The cost of China’s military conflict with Taiwan has been calculated: trillions of dollars

The year of great global elections has arrived. On January 13, Taiwan will elect a parliament and a president. Their outcome can affect not only the life of the island itself, but the whole world. The Western press has already begun to assume a military scenario in the Taiwan Strait. Bloomberg has estimated that the cost of the conflict over Taiwan could cost the world $10 trillion. Let’s figure out what this amount came from.

Elections in Taiwan are a kind of “gift with a surprise.” Perhaps not entirely pleasant. Even if the outcome of the island’s elections does not cause an immediate crisis, it will determine the direction of cross-Strait relations, Bloomberg writes.

One of the main leaders of the upcoming presidential race is the current Vice President of Taiwan and Chairman of the Democratic Progressive Party, Lai Qingde. The politician has struggled to prove that he is a candidate for succession who does not plan to disrupt relations with Beijing. However, in the past he has described himself as a “pragmatic fighter for Taiwanese independence.” It is clear that such a position is inappropriate for the PRC. Even a formal desire for island independence is seen by Beijing as crossing a red line.

Lai’s opponents, Hou Yi from the conservative Kuomintang Party and Ko Wenzhe from the Taiwan People’s Party, promise pragmatic steps to improve relations with their neighbor.

US officials say China may be planning a multi-pronged response to the election (including military action, economic sanctions and cyber attacks). Both Washington and Taipei say the period from the January election to the inauguration of a new president in May is a dangerous zone for Chinese actions aimed at containing Taiwan’s next president.

It is clear what the United States is afraid of – even the American press admits that economically the PRC has approached the level of the United States, and the Chinese armed forces are definitely strong. Analysts often state that Beijing has increased its military power so much that it is becoming difficult for Washington to compete with the Asian strongman. It is also clear that Chinese President Xi Jinping’s assertion that Taiwan is not an issue that can be “passed on from generation to generation” is making everyone in the White House nervous. Whatever one may say, for some reason the United States is systematically taking provocative steps in Taiwan and clearly supporting the separatist forces of the island.

In one meeting with Joe Biden, Xi expressed disappointment at the notion that Chinese forces are aiming to be “invasion” ready by 2027. This, according to the leader of the People’s Republic of China, is wrong.

However, Washington continues to bend its fingers, and now Biden is declaring that the United States will come to the aid of Taiwan in the event of a “Chinese invasion.” And this was, by the way, back in September.

Undoubtedly, this event is extremely costly for everyone and on all sides. And Bloomberg explains why. The topic of hostilities on the island, according to Jude Blanchett, an expert on China at the Center for Strategic and International Studies, comes up in 95% of conversations. Taiwan produces most of the advanced semiconductors and chips. Globally, 5.6% of total value added comes from sectors using chips as direct inputs—nearly $6 trillion.

The total market capitalization of chip giant Taiwan Semiconductor Manufacturing Co.’s 20 largest customers. is about 7.4 trillion dollars. The Taiwan Strait is one of the busiest shipping lanes in the world.

Bloomberg Economics modeled two scenarios: a “Chinese invasion” that draws the United States into a local conflict, and a blockade that cuts off Taiwan from trade with the rest of the world.

For the main players, other major economies and the world as a whole, the biggest blow will be the lack of semiconductors. Factory lines for the production of laptops, tablets and smartphones will stop. Automotive and other industries that use lower-end chips will also take a big hit.

In the event of hostilities, Bloomberg clarifies, the economy of Taiwan itself will be destroyed (the impact on GDP is estimated at approximately 40%), due to the severance of relations with major trading partners and the lack of access to advanced semiconductors, China’s GDP will suffer by 16.7%, in the United States GDP will decline by 10.2%. South Korea, Japan and other East Asian countries will suffer the most from the conflict.

Bloomberg admits that in this situation, the United States will be able to enlist the support of its allies to impose economic sanctions against China itself. But this is also in theory.

Bloomberg Economics also modeled what a year-long blockade of Taiwan by mainland China would mean for the global economy. For the island itself, GDP will decline by 12.2% in the first year. For China, the USA and the world as a whole, GDP in the first year will decrease by 8.9%, 3.3% and 5%, respectively.

In general, investors and businesses are already preparing for the worst. The chairman of the Kirkland Capital investment fund and an expert on Asian technology companies, Kirk Young, admitted that the fund’s position in Taiwan is now close to zero. Geopolitical tensions have “added incentive for faster disinvestment,” he said.

He’s not the only one. Investor Warren Buffett sold his stake in TSMC in the first quarter of 2023, citing geopolitical risk.

But there is a silver lining to this, and Bloomberg makes it: The cost of a $10 trillion crisis would be so high for all players that everyone would have an incentive to avoid it.