A China-Taiwan conflict could represent the largest shock to the global economy since WWII. Learn more about the impacts felt around the globe should China and Taiwan go to war in Global Guardian’s Taiwan Shock Index.
By Zev Faintuch, Senior Intelligence Analyst
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October 25, 2023 INSIDE THIS ARTICLE, YOU'LL FIND: |
Sino-American tensions are reaching new highs and with the 2024 Taiwanese presidential elections less than three months away, now is the time to ask the question: What would happen if a Taiwan Strait crisis occurred? What would happen if China invaded or blockaded Taiwan? Simply put, it would represent the largest shock to the global economic system since World War Two.
The Global South, already burdened by higher energy prices and borrowing costs, would be disproportionately impacted by a Taiwan Shock. Already fragile states who rely heavily on China, most notably, Pakistan, would be put under particular strain. In addition, a large basket of essential goods would see huge price shocks, the green energy transition – currently the only area of effective Sino-American cooperation – would be upended, and thousands of companies engaged in business in China directly or indirectly would face severe legal, regulatory, and supply chain issues.
HOW THE MODEL WORKS
In the following model – the Taiwan Shock Index (TSI) – Global Guardian attributes a Low to Extreme categorical risk rating, indicating the degree to which a China-Taiwan conflict could destabilize a given country. The model uses aggregated quantitative and qualitative data to assign each country a political fragility score and an exposure score which are then multiplied to create a final TSI score. A country’s exposure score measures that country’s trade with China and its neighbors, its foreign direct investment relationship with China, and its reliance on Chinese arms, surveillance, and censorship technology to maintain political control.
the impacts of a CHina-taiwan Conflict
The model’s findings show that the effects of a Taiwan Shock would be felt globally. In the Americas: the United States, with its high level of economic integration with China, and relatively unstable political climate, would be substantially impacted. Export-focused South American countries with weak institutions would be impacted even more severely. In Sub-Saharan Africa, a combination of high state fragility and relatively high reliance on Chinese finance and export income would create severe challenges following a shock. In the Middle East and North Africa, profound regional instability and a reliance on petrol exports would pose serious, regime threatening challenges. Europe would likely be the least effected region but given the European bloc’s disunity and preoccupation with Ukraine, a Taiwan Shock may tip the scales away from cohesion at a pivotal time. The Asia Pacific region, naturally, would be most impacted. China is the center of economic gravity in the region and can apply military and economic pressure in its near abroad that it cannot apply elsewhere. Southeast Asia, especially, would be ground zero for a crisis in the Taiwan Strait.
"A Taiwan Strait crisis would engender a rapid decoupling of the Chinese and global economies."
A Taiwan Strait crisis would engender a rapid decoupling of the Chinese and global economies. Advanced manufacturing firms would face extreme supply chain disruptions and regulations would make it impossible to operate in China. Though in the medium to long term, decoupling may represent an opportunity for Western firms, depending on government policy responses. In the agriculture sector, the loss of Chinese fertilizer and the Chinese market would raise prices and lower revenues simultaneously. In the consumer goods sector, no country can replace China’s labor pool, strong infrastructure, and middle-class consumption growth in the near term. China’s centrality to the mining industry, particularly concerning rare earths, means a rapid decoupling would necessitate the rearrangement of the sector, potentially providing opportunities in the medium term, but hurting downstream sectors such as green energy and advanced manufacturing in the short term. Finally, in the energy sector, disruptions to China’s purchasing of oil from the Middle East and sale of processed rare earths and photovoltaics, would have deleterious effects on oil price stability and the green energy transition.
Recommendations for Businesses
Businesses that could be directly or indirectly impacted by a Taiwan Strait Crisis should walk through the “what-if,” and explore the various scenarios — including the worst-case — that could arise. Now is the time for organizing tabletop exercises with key stakeholders and established vendors across the organization.
It's essential to develop business continuity plans ahead of time to bolster operational resilience, as well as emergency response plans. Having a robust plan in place that has been effectively communicated to your workforce will ensure your organization is able to pivot and dampen the impacts of what could be the next major geopolitical shock.
In this new map, we answer the question: “What would happen to countries across the globe if a Taiwan Strait crisis occurs.” The Taiwan Shock Index (TSI) attributes a Low to Extreme categorical risk rating, indicating the degree to which a China-Taiwan conflict could destabilize a given country.
To download your copy of the Taiwan Shock Index, complete the form below.
