China – Taiwan: War Will Cost 10% of World GDP
As Taiwan’s January 13 vote approaches to elect a new president of the island, Bloomberg has analyzed the global economic implications of a possible military conflict between Beijing and Taipei. Bloomberg analysts estimate that “a war to reunify Taiwan with China would cost so much blood and money that even those most dissatisfied with the status quo have reason not to risk it.”
More specifically, the outbreak of a large-scale military conflict for control of Taiwan could cost the entire world $10,000 billion ($10 trillion) – a figure that “eclipses even the very serious economic consequences of the Covid pandemic, the consequences of the bloody conflict in Ukraine, and the global financial crisis combined.”
The cost of a hypothetical military conflict is equivalent – according to Bloomberg – to more than 10% of global gross domestic product. The economic impact will come primarily from the central role the island plays in the global semiconductor industry. According to Bloomberg experts, 5.6% of the added value produced globally, or $6,000 billion, comes from industries that directly use microchips. In particular, the market capitalization of the 20 largest customers of the Taiwanese semiconductor giant TSMC exceeds $7,400 billion. Moreover, the Taiwan Strait, which has been the scene of alarming military maneuvers in recent months, “is one of the busiest maritime trade corridors in the world.”
Bloomberg analysts believe that the consequences of the crisis after the vote will be essentially twofold: the island blockade, which will exclude Taiwan from world trade, and a real Chinese military invasion with direct US military participation in the defense of Taiwan. According to the US Economic and Financial Agency, “the island blockade by China would lead to a collapse of Taiwan’s GDP by 12.2% during the first year of the conflict,” while for China, the USA, and the whole world the consequences in terms of GDP would be 8.9%, 3.3%, and 5 percent respectively.
If a political solution is not found and large-scale military conflict ensues, the Taiwanese economy “will collapse, with a decline of 40% in a year and the destruction of civilian and industrial settlements along the coast.” China’s GDP would also “risk a collapse of around 17%,” while the economic loss for the US would be around 6.7% of GDP. At the global level, the damage to GDP could amount to 10.2%, which would have particularly dire consequences for the economies of South Korea, Japan, and all of Southeast Asia.
Bloomberg recalled that “tensions in the Taiwan Strait reached unprecedented levels of alarm following the 2022 visit of Nancy Pelosi, the former Speaker of the US House of Representatives, to Taipei.” Chinese President Xi Jinping has said several times that “Beijing is determined to complete the process of reunification with the island,” which Beijing traditionally considers its “separatist province.”
