period immediately following the onset of the dispute. Also, Lithuanian exports to China last year totalled more than $134 million, indicating a recovery from the lowest points during the trade tensions (Bermingham 2024)
No matter the balance of trade numbers, Lithuania's response to China trade aggression has been to diversify its economic relations and reduce dependency on China, aligning more closely with like-minded countries within the EU and NATO, a “look West” policy, and pursuing increased trade with other partners. The Lithuanian government has also sought to bolster its economic resilience through diplomatic efforts and strategic economic shifts (Askew2023). So, the Lithuanian Gambit may be said to be still playing out, albeit in a context of some degree of trade normalisation. In the meantime, its relations with Taiwan have not been downgraded despite the attempted bludgeoning.
We could find evidence of the reduction of this trade reliance - even if unintended - by more EU member states. Over the past five years, France has become less reliant on Chinese imports. Data from the fourth quarter of 2023 indicates a significant reduction in French imports from China, dropping by approximately €2.11 billion, or 10.5%, compared to the previous year. This trend of decreasing imports from China is part of a broader decline in France's total imports, which fell by €24.3 billion or 12.2% from the fourth quarter of 2022 to the fourth quarter of 2023. While this shift can be attributed to a broader adjustment in France's import patterns, possibly driven by a strategic realignment towards reducing dependency on Chinese supply, the shift would also be partly explained as much by recent global economic pressures and supply chain disruptions observed during the COVID-19 pandemic. (OEC 2024)
If we look towards more of the EU member states, do we see the same pattern? Well, not clearly and not evenly, but yes, overall.
Germany, for example, is not really moving either way, thanks to a more de-risking than decoupling approach. As of February 2024, the trade balance between Germany and China shows Germany having a trade deficit of €4.16 billion for January 2024. This reflects Germany's imports from China amounting to €11.8 billion, outweighing its exports to China, which stood at €7.63 billion. Even with recent State-level German visits to Beijing, this marks a significant change from the past, where Germany consistently maintained a more balanced trade with China. (OEC 2024).
Over the last five years, Germany's reliance on Chinese imports actually seems to have increased by some trade statistics. In January 2024, there was a noted decrease in Germany's imports from China by €2.89 billion compared to the previous year; however, like France, this is part of a broader reduction in total imports by Germany, which decreased by €7.51 billion over the same period. This suggests that while the absolute volume of imports from China has declined, and while Germany makes claims to be reducing dependence, the overall reduction in imports implies a continued reliance on Chinese goods. This is evident in the fact that China remains one of the largest single sources of imports to Germany, even with these decreases (OEC 2024). But, in Germany’s defence, they are making no sudden moves because of that very vulnerability to China which is a vulnerability Lithuania did not have. Let’s just conclude Germany is playing out a more “nuanced”, softly-softly approach than the Lithuanian Gambit.
Let’s look at one more member state to see if we are on track with the Lithuanian Gambit manifesting through trade facts. Let’s try (one of) my home countries, Sweden, a country very close to Russian aggression, at odds with Russia for more than 400 years, but with some strong historic ties to China. As of December 2023, the trade balance between Sweden and China is nearly balanced, with China exporting $803 million to Sweden and importing $855 million from Sweden, resulting in a trade deficit for China of $52.4 million.
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Over the past five years, Sweden's reliance on Chinese imports appears to be fluctuating rather than showing a clear trend of increase or decrease. Like Germany, Sweden’s policy approach is more one of de-risking, such as in vital and more shady areas like tech and telecoms, than decoupling of imports overall. While there has been significant trade activity, the changes in trade volumes have not been consistently in favour of increased reliance on Chinese imports. Between December 2022 and December 2023, for example, China's exports to Sweden decreased by 3.84%, and imports from Sweden decreased by 1.58%. (OEC 2024) This tells us that Sweden, in its de-risking, is working to not be more reliant on Chinese imports, at least in the short term. Let’s call this a holding pattern.
It is certainly true to say that Sweden, like Nordic and Baltic neighbours, has grown increasingly wary of China's assertive measures and potential threats to their economic and political sovereignty. Complete and fully warranted mistrust of Russia combined with the emerging Sino-Russia pact is going to become a significant foreign and defence policy factor for Sweden. This will include concerns about China's influence operations, which are already substantial in Sweden, and the potential risks to their critical digital infrastructure, including military ties with Russia, which has led to increased scrutiny and protective measures against Chinese technology companies like Huawei (Forsby 2022). Arguably, this is sufficient to warrant a push away from de-risking to decoupling. I guess time will tell.
