War With China Over Taiwan Would Be Deadly And Cost $10 Trillion

ANALYSIS – As the world reacts to the results of Taiwan's presidential election, one major analysis has calculated that the global financial impact of a U.S. war with China could be upwards of $10 trillion, in the first year alone.

That would represent 10% of global GDP – a greater hit than the global costs from the Russian war in Ukraine, the COVID-19 pandemic, and 2007-2008 financial crisis, combined.

This analysis only focuses on the financial costs of an outright invasion by China and blockade of Taiwan. It doesn't consider the vast, direct and horrific toll a war would take on lives and property, which would be cataclysmic.

And as the Leader-Telegram reported:

China's rising economic and military heft, Taiwan's burgeoning sense of national identity, and fractious relations between Beijing and Washington mean the conditions for a crisis are in place. With cross-Strait relations on the ballot, Taiwan's Jan. 13 election is a potential flashpoint.

The Ukraine war, and the semiconductor shortage that developed as the world reopened from COVID lockdowns, provide a small-scale example of what could be in store for the world economy in a war over Taiwan.

But the global impact of war in the Taiwan Strait would be far more catastrophic. Taiwan makes most of the world's advanced logic semiconductors. 

According to Bloomberg Economics, a war over Taiwan would have “a cost so vast that even those unhappiest with the status quo” have good reason not to risk it.

Bloomberg Economics has modeled two scenarios: One is a Chinese invasion drawing the U.S. into a regional conflict, and the other is a blockade cutting Taiwan off from the rest of the world.

A combination of models is used to estimate the impact on GDP, including the blow to semiconductor supply, disruption to shipping in the region, trade sanctions and tariffs and the impact on financial markets, Bloomberg said.

Other findings worth noting include a 5% global GDP impact in the event of a successful Chinese blockade of Taiwan without an invasion.

The estimates also indicate that the hits to China's own economy would be substantial in either scenario. China would suffer a 16.7% crash in GDP in the event of a war and 8.9% following a blockade.

However, as the Leader-Telegram also noted:

Few put a high probability on an imminent Chinese invasion. The People's Liberation Army isn't massing troops on the coast. Reports of corruption in China's military cast doubts on President Xi Jinping's ability to wage a successful campaign. US officials say tensions eased somewhat at the November summit between President Joe Biden and Xi, who pledged “heart-warming” measures to woo foreign investors.

More recently reported National Review:

A senior Chinese Communist Party official, Liu Jianchao, claimed during an event at the Council on Foreign Relations today that Beijing would never start a war, cold or hot. (The obvious thing to note here is that Liu's job is to put a globally acceptable face on a fundamentally dishonest regime with revanchist intent.)

None of this means we should not be preparing for this conflict. The Leader-Telegram continued:

Still, the outbreak of war in Ukraine and Gaza are reminders of how long-simmering tensions can erupt into conflict. Everyone from Wall Street investors to military planners and the swathe of businesses that rely on Taiwan's semiconductors are already moving to hedge against the risk.

National security experts in the Pentagon, think tanks in the US and Japan, and global consulting firms are gaming out scenarios from a Chinese maritime “quarantine” of Taiwan to the seizure of Taiwan's outlying islands, and a full-scale Chinese invasion.

FPIF notes that:

In Brookings' second scenario for “a broader subregional war,” both sides would use jets and missiles in a struggle that would engulf southeastern China, Taiwan, and U.S. bases in Japan, Okinawa, and Guam. If China's attacks proved successful, it might destroy 40 to 80 U.S. and Taiwanese warships at a cost of some 400 Chinese aircraft. If the U.S. got the upper hand, it could destroy “much of China's military in southeastern China,” while shooting down more than 400 PLA aircraft, even as it suffered heavy losses of its own jets.

This Brookings analysis shows in more graphic terms, what the costs of a war would entail.

Instead of making U.S. leaders cower in fear, however, this only reminds us how important it is to have effective defense to deter any conflict by making the cost to the enemy be too high to bear.

The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.

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