(Bloomberg) -- Former trauma surgeon and Taipei City mayor Ko Wen-je, who is running for Taiwan’s president for the upstart Taiwan’s People Party, spoke with Bloomberg TV correspondent Stephen Engle in Taipei on Sept. 6. 

The following is a lightly-edited transcript of that conversation, in which Ko discussed among other things Taipei’s fraught relations with Beijing, ties with the US and the future of Taiwan’s chip industry. Ko delivered his responses in Chinese.

Stephen Engle: Dr. Ko, thank you for your time on Bloomberg Television. How would you articulate your stance on cross strait relations? Does it lean more toward the status quo and de-facto independence, or more toward the stance of the Kuomintang, which would like to see much more engagement with mainland China? 

Ko Wen-je: For the time being, maintaining the status quo is the only choice we have because the US won’t let Taiwan unify with China and China won’t let Taiwan become independent. There’s no point in even talking about independence or unification right now because you can’t achieve either. 

There’s no reason to engage in unnecessary politics for something we can’t achieve at this time. Maintaining the status quo is the main consensus in Taiwan right now. I’ve always been opposed to putting off important tasks because of something we can’t do anything about right now and arguing about something pointless every day.

SE: How would you defuse the tensions with China as president? 

KO: To handle the relations between Taiwan and China as things stand, there are two words: deterrence and communication.

First, Taiwan needs to have a strong enough national defense. You can’t place the future of a country entirely in the hands of another country. Taiwan needs to have the capability to protect itself. If you don’t have the capability to protect yourself, you won’t be given the opportunity to speak for yourself at the negotiating table. So we need to build up our deterrence capabilities. We understand clearly that we can’t go up against China on our own militarily. We need to let China know that attacking Taiwan would have a very high cost. So deterrence is one principle. 

The other principle is communication. As long as there’s communication, it will reduce misunderstandings and the constantly rising hostility between the two sides, which increases the risk of war. So we need to reduce the likelihood of conflict through exchanges.

SE: How would you reform the military and defense spending? 

KO: The national defense budget needs to go up because peace comes at a cost. What we don’t like about the Democratic Progressive Party is they are opposing China every day, but I can’t see they have made any preparations. I agree with the move to raise the national defense budget to 3% of GDP, but disagree with their reckless spending. 

For the defense of an island nation like Taiwan, the priorities should be cybersecurity, air force, navy then the army. The budget should be distributed in that order accordingly. To be honest, I don’t know why Taiwan is buying M1 Abrams tanks. Those tanks can’t even drive across a lot of our bridges. The defense budget needs to be increased but the way it is distributed needs to be rational. 

China’s ambitions regarding Taiwan haven’t changed over the past 70 years. The only thing that has changed is China has become stronger. 

Taiwan needs to maintain the ability to defend itself. That’s the only way we’ll be able to negotiate. So no matter what kind of preparations China makes, we have to make corresponding preparations ourselves. But we are willing to communicate with the other side on the basis that we maintain the capability to defend ourselves.

SE: What do you believe President Xi Jinping’s true intentions are toward Taiwan? 

KO: China has a lot of its own internal problems. I don’t think Taiwan is near the top of his list of priorities. As long as we don’t do too many things to confront them, he has too many other things to handle — unemployment and the bubble in their economy is a huge problem. So we shouldn’t stick our necks out. You don’t want to be your enemy’s No. 1 goal.

SE: Can you give us your view on the 1992 Consensus? 

KO: China has never given a clear definition of what they think the 1992 Consensus is. So sometimes people in Taiwan complain, you’re essentially asking us to take out our money and buy something without telling us what we’re buying. 

Here’s my response to China regarding the 1992 Consensus: the consensus has been stigmatized in Taiwan. Whenever you even just bring up the consensus, everyone gets mad. Can we come up with another term? Let’s deal with this pragmatically and not get stuck in disputes over terms. 

SE: Do you think China will talk to you if you don’t accept the ’92 Consensus?

KO: When China asks if we accept the ’92 Consensus, the DPP government directly says “no.” My answer would be: “There doesn’t seem to be a market for this in Taiwan. Should we change the name of the term?”

Let’s say you want to reject someone, you still shouldn’t directly say “no” because that doesn’t leave any room for change. So I still believe that dialogue increases goodwill, and only with goodwill is there a way to take the next step. 

SE: Xi obviously likes One Country, Two System for Hong Kong. That will not work in Taiwan, I assume? 

KO: First, Taiwan has its own military and an elected government. So Taiwan is definitely not Hong Kong. The two are fundamentally different. Second, when China brings up One Country, Two Systems, the DPP answers: no! My answer is: the Hong Kong model doesn’t have a market in Taiwan, maybe we should think about other possibilities.  

SE: If the US were to come to Taiwan and TSMC and ask for more factories — the Taiwanese government owns a sizable stake in a company like TSMC — would you be a willing partner or would you resist? 

KO: In the end, the market will decide everything. 

The semiconductor supply chain has its presence here because Taiwan is the most cost-effective and has the most complete supply chain. Forcing the industry to move to the US will immediately face one problem: it costs more in the US to hire workers, forcing the companies to send workers from Taiwan to Arizona, but then the unions in Arizona came out and blocked this. 

We still need to follow market principles except for vital components under risk-management consideration. 

It’s unrealistic to move TSMC entirely out of Taiwan to the US, Japan or Germany, unless they can convince us that TSMC can produce under the same costs as they do in Taiwan. That seems impossible. 

Since the US strategy on China has shifted from decoupling’ to de-risking, then it should apply the same logic on TSMC: for most of the time, it needs to follow the market except for the parts that are too critical to US national security. It makes no sense economically to move TSMC entirely to the US. 

SE: Nowadays, many companies have to pick whether they are supporting China or the US, which makes doing business very difficult. Warren Buffett sold the entire Berkshire Hathaway position in TSMC due to the risks of investing in Taiwan. How would you ensure foreign companies to continue doing business in Taiwan? 

KO: That’s the reason why both foreign companies and Taiwanese entrepreneurs are concerned about Lai Ching-te being elected. If cross-strait tensions continue to rise, the concerns will be enough to make foreign investors reduce their investments and prompt wealthy people in Taiwan to move their money out, without war even happening. This will significantly hurt Taiwan’s economy. 

That’s why we still need to think of ways to reduce the risk of a war. Zero communication makes a military miscalculation easy. It will have a tremendous impact on Taiwan’s economy. 

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