So, while Sweden has not entirely severed its economic ties with China, it has adopted strategies that aim to reduce dependencies in critical sectors. This aligns with broader Nordic perceptions of China as a significant but manageable threat, emphasising the need for safeguarding national security while maintaining some level of economic interaction (Forsby 2022). Overall, Sweden's approach can be characterised as cautious engagement with an emphasis on de-risking rather than outright decoupling, reflecting a balanced strategy to manage both economic interests and national security concerns (Billstr?m 2024). Sweden cannot be said to yet be playing the Lithuanian Gambit. But I do believe in the medium-term, Sweden will find itself having to move closer to the Lithuanian Gambit.
Okay then, but “What about at the EU level?” I hear you ask. Let’s just say it is not hugely definitive, but there are some signs of limited and gradual economic decoupling. It's evident from the trade data that while there are strategic shifts intended to reduce economic dependence on China, the current trade data reflects a continuing strong economic relationship marked by a substantial trade deficit. The recent strategic efforts by the EU to diversify its trade partners and reduce reliance on Chinese imports, as reflected by a 1.9% decrease in the share of imports from China from early 2022 to late 2023, are suggestive of a move towards economic decoupling. This strategic pivot is driven by broader geopolitical considerations and the EU's need for greater economic security, especially in the context of recent global disruptions and dependencies highlighted during the pandemic (Eurostat 2024). It should be noted that the Carbon Border Adjustment Mechanism (CBAM) recently introduced by the EU (but not yet in force) will substantially impact trade relations with China, as high-polluting import countries will certainly suffer heavily. Chinese exporters to the EU will find their market drying up as their carbon-inefficient products arrive at uncompetitive prices. It is very difficult to see the CBAM not speeding an EU trade decoupling from China. This might even equal a trade shock starting as early as 2027-28.
Current trade figures as of 2023 still show China as the largest import partner for the EU, accounting for 20.5% of all imports. This demonstrates that while the intention to decouple economically from China is clear, and while the CBAM might hasten the move, the implementation and the resultant shift in trade patterns are going to be only gradual. As I said, CBAM might be a trigger for more of a shock than a graduation, but we won’t know for some years. The substantial increase in the EU's trade deficit with China, which widened significantly from 2018 to 2022, underscores the challenges in swiftly altering established economic ties. These ties are particularly strong in sectors crucial to the EU economy, such as machinery and vehicles, where dependency on Chinese imports remains high. Any decoupling really has to focus directly on such trade vulnerabilities sooner rather than later.
So, we could draw the conclusion that the EU is indeed attempting to reduce its economic dependencies on China, in a move underscored by recent policy directions and strategic adjustments within member states like Lithuania. However, the existing trade data indicates that this decoupling process is obviously complex and will only unfold over an extended period.
Nothing here speaks to EU-China trade ruptures, but perhaps more trade whittling.
Economic decoupling involves reconfiguring deeply entrenched trade relationships, which is not immediately evident from the trade statistics but is evident as a strategic goal for the EU. The tension between immediate economic realities and long-term strategic goals illustrates the EU's cautious approach towards decoupling, aiming to balance economic imperatives against geopolitical and security considerations without significant economic shocks.
So, while the evidence is there for a widespread but rather tepid decoupling in trade terms, individually every EU member state remains caught in this delicate balance. Stuck in a balance of trade dependency web weaved over the last two decades, EU member states need to seek to both mitigate security risks associated with the Sino-Russian alliance while preserving crucial economic relationships.
We should note, however, that in shadier sectors vulnerable to espionage, intellectual property theft, or other forms of interference there will be increasingly targeted recalibrations in EU relations with China, sectorally mirroring aspects of the Lithuania Gambit even without its wholesale or nominal adoption.
International Norms and Values
Quite apart from the economics of it, the increasing emphasis on democratic values, human rights, and the rule of law, especially in the context of China's policies in Xinjiang, Hong Kong, and its stance towards Taiwan, will not be ignored and adds a normative dimension to the debate. Countries increasingly aligning their foreign policies with these values might see the Lithuanian Gambit not just as a strategic manoeuvre but as a moral stance, encouraging a re-evaluation of their ties with China in light of an undemocratic anti-human rights Sino-Russian hegemony.
Opportunities for Taiwan
I see five principal opportunities for Taiwan emerging as, or if, a Sino-Russian Pact does emerge and as a result the Lithuanian Gambit catches on in Europe.
