China Series I of III: Taiwan in Revlon Mode
This is the first in a series of posts inspired by my time travelling in China in Spring 2024.
A review of Revlon
Revlon, Inc. v. MacAndrews Forbes Holdings is a landmark case in Delaware corporate law. The case concerns a conflict between a public corporation’s (Revlon) board and a hostile bidder for control of the corporation. The court is asked to address how far a corporate board may go in implementing defense measures against a hostile bidder, and it adopts a holding that still represents a famous and important standard in conflicts over corporate control. One of the reasons Revlon’s board was motivated to fend off the plaintiff’s hostile bid was that it preferred accepting an offer from a friendly bidder. Stephen Fraidin, a partner at Fried Frank, which represented the friendly bidder, recalls:
At one point there was a negotiation between the parties to try to settle the situation, and my client tells Perelman [the hostile bidder], “We have a big advantage: we have confidential information, you don’t have any. We know what to bid and you do not.” Perelman, who was a smart man, said, “Actually, I have even better information than you have because I know what you’re bidding. And once I know what you’re bidding and I know how smart you are and I know that you have all the confidential information, I know I can bid a nickel more and still have a good deal.” And he was absolutely right.
The principle behind Perelman’s remark seems to me to be the following: when you are competing over an asset but are unsure how to value it, you can assume that as long as your competitors are competent and are in a superior position to value the asset, you may reliably use your competitor’s valuation as a strong heuristic to substitute for your own imperfect information.
There is a tradition of legal scholarship that emphasizes how markets are an artificial construction of law. The fact that markets operate based on specific rules designed by humans may make them an imperfect source of analogies for situations which are not based on those rules. On the other hand, even if the exact behavior of markets may depend on the contingent rules of the marketplace, one may suspect that certain structural aspects of capital markets—such as rational, competent actors competing over scarce resources—are universal enough that these markets’ behavior can illustrate principles applicable to other situations which share the same structural features.
In the spirit of the latter view, the analogy I will pursue in the remainder of this post is that Perelman’s remark in the Revlon negotiations supplies a principle that can help American policymakers evaluate the wisdom of military intervention aimed at preventing the People’s Republic of China (PRC) from asserting military control over the island of Taiwan1. The basic decision that American policymakers face is whether the costs of intervention are greater than the benefits of (potentially—as American victory is not assured) preventing a geopolitical adversary from acquiring control over additional territory. American policymakers must decide, in the face of massive uncertainty, how costly the military intervention would be and how much their strategic interests would be harmed by being deprived of a friendly relationship with the authorities controlling the island of Taiwan. Luckily for these policymakers, they are in a position similar to Perelman’s: even if they do not know how to value the costs and benefits of preventing the PRC from gaining effectual control over Taiwan, they can use other actors, who are competent and who possess similar objectives, as a source of information on proper valuation of these very same costs and benefits. Japan is the player who I believe is best positioned to play this role, and I will argue that Japan’s refusal to commit to even the barest action in defense of Taiwan shows that military intervention is a fortiori unjustifiable for the United States.
A prominent disanalogy between the relationship between Japan and the United States versus Perelman and his competing bidder must be immediately addressed, examination of which will show why the analogy is in fact helpful. This disanalogy is that while Perelman and the Revlon friendly bitter were competitors, the United States and Japan are not. Of course, no one would deny that Japan and the United States do not share the exact same interests, but the two states enjoy a comprehensive political, military, and economic partnership which is unlike the openly adversarial relationship between the parties in Revlon.
But it is not the fact that Perelman and his competing bidder were in competition that made the latter a helpful source of information for the former—it is rather that by virtue of being in competition, Perelman could be assured that his competitor had the same objectives as he did, in this case to earn a competitive return on the acquisition. Perelman’s principle applies in situations where one is in the presence of actors who share the same objectives as oneself, allowing one to reliably copy these actors’ behaviors insofar as they possess superior information. Even though Japan and the United States are not competitors, this aspect of the relationship exists between them: they both are in a position to both pay significant costs for attempting military intervention against the PRC and they are both in a position to be threatened by a geopolitical adversary gaining effective control of new territory. The United States is therefore entitled to rely on Japan’s valuations, just as Perelman relied on those of his competing bidder.
