Bloomberg has published an extensive analytical piece on the impact of a hypothetical war between China and Taiwan with the participation of the United States on the global economy. The forecasts are not encouraging. It could cost the world $10 trillion, or 10% of global GDP, which is much more than the impact of the COVID-19 pandemic, the war in Ukraine, and the global economic crisis on the global economy. According to experts, the presidential election in Taiwan on January 13, 2024 could be a potential outbreak point.

Bloomberg considers two scenarios of the conflict, the first with a direct invasion of China and the US involvement in the conflict, and the second with a Chinese blockade of Taiwan.

In the event of a direct military conflict, the trade potential of Taiwan, a global chip supplier, would drop by 100%, trade turnover between the US and China would drop by almost 100%, trade tariffs between US allies and China would increase by 50%, and trade with Japan, South Korea, and other Asian countries would decrease by 80%.

This will cost Taiwan’s economy 40% of GDP, and given that both human and material resources are concentrated on the coast, which will be attacked first, it could be much more. But China will not stand aside, and its already slowing economy will lose 16.7% of GDP, which is a lot. The US will lose 6.7% and the rest of the world 10.2%.

In the event of a blockade of Taiwan, and we are talking primarily about a naval blockade, the island country’s trade will also come to a complete halt, with trade tariffs between the US and China increasing by 50% and between US allies and China by 25%. This will result in a 12.2% drop in Taiwan’s GDP, an 8.9% drop in China’s, a 3.3% drop in the US, and a 5% drop in the rest of the world.

A war over Taiwan between China and the United States could cost $10 trillion, or 10% of global GDP

Both scenarios are based on the assumption that the United States will be able to engage its allies in coordinated and severe economic sanctions against China.

As a reminder, Taiwan is the country that produces most of the most advanced semiconductors. For example, TSMC’s customers include Apple, NVIDIA, Broadcom, AMD, Intel, Texas Instruments, Qualcomm, and many others. Their total capitalization is $7.4 trillion. 5.6% of the world’s total value added comes from sectors that use chips as one of the key components of products and services. In addition, the Taiwan Strait is one of the most important shipping routes in the world.

The Taiwan Relations Act, adopted in the United States in 1979, establishes the US commitment to provide defense assets and services, in particular in the event of external threats to the security of Taiwan’s social and/or economic system, the nature and extent of which are determined by the US President and Congress. So, in theory, the United States should defend Taiwan, but the weak foreign policy of the United States raises questions about the methods of this defence.

A war over Taiwan between China and the United States could cost $10 trillion, or 10% of global GDP

Earlier, during the First (1954-1955), Second (1958), and Third (1995-1996) Taiwan Strait Crises, the United States adhered to its allied commitments and provided naval and air support to Taiwan. In 1954 and 1958, the use of nuclear weapons against targets in China was even discussed, but President Eisenhower did not agree to these proposals.

During the confrontation in 1958, the United States deployed F-104 Starfighter fighters disassembled into parts to Taiwan, and 31 Chinese MiG-15 and MiG-17 were shot down during air battles. This was the first real use of AIM-9 Sidewinder missiles.

During the 1995-1996 crisis, there were no direct clashes, but the United States sent two aircraft carrier groups to the strait, led by the USS Independence (CV-62) and the USS Nimitz (CVN-68).

A war over Taiwan between China and the United States could cost $10 trillion, or 10% of global GDP

The third crisis in the Taiwan Strait began around the presidential election in Taiwan. It could happen again this time. On January 9, 2024, air raid sirens were already sounded on the island, allegedly by mistake, due to the launch of a Chinese space satellite and the fall of the second stage of the launch vehicle, which flew over Taiwan at an altitude of more than 500 km. However, in 1996, China also launched missiles over Taiwan, this time combat missiles, so the reaction of the Republic of China was hardly unexpected.

The presidential elections in the Republic of China will be held on January 13, 2024. Lai Tsingde (Democratic Progressive Party, supports Taiwan’s independence), Hou Yui (Kuomintang, adheres to the one-China policy, but believes that the Republic of China, not the People’s Republic of China, is its legitimate government) and Ke Wen-jeou (Taiwan People’s Party, positions itself as an alternative to the first two) are running for the post. Foxconn founder Terry Gou, who ran for president, withdrew his candidacy in November 2023.