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How Taiwan became a potential flashpoint between the U.S. and China

Yahoo Finance Editor-in-Chief Andy Serwer explains the geopolitical complexities surrounding the island of Taiwan.

Video Transcript

KARINA MITCHELL: Welcome back. Well, now we turn your attention overseas. Taiwan is a testy issue when it comes to the US's China policy, and it was a big topic of discussion at the recent virtual summit between President Joe Biden and his counterpart, Xi Jinping, but why should we care? Well, here to tell us is Andy Serwer, Yahoo Finance's editor-in-chief,

And, Andy, I know why I care because I grew up in Hong Kong, which was controlled by the UK and is now a part of China. But why does the US need to be concerned about what's going on 8,000 miles away?

ANDY SERWER: You know, Karina, you, of course, have much closer knowledge of the situation than I do, but just obviously looking into this situation, there's a number of reasons why we should care. I mean, first of all, Taiwan is a big economy. It's about 3/4 of a trillion dollars in terms of GDP, the 21st biggest country-- well, don't say country. See there? That's a problem right there-- self-governing entity in the world, and we'll get back to that country problem in a minute.

Obviously it's a close trading partner with the United States. The chip industry there is critically important. They make about 20% of the world's chips and high-end chips. Taiwan Semiconductor, of course, is headquartered there, a giant company.

It's also-- and not judging here, but it's also a big buyer of defense manufacturing from the United States as well. So that's a big business.

But even more than that, Karina and you guys, it is a shining beacon of democracy right next to the People's Republic of China, and it's also a country that has transitioned from being an authoritarian country-- excuse me, island, to democracy. So [INAUDIBLE] important as well, an ally.

SEANA SMITH: I know it's hard not to say country, entity. I noticed that you pointed out in your piece. Andy, from your perspective, why is this so complicated, do you think?

ANDY SERWER: Well, there is so much history there. It's so nuanced, so sensitive. I mean, you're kind of dancing around-- by the way, our secretary of state, Tony Blinken, has called Taiwan a country twice recently. And, you know, whether it was a mistake, a slip of the tongue, or intentional, this is all part of the game that we play and the brinksmanship, Seana, between China and the United States.

But obviously it goes back to 1949 with the Civil War in China, and the nationalists fled to Taiwan. And, you know, increasingly, Taiwan has become independent, but at the same time, closer to China. I mean, you couldn't go back and forth from Taiwan to the mainland for many decades. Now it happens all the time. Businesses go back and forth.

But also, of course, China under Xi Jinping has become much more nationalistic. Karina was talking about Hong Kong. That's become part of China, much more, A, when the British handed it back but now increasingly assimilated. Ditto for Macau. A lot of people see Taiwan as the third piece.

And it also speaks to Xi Jinping's personal legacy. Is this something he wants to do, bring Taiwan back?

ADAM SHAPIRO: So the next question in all of this, Andy, is so where do things go from here because what does China gain if they were to do something, say, in the next year or few years?

ANDY SERWER: Yeah, Adam, I mean, this is, you know, really difficult to figure out. First, remember that the Xi Jinping government probably anticipated that Joe Biden would loosen up a little bit and not be so much like Donald Trump. In fact, his stance is very similar to the former president's in that he's saying, listen, we stand by Taiwan. On the other hand, he [INAUDIBLE] never land of betwixt and between. That's what they want.

Some people say that Xi Jinping really wants to get the island as part of China and have China oversee it and govern it. Other people say that he's sort of beating these war drums, if you will-- and there's increased military action around the island-- just to keep the US at bay and also the people in Taiwan to say, listen, you guys are not going to become independent anytime soon.

From the United States' perspective, the status quo makes a lot of sense. We really need those chips. They're high-end chips. They have about 20% of the global market share. So I think everyone sort of benefits from the status quo, and if you kind of cut it down to the final analysis here, the folks in Taiwan probably like it. Folks in the United States and many people in China secretly probably think that the status quo is not so bad either for us.

KARINA MITCHELL: Yeah, the status quo is not a bad thing right now, but it is such a complex issue, and you just gave us great overview on all of it. Yahoo Finance Editor-in-Chief Andy Serwer, thank you so much for your time.