Through the lens of China, the island ‘Of Taiwan’ also known as the Republic of China (ROC), was lost through unfortunate events. Taiwan is situated apart from China’s 180km-wide Taiwan Strait. China and Taiwan have been conflicted since the Chinese civil war happened. Since China owns Taiwan, China doesn’t want Taiwan to develop diplomatic ties with any other country. In an attempt to control Taiwan, China has taken a few offensive steps, which have given a conflictual spark between China and Taiwan.

If the situation remains escalating between China and Taiwan, it will end in consequences exactly similar to those of the Ukraine-Russia war. Any crisis would influence trade and investment patterns on a global level.

China’s display of military might and aggressive tactics to control Taiwan is the reason for their tense relations. China is spending a lot to diversify its military growth and display more of its military power. In the case of the Chinese blockade of Taiwan, China’s economy would squeeze by 7%, Taiwan’s 40% leading to global economic disruptions up to 2.8%. Taiwan Semiconductor Manufacturing Co has contributed much to making Taiwan famous for semiconductors. Taiwan is leading in the Global semiconductor industry, which is used in gadgets, vehicles, and AI weapons. Taiwan’s exports of integrated circuits were up to $184bn in 2022, nearly 25% of Taiwan’s GDP. The total revenue of TSMC from 2022 to 2023’s, ending on March 31st, was $72.873B. Relations between Taiwan with mainland China went tense because of Taiwan’s leading position in the semiconductor industry over the years, specifically after the election of the country’s current president, Tsai Ing-wen, in 2016. It is said that China’s invasion of Taiwan could do more damage to the world economy than the stock market crash of 1929. The occurrence of disruptions in Taiwanese manufacturing facilities amid a conflict with China has the potential to create severe hurdles in the U.S. military-industrial capabilities. This, in turn, could significantly undermine its technological advancements. TSMC chips are used in every new Apple iPhone. A large number of semiconductors are used in automobiles of which, most of which are Taiwanese.

Numerous sectors rely on the accessibility of products on Taiwanese microchips. Shortages of essential parts and constituents pertinent to vital public infrastructure like healthcare and communication equipment might become prevalent. So, a conflict would likely be catastrophic for Taiwan’s neighboring trading partners because of their dependence on Taiwanese semiconductor chips for their own semiconductor assembly, testing operations, and electronics manufacturing. The potential for significant disruptions would be particularly concerning for nations such as the Philippines, Vietnam, Malaysia, and Singapore.

Chinese blockade of Taiwan would impact not only the economic interactions involving Taiwan but also the trading patterns of China.

Even if we don’t consider the imposition of sanctions or military disruptions between the US and China, the trade between China and the global community will face significant repercussions due to disturbances in global trade finance. The impact would be more noticeable in a conflict involving Taiwan. This is because banks would proactively limit their dealings with Chinese partners, expecting the chances of potential financial sanctions. This approach would eventually lead to a significant reduction in trade finance with China, to the conditions observed during the global financial crisis. This scarcity might potentially disrupt over $270 billion worth of trade between China and other countries, and this disruption could occur even before the implementation of any official sanctions. Trade with China would face the influence of additional factors too. The internal economic conditions within China would degrade haphazardly, primarily due to the disruptions in the worldwide semiconductor value chains outlined above.

China has the position of one the largest contributors to global-level exports of ICT goods; in addition, it also serves as the primary manufacturer of automotive products. When China cannot get Taiwanese products, It will inevitably damage the country’s manufacturing sector, and the country’s whole economy to suffer. It may also be the consequence of any disruption between China and Taiwan that investors worldwide would stop investing in Chinese markets, putting massive pressure on the country’s currency exchange rate. Such an economic meltdown in the Chinese market would decrease imports from foreign countries. In case of any dispute, domestic investors would almost certainly divest from Chinese securities to lower their vulnerability to potential financial sanctions and broader economic uncertainties.

Multinational corporations (MNCs) selling their products within the Chinese market would encounter imminent threats to their revenue streams.

The initial and most significant impact would arise due to the interruption of the worldwide semiconductor trade. Multinational corporations selling their products within the Chinese market would encounter imminent threats to their revenue streams. The initial and most significant impact would arise due to the interruption of the worldwide semiconductor trade. This situation is critical since foreign investments in China are heavily centered in different sectors. There’s also a chance that Beijing may enact capital controls as a response to the outflow of global capital. This action could impede the capacity of multinational enterprises to bring back their profits to their home countries.

When considering the combined effects, our assessments indicate that a potential conflict involving Taiwan could endanger more than two trillion dollars’ worth of economic activity globally. This estimation doesn’t even include the possible consequences of international sanctions or potential military reactions. This analysis provides a glimpse into the potential disruptions that could arise in a blockade scenario. It’s essential to view this numerical projection as a conservative estimate; the actual extent of the economic risks could indeed be more significant.

It’s crucial to note that a substantial portion of these economic disruptions would manifest almost immediately, especially the impacts within financial markets, and undoing these effects would be an arduous task.

A wide range of economic risks would reverberate throughout the worldwide economy. It is important to recognize that few short-term alternatives would be available due to Taiwan’s critical position in the global semiconductor manufacturing chain. The anticipation of such sort of crisis is the need of the hour for China and Taiwan to draw every possible solution through peaceful negotiations. Otherwise, any escalation would inevitably hurt China, Taiwan, and the world.

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