Another important prong of the Perelman analogy to examine is the competitor’s possession of superior information. In the Revlon case, it was obvious to all parties that the friendly bidder had superior information because the collaborative relationship between the bidder and the corporation’s board allowed the latter to disclose confidential due diligence information to the former. In the case of Japan and the costs and benefits of military intervention to defend Taiwan, it is not as immediately clear that Japan possesses superior intelligence or foresight to correctly value these costs and benefits. However, there are several factors that place Japanese policymakers in a superior deliberative position to American ones such that the former’s valuations can be heuristically relied upon by the latter.
First, Japan is much more intensively exposed to the costs and benefits of military intervention in a potential Taiwan-PRC war. Whereas East Asia is an important—perhaps even the most important—theater for American grand strategy, for Japan, the balance of power in East Asia is the central and most existential question of its national security. This increases the incentives for Japanese policymakers to arrive at correct valuations of the costs and benefits of military intervention in Taiwan.
Second, Japan has more ingrained historical experience dealing with the prospect of a much wealthier and more populous China threatening its security. Japan fought several wars with China in the age of industrial military combat. These wars give Japanese policymakers direct experience with how exchanges of control of different territories—including Taiwan—will affect the balance of power between the two states. If one is willing to apply insights from preindustrial warfare, then Japan’s security rivalry with China extends as far back as the first recorded battle between the two nations in the year 663 AD. This record of historical experience gives Japanese policymakers a much richer record based on which they can evaluate the danger of the PRC gaining actual control over Taiwan.
Finally, (and I concede this is probably my weakest factor ) Japan’s foreign policy strikes me as more realist and less moralistic than that of the United States. While I do not intend to enter into any abstract debates about the proper philosophy for governing foreign policy, I hope to leverage the general intuition that a more realist foreign policy will perform better in evaluating concrete costs and benefits of military exchanges of control than a foreign policy in which moral considerations play a significant or predominant role.
If one accepts the arguments above that Japan has a superior position (both because of better information and greater exposure to the problem) for evaluating the wisdom of military intervention in a Taiwan-PRC war, then the crucial question becomes how Japan actually values the costs and benefits. Like that of the United States, Japan’s official stance on such intervention is one of “strategic ambiguity.” In fact, not only does Japan maintain this position with respect to the participation of its own forces in prospective military intervention, it goes even farther as to remain noncommittal on the question of to what degree it will permit the United States to use its bases in Japan (which make up the bulk of American forces in East Asia ) in such intervention. Therefore, in order to evaluate what Japan’s stance says about its valuation of Taiwan, a brief discussion of strategic ambiguity is in order.
Addendum on Strategic Ambiguity
Since the beginning of recorded history, states have formed defense alliances—commitments to regard attacks on one as attacks on all—with other states that they see as important to their foreign policy objectives. However, a state’s alliance network may not cover all situations which that state sees as requiring its military assistance. States therefore sometimes signal commitments to and/or actually provide military assistance to states outside of their formal alliance network. One intermediate position within the spectrum of this kind of extra-alliance defense commitment is strategic ambiguity: refusing to commit to providing or withholding military assistance to a non-allied state if that state is attacked.
Why might a state adopt this position? Analysis of the payouts of this strategy can begin with four scenarios facing a state that remains strategically ambiguous on whether it will intervene in favor of a second state facing an attack:
| Attack happens | Attack does not happen | |
|---|---|---|
| State intends to intervene | Full deterrence value of commitment not realized | Partial deterrence value sufficient, avoidance of retaliation |
| State does not intend to intervene | Partial deterrence value insufficient, avoidance of reputational harm | Partial deterrence value sufficient, avoidance of retaliation |
The uppermost and leftmost cell describes a situation in which an attack on the threatened state does occur and the primary state defends the threatened state. In this case, I argue that the state faces a negative payout from the strategy because it failed to realize the full deterrence value of a commitment to defend the threatened state. If it had expressed its commitment to such defense, then it might have successfully deterred the attacker and not have had to pay the costs of actual military intervention. Moving to the right, if the attack does not happen, then the state realizes enough deterrence value (I refer to the deterrence caused by a stance of strategic ambiguity as “partial deterrence”) to prevent the attack, and it also receives the benefit of not inviting retaliation from the attacker for committing to the threatened state’s defense (positive payout). On the bottom row, if the state does not actually intervene, then if an attack does not happen, it gets to realize the partial deterrence value of its strategic ambiguity as well as avoid the retaliation associated with a defense commitment (positive payout). If the attack does happen, then the partial deterrence value of strategic ambiguity was insufficient to deter the attack, but this is unavoidable. A firmer commitment that yielded more deterrence would have incurred horrible reputational damage when the attack occurred and the state did not actually intervene.