1.??????? Enhanced Diplomatic Engagement: The Lithuanian Gambit allows Taiwan to deepen its diplomatic ties with Lithuania and potentially other EU countries that might follow Lithuania's lead. The rather short-lived shock to Lithuanian trade could encourage other countries to engage more openly with Taiwan, providing a boost to Taiwan's international visibility and support, while speeding the decoupling process. Trade shocks are the risk here, but diplomatic opportunities for Taiwan emerge nevertheless. If geostrategic factors become more urgent, like China arming Russia to bolster its EU borders and give Russia more offensive capability there, then trade shocks become less a part of the calculus.
Each new EU member state that does choose to play the Lithuanian Gambit and politically changes tack would presumably face the same economic retaliation from China, given the balance of trade with EU member states largely favouring China. This in turn will lead to trade decoupling, instigated by that almost-certain Chinese retaliation. It will hurt for a while, no doubt. But it will hurt both sides, at a time when China’s economy is in deep trouble.
Trade retaliation by China for political or diplomatic ends is China shooting itself in the foot every time. It is hard to see in this climate that any EU member state that politically starts to distance itself from clear support for Chinese Taiwan foreign policy, and gets hit with Chinese retaliation, would back down precisely because it would only serve to strengthen fears of a growing Sino-Russian Pact. The dynamic becomes circular, and self-perpetuating. And while China licks its self-inflicted wounds, Taiwan has a gap and may be well served by sending some runners into it. Guaranteed Chinese trade retaliation to any country playing the Lithuanian Gambit clearly becomes a diplomatic opportunity, and probable win, for Taiwan.
2.??????? Increased International Support: As countries like Lithuania face economic and diplomatic retaliation from China for shifting relations with Taiwan, there is potential for increased international support for Taiwan. This could manifest in stronger bilateral relations, not only with Lithuania but also with other EU member states that view China's aggressive stance unfavourably, and those who most fear the growing spectre of a Sino-Russian pact. This is a diplomatic win for Taiwan.
3.??????? Strategic Realignment in Europe: Lithuania's bold stance could lead to a strategic realignment within the EU, where more countries might prioritise democratic values and human rights – and fear of quite immediate Russian violence - over economic ties with China. If Russia’s malevolence turns to rage, and China continues to be hitched to it, this realignment will definitely favour Taiwan, aligning it with countries looking to balance their foreign policies against rising authoritarian influences. Increasing Russian malevolence towards Europe opens diplomatic opportunity for Taiwan. China is best served by reining Russia in, not stoking, Putin’s war engine. But such pragmatism and restraint, unless the result would be devastating to the Chinese economy (which small-ish trade retaliations are not), does not really fit China’s increasingly assertive irredentist on the Taiwan question. And a Chinese backdown on that is out of the question for Zhongnanhai.
4.??????? Economic Opportunities: As Lithuania and other countries reassess their economic ties with China, Taiwan could position itself as an alternative economic partner. This could lead to increased trade and investment opportunities with these countries, reducing Taiwan's economic dependence on mainland China. Where China leaves the room in a fit of pique, Taiwan can happily walk in. Taiwan has already demonstrated its awareness of the opportunity. Lithuania and Taiwan have set the example, as they have increased their economic exchanges significantly. Notably, the establishment of the Taiwan and Lithuania Centre for Semiconductors and Materials Science in Vilnius and the creation of a $200 million investment fund by Taiwan for projects in Lithuania highlight this new economic alignment (Global Taiwan Institute). An economic opportunity for Taiwan. TSMC moves into semiconductor production in Germany signal a similar shift.
5.??????? Strengthening of International Norms: Taiwan could leverage the Lithuanian Gambit to promote international norms and values, such as democracy and human rights, which are often challenged by China's foreign policy. By aligning with countries that take a stand against China's coercive diplomacy, Taiwan can strengthen its position in international forums. It might be a stretch seeing Taiwan take on a larger role in the “democracy and human rights” export field, but still, an opportunity does present itself.
So, it is my view that the Lithuanian Gambit stands at the intersection of geopolitics, economic interests, and somewhat also normative values, offering a rather new template for countries rethinking their relations with China in the face of what would be a Godzilla Sino-Russian Pact. While the direct adoption of the Lithuanian Gambit may not be universally or immediately feasible due to varying degrees of economic interdependence and strategic considerations, elements of the gambit could inspire a broader recalibration among states seeking to balance their security concerns, economic interests, and commitment to democratic norms. ?The resonance of Lithuania's strategy will likely be reflected in a variable mosaic of trade and diplomatic responses, tailored to the unique circumstances of each state, yet unified by a common concern over the spectre of an increasingly clear and present Sino-Russian axis.
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