Invasion destroys at least 2 trillion in economic activity from just a blockade

Charlie Vest et al., "The Global Economic Disruptions from a Taiwan Conflict," Rhodium Group, 12-14-2022, https://rhg.com/research/taiwan-economic-disruptions/-- 嘉玮

When taken together, our estimates suggest that the global disruption from a Taiwan conflict would put well over two trillion dollars in economic activity at risk, even before factoring in the impact from international sanctions or a military response. This note offers a look at just some of the likely disruption channels in a blockade scenario, and this figure should be regarded as a floor; the full scope of imperiled activity would surely be greater. Importantly, most of these disruptions would materialize almost immediately (particularly the impacts in financial markets) and would be hard to reverse. These impacts would be felt across the global economy, including in countries that may appear to be only tangentially linked to Taiwan.

Some of the impacts of a blockade could be mitigated, if only partially. A share of global trade could be redirected, and smart policy and business decisions in advance of a crisis—such as increasing stockpiles of critical chips—could mitigate the impacts from a short-lived conflict. Yet Taiwan’s centrality in the global semiconductor manufacturing ecosystem means there would be few alternatives in the short-run, and thus disruptions from a blockade would lead to very high, unavoidable costs to the global economy.

Our work sets aside, for now, the economic costs of international policy responses such as financial sanctions against China, but the potential application of these tools needs to be better understood. Additionally, while we have focused on the direct economic activity at risk from a blockade, there are a wide range of economic risks associated with lower-level tensions in the Taiwan Strait that need to be better understood. These might include Chinese economic coercion against foreign companies and countries in response to Taiwan-related statements or actions, rising shipping costs from intensifying military activity in the Taiwan Strait, or the reaction of financial markets to a further escalation between China and Taiwan, possibly involving the US. Preparing for these risks, including through rigorous contingency planning, will be important, whether or not one believes a full-blown conflict is coming.