Syaru Shirley Lin explains the divergence between the development of economic and political relations across the Taiwan Strait and the oscillation of Taiwan’s cross-Strait economic policy through the interplay of national identity and economic interests. (1 hr., 2 min.)

When President-elect Donald Trump broke protocol and took a call from Taiwanese President Tsai Ing-wen in December, it brought a complex three-way dynamic between the United States, China, and Taiwan into the international spotlight.

Though Taiwan broke away from mainland China politically after the conclusion of the Chinese Civil War in 1949, it never formally declared independence and China continues to claim the island as its own. The U.S. position has been to support both Taiwan’s autonomous democracy as well the status quo consensus with the mainland that there is only “one China.” The U.S. therefore avoids moves that appear to endorse Taiwan independence, but it remains ambiguous as to whether it would come to the island’s aid militarily in the event of an invasion by the mainland.

Chinese University of Hong Kong Professor Syaru Shirley Lin, author of the book Taiwan’s China Dilemma, says though that an ongoing shift in Taiwanese identity is creating a “trilemma” that’s complicating the status quo for each of the three parties.

“After democratization [in the late 1980s] Taiwanese identity was initially ethnically based,” Lin said during a recent presentation at Asia Society in Hong Kong. “Increasingly, people think of Taiwanese as embodying a way of life — you embrace civic values, democracy, rule of law, and freedom.”

From the war through democratization, Lin said, the island was essentially divided between benshengren (locals with roots prior to 1949) and waishengren (outsiders who came after). In 1989, 52 percent of the population identified as Chinese and 16 percent as Taiwanese. At that time, political and economic preferences tended to align with self-identity. Many “Chinese” wanted to move closer to the mainland, while “Taiwanese” wanted to keep it at arm’s length.

But as the island’s democracy has developed and diverged further from China’s one-party system, its identity has consolidated: More than 59 percent now identify solely as Taiwanese and only 3 percent as Chinese, with the rest identifying as both. “The result is that one can no longer differentiate policy based on identity,” Lin said. “Prioritizing national interest, therefore, becomes much more focused on rational considerations and economic logic.”

Because of this shift, Taiwan's dilemma has become less about sociopolitical integration with the mainland and more economic. “Should [Taiwan] increase its economic competitiveness by deepening integration with China and becoming more prosperous and stronger?" Lin said. "Or should Taiwan reduce its dependence on the Chinese economy in order to be more economically and militarily secure?”

The Taiwan identity shift also raises a big dilemma for Beijing, since its ultimate goal is to formally bring the island back under its control. In addition to identity consolidating around “Taiwanese,” the proportion of Taiwan’s residents that support reunification with China is on a rapid decline, falling from 20 percent in 2003 to 7 percent in 2015, while the proportion seeking immediate or eventual independence is on the rise (though the majority still favors maintaining the status quo). “So Beijing has three very big sub-ideal options,” Lin said.

The first is to “stay the course” by continuing to try enticing the island back through economic benefits. The second is to use pressure through economic and diplomatic sanctions and the threat of military force. Both of these options have been tried in various forms over the past three decades and have both coincided with the trend of increasing “Taiwanese” identity. That leaves the third, and perhaps least likely, option: “I think the most effective strategy is to narrow the gap [between political systems],” Lin said. “[China should] undertake reforms to reduce differences and allow elections.”

This shifting Taiwanese identity poses a dilemma for Washington as well. The 1972 Shanghai Communiqué between China and the United States (wherein the latter affirmed the “one China” policy) was based on the written assumption that “all Chinese on either side of the Taiwan Strait maintain there is but one China and Taiwan is a part of China.”

“The new Taiwanese identity challenges this assumption,” Lin said, noting that the United States essentially has three options for dealing with the situation:

1. Give Taiwan more explicit backing, support its independent participation in international affairs, and increase economic, political, and military relations.
2. Use the support of Taiwan as a bargaining chip to strike a deal with China on other issues in the U.S.-China relationship.
3. Stay the course and discourage China and Taiwan from making any moves that might disrupt the status quo.

Within a relatively short period, perceptions of Donald Trump’s approach have oscillated between all three options. His December call with Tsai Ing-wen was initially welcomed by many within Taiwan as an indication that he might pursue the first track and more explicitly recognize the island’s sovereignty. But those hopes were tempered days later when he appeared to lean more toward the second option. "I fully understand the 'one China' policy,” he told a reporter. “But I don't know why we have to be bound by a 'one China' policy unless we make a deal with China having to do with other things, including trade."

However, since being sworn in as president he has appeared to shift towards the status quo option. In a recent phone call with Chinese President Xi Jinping, he affirmed U.S. commitment to the one China policy — apparently without condition.

Watch Lin’s complete presentation in the above video.