In a diplomatic first, Taiwan severed ties with El Salvador earlier this week. Foreign Minister Joseph Wu cited the Central American nation’s request for an “astronomical sum” of financial aid as the reason.

Typically, Taiwan is portrayed as the victim of China’s vise-like squeeze on its diplomatic allies, which are now reduced to just 17. But since the election of President Tsai Ing-wen of the broadly pro-independence Democratic Progressive Party, Taiwan has taken a simultaneously more emboldened and thriftier approach to its increasing isolation.

It is refusing to engage in bidding wars for diplomatic recognition.

As Tsai put it in an official statement in June 2017 after Panama ended diplomatic relations with Taiwan: “Although we have lost a diplomatic ally, our refusal to engage in a diplomatic bidding war will not change.”

In the case of El Salvador, it acted preemptively. Foreign Minister Wu tweeted: “Taiwan will not engage in dollar nor debt-trap diplomacy. This is why El Salvador’s repeated requests for assistance with an unfeasible port development were declined.”

El Salvador is Taiwan’s fifth diplomatic loss since Tsai came to power, following Burkina Faso, the Dominican Republic, Sao Tome and Principe and Panama.

But this new tack is a significant change of direction for Taiwan. As a Lowy Institute report put it, China has been “plucking off Taiwan’s allies one by one, and using the remaining ones as bargaining chips – a slow ‘death by 20 cuts’ and international asphyxiation, unless Tsai chooses her predecessor’s path and accepts the [1992] Consensus.”

1992  consensus

The so-called 1992 consensus is subject to competing interpretations, and is widely perceived in Taiwan as an ex-post facto fabrication on the outcome of discussions between representative bodies from China and Taiwan in Hong Kong in 1992.

China takes the consensus as an affirmation of its ‘One China Policy,’ and its position that Taiwan is an indivisible part of it. Tsai, with the backing of the DPP, refuses to acknowledge the consensus.

Historically, since the United States established formal diplomatic relations with Beijing in 1979, Taiwan’s loss of allies evoked much angst. Hand-wringing reached a frenetic nadir in August 1992, when South Korea terminated formal relations with the island.

In response, Lee Teng-hui, president of the Republic of China and chairman of the Kuomintang (KMT) from 1988 to 2000, ushered in an era of what he called “pragmatic diplomacy.” In short, Taiwan was to pursue close relations without diplomatic recognition, while remaining flexible on name and membership status issues.

To a large extent, that is how Taiwan has conducted its international relationships since. Tsai’s presidential predecessor, Ma Ying-jeou of the KMT, negotiated a “diplomatic truce,” with China. During his two terms in office, Taiwan lost just one ally, Gambia.

But Ma’s coziness with China, cost him and his party politically. The DPP won the presidency and, for the first time, a majority in the legislative body, in the 2016 Taiwan elections.

Diplomatic assault

It might be argued, given China’s stated animosity to the Tsai administration, that Taiwan is spent, and has resigned itself to China’s scorched-earth diplomatic assault. But some in Taiwan maintain that the island can afford to lose all its diplomatic allies, if necessary. Moreover, it might even be better off for it.

As former Premier Yu Shyi-kun, leader of a Taiwanese delegation to the inauguration of President Donald Trump, reflected, the loss of small diplomatic allies to China amounts to more domestic budget for Taiwan.

Former DPP Chairman Hsu Hsin-liang, head of Foundation on Asia-Pacific Peace Studies, which is a private think tank, has echoed such views, arguing that small diplomatic allies impose an unnecessary economic burden on Taiwan. Losing them “is not really important,” he said.

Viewed in this light, as China’s global push to buy influence comes under increased skeptical scrutiny and critics warn of “debt-trap” diplomacy, Taiwan is opting out of an outright bidding-war confrontation. The risk is diplomatic isolation. The result would be business as usual.

Taiwan is a member of the World Trade Organization, the Asian Development Bank and the Asia-Pacific Economic Cooperation. It also continues to engage in what Lee Teng-hui called “pragmatic diplomacy” with major powers such as the European Union, the US and Japan.

“Forcing Japan to turn against Taiwan is something that would hurt Taipei,” Taiwan analyst Michael Thim has noted. “However, for all the power that Beijing has accumulated and the energy it commits to the task of Taiwan’s international marginalization, Japan is firmly out of its reach.”

Some analysts in Taiwan agree. Taiwan’s informal ties with major powers gives it more “support” than the tiny formal ones, said Alex Chiang, international relations professor at National Chengchi University in Taipei.