A disruption to the world economy: What would happen if a war or blockade were to happen? What are the economic implications?

Solely in the Asian pacific region, China and Taiwan’s economic presence is imperative: they contribute to a combined 31% of the region’s computer and electronics industry as well as 23% in the region’s electrical equipment. Like how we mentioned before, an invasion from the Chinese into Taiwan could cost the world up to potentially ten trillion US dollars worth of financial loss, accounting for inflation, predicted global trade trends, financial investors’ decisions, etc. Citizen journalists such as Ben Shapiro and political scientists worldwide have predicted that the Chinese invasion is likely going to unfold in one of these 2 political scenarios:

1. A direct Chinese military operation employed across the Taiwan strait into Taiwanese territory. With a worse and much smaller population than China, Taiwan’s military is almost confirmed to lose to China in a potential war. 

2. A direct blockade surrounding Taiwan’s trading ports to prevent all economic activities worldwide. As Taiwan is ranked as the sixteenth largest trading partner in the world, Taiwan’s economy is heavily dependent on its export industries. A coerced blockade that completely eliminates these trading opportunities would eliminate an estimated 40% of Taiwan’s economy.

What is the economic impact on Taiwan and China? Aside from the 10 trillion dollar economic loss in the global economy, just merely within the first year 1.6 trillion worth of US dollars is expected to be lost within mainland China and Taiwan. As the Chinese heavily depend on its ICT exports to maintain its economy, potential economic sanctions imposed by other trade partners in the world would mean a huge hit to the Chinese economy, as China is estimated to undergo a severe and whopping 7% decline to its current economy. This also takes into account the fact that multiple Chinese industries heavily depend on Taiwan’s semiconductor industry, and the lack of semiconductors provided to China would mean China’s economy would take a huge hit as well. 

Furthermore, an estimated 270 billion worth of US dollars would be depleted in trading activities between China and all of its global trading partners due to several factors. One of these factors is facilitated by a lack of investor confidence, which leads to investors pulling their assets out of the economy. 

The attempt by private investors to move money out of China would also manifest as problematic, as an estimated 1 trillion worth of US dollars of assets in China — such as bonds and equities, would be abandoned. This could possibly lead to a weakened Chinese currency exchange rate, leading to disruptions in its trade patterns. In fact, 14% of Vietnam’s export value reflects imports of intermediate goods from China, as well as Hong Kong (9%), and Mexico (7%), Cambodia (13%), causing massive disruptions to the trade and commercial activities in these countries as well. 

The global economic implications of this is even more severe: Countries in the regions of Southeast Asia and Oceania, such as Philippines, Vietnam, Malaysia, Singapore, Australia, and Laos, would suffer economic losses ranging from 3% to 6%. This is due to the fact that Taiwan has direct investments into these countries as part of their technological economic industry expansion project, and a blockade to Taiwan’s capacity to fund these would mean other countries undergo massive economic disruptions as well. 

In actuality, the world is expected to take a 2.8% decline to the global economic output. Furthermore, this might strain the Chinese-dependent countries in the world that depend on heavy Chinese loans, such as Laos, Pakistan, and Sri Lanka. Other forms of direct investment would be completely withdrawn if a war were to happen. 

Another estimated global impact is the continued inflation and key shortages in these products. As the supply chain undergoes massive economic disruption, a decrease in supply naturally increases the prices for these goods.