KEY TAKEAWAYS
KEY TAKEAWAYS
When Lai Ching-te was inaugurated as Taiwan’s new president in May, he thanked supporters “for refusing to be swayed by external forces” and called on China to cease “political and military intimidation.” Days later, Beijing sent its own blunt message to Taiwan’s newly elected president. China’s army, navy, air and rocket forces converged in nearby waters to test its readiness to “reunify” with Taiwan, whether or not the self-ruled island — or any of its international supporters — shared the same objective. Such Chinese military drills around the Taiwan Strait point to one of the world’s most combustible threats, a potential conflict between China and Taiwan that draws in the United States and wreaks havoc with the global economy.
Beijing fears Taiwan’s leaders are pushing the island closer to independence, and the window for reversing such a course is closing. But any military action China takes to steer Taiwan away from independence risks not only significant loss of life on both sides of the Strait — it could also force nuclear-armed powers China and the U.S. into a series of escalatory actions that endanger security and trade throughout Asia. At a minimum, it would disrupt commercial ship traffic and upend the global supply chain for semiconductor chips that feed smartphones, automobiles and home appliances. China’s own economy would be severely affected as well.
That potential for a wider conflict and trade turmoil is what Beijing must weigh when deciding whether to take Taiwan by force. It’s not clear how high a price China’s leader, Xi Jinping, who has consolidated his control over the ruling Communist Party, is willing to pay to alter a tense status quo. Any option he considers — whether that’s a full-scale invasion, some sort of trade blockade or a more limited attack on Taiwan’s outlying islands or infrastructure — threatens to spiral into something larger.
Bloomberg Economics has estimated a war with Taiwan would cost a staggering $10 trillion, equivalent to 10% of global GDP — far outpacing the economic toll from Ukraine’s war, the COVID pandemic and the 2007-2008 global financial crisis. China’s GDP would suffer a 16.7% blow compared to 40% for what would be a devastated Taiwanese economy.
Bloomberg Economics also modeled the fallout from a military blockade of the island, including retaliatory measures between China and the U.S. It estimated a 12.2% hit to Taiwan’s economy, 8.9% for the Chinese mainland and 3.3% for the U.S.
Some experts say the economic damage from a China-Taiwan clash is steeper if the final price tag includes the costs of foreign investors exiting the Chinese mainland and neighboring island for safer but less-productive — and less-lucrative — locations.
“It would be astronomical,” said Paul Triolo, a partner for China and technology policy at Albright Stonebridge Group, which last year labeled a miscalculation involving Taiwan as the advisory firm’s “top wild card risk.”
Most multinational manufacturers with operations in China are at least exploring ways to reduce exposure to any cross-Strait conflict. Some are putting plans into action by shifting operations to other places in Asia, Europe and North America, according to Benjamin Qiu, a U.S.-based attorney who specializes in cross-border disputes and transactions.
“At the end of the day, everyone needs to think of what assets they have at risk, similar to Russia when it invaded Ukraine,” he said. “If you don’t start now, you are starting from zero when it happens.”
Moscow has been able to blunt some of the economic impact that followed its 2022 invasion of Ukraine by selling discounted oil, skirting Western sanctions and raising domestic taxes. Russia has also replaced the dollar with the Chinese yuan as its primary currency of payment for its exports, deepening its economic dependence on China. Yet the number of Russians killed in Ukraine is approaching 200,000, The Wall Street Journal has reported, a sign of how catastrophically President Vladimir Putin miscalculated the human costs of invading Russia’s neighbor.
With a far bigger economy than Russia’s, China would have more leverage than Moscow to resist U.S.-led efforts to isolate it after an attack on Taiwan.
With a far bigger economy than Russia’s, China would have more leverage than Moscow to resist U.S.-led efforts to isolate it after an attack on Taiwan. But China’s integration with the global economy as a manufacturing base and major market would complicate efforts to avoid the shocks from military action against Taiwan.
China’s most recently concluded Joint Sword 2024A exercise, as well as military drills near the island that followed the House Speaker Nancy Pelosi’s 2022 visit to Taiwan, showcased how a coordinated Chinese force might carry out a full invasion.
This boldest of military options may be the least likely, though. Even with China’s firepower overwhelming Taiwan’s defenses, an amphibious invasion would be a tough mission. Russia botched its invasion of Ukraine across a land border, despite having a military hardened from conflicts in Syria and Chechnya. China hasn’t fought a war since a brief invasion of neighboring Vietnam in 1979, and taking a densely-populated and well-fortified island would be exponentially more difficult. “An all-out invasion of Taiwan would be an operation larger and more complicated than the World War II Normandy landings, but unlike the Allied forces, the [China’s] military has never done such a thing,” according to a joint report in May from the American Enterprise Institute and the Institute for the Study of War.
Just how the U.S. would respond to a Chinese invasion of Taiwan isn’t clear. In a simulation of a possible conflict between China and Taiwan, researchers with the Center for a New American Security (CNAS) found participants turned to a familiar punitive action: sanctions. Targeted sanctions, however, were less effective in deterring Beijing from a military campaign than the more sweeping actions of a full trade embargo and severe restrictions on China’s financial sector, including its major banks. At the same time, maximum measures could boomerang on the U.S. and allies, bruising economies and markets and potentially triggering a global recession, according to a 2023 CNAS report, “No Winners in This Game.”