While my basic analysis of strategic ambiguity within the space of a short essay is necessarily crude, what I am trying to suggest is that the strategy primarily makes sense in two scenarios. First, the state does not intend to intervene but wants to realize some partial deterrence value by refusing to state this publicly. Second, the state will intervene, but it fears retaliation from the attacker if it expresses now its commitment to do so. But this second explanation only makes sense if the state believes that it will be better prepared for retaliation in the future than it is now. This is because if a state fears retaliation from the attacker, that retaliation will occur if and when it does eventually intervene, so refusing to commit and incur that retaliation now merely delays it. In other words, if you actually intend to intervene to defend a threatened state, the only reason not to state this publicly and get the full deterrence value of your commitment would be if you think that you can delay retaliation for another day when you will be better prepared.
It is possible that Japan believes this, but the extremely modest character of its current defense buildup suggests that Japan cannot possibly believe it will be in a substantively different military posture in the near future than it is now. If that is right, then the main justification for strategic ambiguity would be the first scenario mentioned above: realizing partial deterrence value that goes above and beyond what you actually intend to do.
One possibility my analysis has not contemplated so far is that the strategically ambiguous state has not decided yet whether it will intervene in the event of an attack on the threatened. While this would be an important aspect of strategic ambiguity to explore in the abstract, it seems to me less relevant to the concrete case of Japan deciding whether to defend the territory controlled by the ROC from a PRC military operation. Besides mere laziness, the main reason a state might want to delay a decision whether it would intervene in favor of a threatened state is that it expects its security environment could look significantly different when the decision is required, and its decision will depend on precisely what state that environment is in.
For example, a landlocked state that has access to two neighboring states’ transportation routes to a seaport might decide very differently whether it would defend territory containing one these routes depending on whether the other one is available. For a state in that kind of situation, it would be helpful to express to potential attackers that intervention is on the table but unhelpful to fully commit to that intervention if it becomes unnecessary when the day of decision arrives. But assuming that a PRC military operation to gain effectual control over Taiwan’s territory would occur in the short-to-medium run, it is hard to see what factors could change that would make delaying the decision worth it. Japan’s government already knows that China is growing both economically and militarily, so it is unclear what other factors it could be waiting for that would be necessary to decide whether intervention was necessary. Therefore, if delay for the sake of waiting for new information can be ruled out, then Japan’s stance of strategic ambiguity would make sense primarily in the situation where it does not intend to intervene but wants to realize partial deterrence against the PRC.
Continuation of argument
If we accept that Japan’s stance of strategic ambiguity reflects the unlikelihood of actual intent to defend the territory of Taiwan from a PRC military operation, then we can begin to apply the Perelman principle and see if Japan’s lack of commitment should be relied upon as a heuristic for American policymakers. One way of gaining confidence in the application of the principle is to focus on Japan’s possession of superior information and incentives. Since I have already discussed the justifications for these premises, I will now focus on the substantive reasons why Japan’s decision not to intervene looks wise.
American proponents of intervention in Taiwan often cite the high volume of trade that flows through the Taiwan and Luzon straits (the two waterways over which the PLAN would gain significant influence were it to be able to base forces in Taiwan). While these statistics are accurate, they leave out an important part of the story. It is true that Japan currently imports much of its essentials like oil and raw materials through these waterways, but if the Taiwan and Luzon straits were to become unusable, Japan would have other options. In particular, Japanese vessels could simply swing out further into the Pacific beyond Taiwan after transiting through the South China or Philippines Sea, eventually looping back to ports on the east coast of Japan. This alternative route would entail delays, but delaying oil shipments a few days (and thereby increasing shipping costs ) is not exactly a geopolitical trump card for which it is worth paying a massive blood price. Another advantage associated with control of the island of Taiwan would be the opportunity to base PLA long-range strike weapons that could reach Japan on the territory, but the PLA already has territory much closer to Japan than Taiwan is, and it could and does use this territory to base strike weapons even closer.
Insofar as this analysis strikes the reader as excessively speculative, we might return to the earlier point that Japan has significant experience fighting wars with China in the industrial age. When the Japanese Empire began expanding in the 20th century, it did not merely stop at Taiwan. One reason for this may be that in order to blockade East Asia’s naval access to the rest of Eurasia, one would have to control not only Taiwan, but also key waterways in Southeast Asia like the Strait of Malacca and less convenient alternatives within Indonesian territory. Many historians argue that it is precisely this importance of Southeast Asia for controlling maritime traffic in and out of East Asia that formed an important part of the motivation for the Japanese conquest thereof.
