Introduction:

One of the best parts of running Deep Knowledge Investing is my interactions with the Board of Advisors.  It’s a remarkable group of people with a wide range of high-level specific expertise.  DKI is set up to foster discussion and debate on all issues, and even college interns are encouraged to advocate for their point of view even when it’s in conflict with mine.  The result is an environment where competing ideas aren’t met with defensiveness; but rather, receive interested inquiries to know more about a new opinion.

Like many of you, I spent much of yesterday contemplating Speaker Pelosi’s trip to Taiwan.  My initial view was that the trip had little upside for the US and depending on the Chinese response and the possibility of escalation to military conflict, could have significant downside.  Yesterday, I got many insightful responses on the issue, but there’s one in particular I’d like to share.  Jason Galui is the CEO and Founder of 4 Liberty Consulting LLC., a global advisory firm.  Prior to founding 4 Liberty, Jason was a Lt. Colonel in the US Army, a combat veteran of both Iraq and Afghanistan, an Advisor in the Oval Office to both President Obama and President Trump, and an Advisor to three different National Security Advisors including Ambassador Susan Rice, Lieutenant General H.R. McMaster, and General Martin E. Dempsey.

When it comes to analyzing a situation involving military strategy and foreign policy, Jason has unique experience and insight.  There are few people better qualified to opine on this subject matter.  His answer touches on possible differences between Congress and the White House, Speaker Pelosi’s potential incentives for US national security, for her political party and domestic politics, and for her personal relationships in her district, and the readiness of the Chinese Army (PLA) to take on the US military.

As of this writing, Jason has correctly predicted the Chinese response consisting of increased military exercises, lots of talk, and no/minimal economic action.  He also makes the case that regardless of Speaker Pelosi’s reasons for her visit, there is upside for the US to demonstrate its interest in Taiwan.  With his permission, we provide his exact commentary below:

Potential Reasons for Speaker Pelosi’s Trip to Taiwan:

I can only speculate as others are as to why Speaker Pelosi chose to visit Taiwan on her trip to the Indo-Pacific.  I can say, with high confidence, that it would not be the intent of her trip — or any other U.S. leader’s — to move China away from its “one China policy.”

One advantage we, the United States, have over the CCP is the independence of our three branches of government.  Our system yields us some strategic space when engaging in foreign policy, especially.  The Congress can place pressure on China when the Executive Branch is unwilling or unable to do so, for whatever reasons.  The tension between our branches of government can serve as a “mixed strategy” when pursuing national objectives.

Speaker Pelosi’s visit to Taiwan certainly escalates the rhetorical tension in the region and it will be interesting to see the CCP’s response.  With the Speaker of the House visiting Taiwan, the United States signals the value it places on Taiwan; what General MacArthur once called our permanent aircraft carrier off China’s coast.  I would consider Speaker Pelosi’s visit to be a diplomatic escalation, though an escalation that can be neatly managed by both sides.

We should expect a CCP move in response to the Pelosi visit.  They have said it might be in the form of increased military exercises, economic means, or diplomatic. The method of escalation will serve as another signal in this international game.  My guess is that we will see increased military flights in the Taiwan Strait and around China’s ADIZ combined with relatively strong diplomatic language (which is cheap, by the way), and minimal economic response, if any, given China’s economic slowdown.

All that said, Speaker Pelosi’s visit to Taiwan could simply be that she wanted to go.  We don’t know the relationships she has in Taiwan or what relationships she has with folks in her district who hail from Taiwan.  She also could be visiting to show that her party is not weak on China, but increasing pressure on China.  The visit could be completely about domestic politics.

It would be interesting to know what President Biden and President Xi discussed in their 2-hour call last week.  It was reported that President Biden reminded President Xi about the independence of the Congress, though we don’t know what was said in terms of the two leaders controlling the escalation of tensions, which is a common conversation between leaders that is not typically, if ever, reported.

Unlike you, I do see upside in a Speaker’s visit to Taiwan, especially in the context of the global security environment.  It is Congress, after all, that passed the Taiwan Relations Act.  Russia is on the move in Ukraine.  President Xi and the CCP have expressed its preference to retake Taiwan eventually; by force, if necessary.  Providing the CCP a real reminder of the U.S. national interest in Taiwan is good to do from time to time.

I don’t think the PLA is ready for a military conflict with the United States.  Maybe in 7-10 years that calculation changes, but not now.  Chinese military leaders know that a military fight with the United States, especially a relatively fragile United States, would not bode well for them and would significantly hinder President Xi’s 2049-2050 plans.

Those are some of my initial thoughts on Speaker Pelosi’s trip to Taiwan.

For those of you interested in learning more about 4 Liberty Consulting, you can find more information here:  https://www.4libertyconsulting.com/about-us#top