Rather than just absorbing blows from the U.S., China would surely respond, risking further economic damage. Import bans, boycotts, inspections and tariffs are among the measures it could use to bludgeon Western companies and economies — even if it meant endangering jobs and investment in China tied to foreign firms, according to a 2024 report from the Atlantic Council’s Geoeconomics Center and the Rhodium Group, called “Retaliation and Resilience: China’s Economic Statecraft in a Taiwan Crisis.”
A cross-Strait conflict is sure to ratchet up pressure on multinationals to pull out of China, or at least reduce exposure, further depriving Beijing of capital, technology as well as tax revenue for local governments and jobs for the nation’s restless youth. It would also weigh on China’s stock markets, threatening to erase the paper wealth of its middle-class investors.
A military assault on Taiwan would spur China’s propaganda machinery into overdrive, amplifying a core Communist Party message that reunification is central to the rejuvenation of the Chinese nation. Chinese security forces would probably quash any real opposition to the military action, but the public protests that erupted in 2022 over Xi’s zero COVID campaign show how unpredictable the bottom-up reaction can be to top-down policies.
Short of an invasion, a full or partial blockade of Taiwan might, for China, seem like an effective way to punish an import-dependent island for pursuing independence. Patrolled by sea, air and potentially space, a blockade would restrict commercial traffic to Taiwan, choking the island’s economy and depriving its semiconductor factories of the energy and raw materials they need, including the critical mineral of gallium that largely comes from China.
Dmitri Alperovitch, author of the book “World on the Brink,” argues that Beijing’s moves to blockade Taiwan would be self-defeating, however. They would likely halt shipments of the advanced microchips the Chinese economy needs to keep technological pace with the U.S., not to mention undercutting the economic integration it seeks with the island.
“There are key reasons a Chinese economic blockade would fail,” Alperovitch writes for War on the Rocks. “It would rebound on China’s own economy, most likely escalate into a full-scale war, and entail serious geopolitical risk.”
If China blocks exports from an island that accounts for about 90% of the world’s most advanced semiconductor capacity, the U.S. could probably draw wide support for retaliatory measures of its own, possibly even squeezing China at various maritime chokepoints.
Jin Canrong, dean of the School of International Studies at People’s University in Beijing, cautions that the Chinese government would need to brace for economic blowback if it moved to unite with Taiwan by force. In a June article for the online platform Guancha.cn, which examined prospects of “non-peaceful reunification,” Jin writes that China is economically vulnerable not only because it relies heavily on overseas markets to absorb the excess capacity from its factories. It is also the world’s biggest food importer and 73% of its oil comes from foreign sources as well as 42% of its gas.
Given the costs to China of a military-led blockade — which would also include soaring rates to insure ships in the area — Beijing might opt for more incremental moves that minimize the risks of a direct U.S. confrontation, as it has done in the South China Sea, where it has built up positions while avoiding lethal force.
People’s Liberation Army forces may seize an outlying island or stage a cyberattack on Taiwan’s electric grid or attempt to take control of a seaport, possibly as a precursor to a bigger operation.
While Chinese military planners may bet Taiwan wouldn’t retaliate in a way that escalates tensions, a loss of life would probably force the island’s leaders to respond. Alperovitch points out that the five busiest Chinese ports are within range of Taiwan’s Ching Tien supersonic cruise missile. Taiwan conducting such a strike would elevate the tactics of Yemen’s Houthi militants in firing missiles at commercial vessels to disrupt maritime traffic in the Red Sea. In this tinderbox of nationalist passions over Chinese sovereignty, risks are high that an incremental escalation cascades into a conflict that can’t be contained.
Given the costs of conflict, there might be an opportunity for both sides to explore a path to peaceful unification. How that might look in practice would need to be worked out between China and Taiwan — and likely the U.S. In the wake of Putin’s grab for Ukraine, and a bipartisan consensus in Washington on tough positions toward Beijing, such an outcome is difficult to envision. But given the risks of missteps, says Triolo at Albright Stonebridge Group, it’s worth considering how all sides can reduce tensions, such as scaling back the militarization of the Taiwan Strait. “That’s what needs to happen,” says Triolo. “Otherwise, all roads lead to conflict.”
To this end, the U.S. should encourage more interactions between leaders of China and Taiwan that ease tensions and avoid violent confrontation. U.S. policymakers should also lay out publicly key measures Washington might consider in response to an invasion or significantly disruptive action on the part of China, as part of efforts to deter such escalatory steps while maintaining ambiguity over its military role in any conflict. Additionally, foreign business groups in China should convey in concrete terms the potential costs of a full-blown conflict to their businesses, and by extension, to the Chinese economy that still relies heavily on overseas investment.
Peter Wonacott is a former Wall Street Journal foreign correspondent and senior editor who had postings in Asia, Africa, the Middle East and, most recently, Washington D.C. He spent 13 years in China as a reporter, graduate student and teacher.