So, if Southeast Asia is the real prize that can subject Japan to PLAN coercion over oil and raw materials imports (exactly the kind of threat that the IJN was worried Allied control of the region would pose), then Taiwan does not look particularly consequential in changing the overall security environment for Japan. Control of Taiwan will enable the PRC neither to subject East Asia to a maritime blockade nor to base strike weapons closer to Japan than the PLA already does. This logic supports application of the Perelman principle in a way that would allow American policymakers to infer that struggling for control of Taiwan cannot possibly be worth it for the United States if it is not even worth it for Japan.
A significant counterargument to the views I have proposed so far is that Japan and the United States are not exactly independent actors. Japan does have vestiges of sovereignty such as a constitution (though one written by an American general) and a flag, but there is a case that its foreign policy is at best semi-sovereign. If Japan functions as a de facto satrapy or protectorate of the United States rather than a fully sovereign state, it might not view the defense of Taiwan as its own responsibility. If this is right, then American policymakers cannot rely on Japanese reticence as a heuristic valuation because Japan may be pricing in an expectation that the United States will deal with the problem.
To some degree, this is a question that admits of empirical resolution. Recent polls of Taiwanese foreign policy experts have not found a particularly high level of confidence that the United States will intervene in Taiwan. Unless these results are unrepresentative of the foreign policy decisionmakers in Japan, we can be confident that any decisions about Taiwan will not be made on the premise that American intervention, much less victory, will be certainly forthcoming. If Japan does not intervene, and it does not believe that the United States will definitely do so, then it is prepared to live with a PRC-controlled Taiwan. And—returning to the Perelman principle—if Japan can feel secure in that situation, it certainly follows that the United States, located thousands of miles further from China, can be at least or more secure.
Consideration of the security relationship between the United States and Japan raises another important counterargument: Japan’s lack of nuclear weapons and generally weaker military. Recall that one of the foundations of the Perelman principle was that the heuristic actor has the same payouts and costs for the decision being considered. But since Japan lacks nuclear weapons and has a much smaller military, perhaps it faces different costs and therefore cannot be heuristically relied upon by the differently-positioned United States. Beginning with the nuclear issue, Japan is clearly under the United States nuclear umbrella, making its own possession of nuclear weapons irrelevant. If China were to initiate a nuclear strike on Japan, the United States would be treaty-bound to retaliate. It is also worth noting that China is one of only two nuclear powers to maintain a no-first-use policy.
On the conventional front, we might begin by observing that the Japanese Self Defense Forces (JSDF) uses the exact same air defense systems (PAC-3 PATRIOT batteries on land and Aegis at sea) as the United States, so both forces can expect similar levels of damage from Chinese conventional strikes. While it would be absurd not to acknowledge that the JSDF is much smaller than the United States military, when one focuses on American forces actually available for operations in East Asia, the militaries’ capabilities are not vastly different.
Earlier in the essay I accused the United States of having a moralistic foreign policy. Some readers who belong to this tradition may dismiss my mercenary arguments about blockades and long-range strike weapons and plead that defense of Taiwan is required in order to maintain the integrity of the liberal international order. One reason to immediately reject these claims is that not even the United States or any of its allies recognize Taiwan as an independent country. The American-acknowledged legal situation of the ROC, the government currently in control of Taiwan, is that it is part of the territory of China and the PRC is the legitimate government of China. The conduct of military operations within its own territory is, as a purely formal matter of positive international law, the sovereign right of the PRC under the letter of the law with which our proverbial defenders of the liberal international order purport to be concerned.
At a more basic level, I find it impossible to take seriously the integrity of any liberal international order when the United States has been continuously conducting military operations against sovereign states—unauthorized by the United Nations Security Council—during the entire time I have been alive. It is possible to have a conversation about whether these or prospective future military interventions have been in the interests of the United States or the world, but it is impossible to seriously worry that a PRC operation in Taiwan will abrogate the completely non-existent precedent of superpowers not using military force to achieve foreign policy objectives.
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I am aware that the language one uses to refer to the cross-strait political situation can be controversial. For the sake of clarity and neutrality, I will try throughout the post to adopt the same usage of terms as the Taiwan Relations Act. ↩