Taiwan Shock Index: Impact on Consumer Goods

The following impact report is part of Global Guardian's 2024 Taiwan Shock Index. 

Sector Snapshot: Consumer Goods

Sectors Impacted Upstream: Raw materials (fabric, wood, metals, precious metals), and semifinished goods (textiles, furniture components, plastics, electronics)

Sectors Impacted Downstream: Retail, ecommerce, transportation and logistics

A decoupling with China would cause a major shock to the consumer goods sector hitting supply and demand and opening firms up to a number of legal, regulatory, and supply chain risks. The long-term impact of a Taiwan Strait Crisis largely depends on the policy response of the world’s major economies,  but major opportunities would exist for firms who enter markets previously dominated by Chinese manufacturers.

Short-Term Impact: HIghly Adverse

• Firms operating in China will likely face intense legal, regulatory, and logistical pressure to reshore or “friendshore” their production to other countries. There would likely be high up-front capital costs involved in relocating production and rebuilding institutional knowledge.
• Firms selling in the Chinese market would be impacted by sinking demand.
  • China’s unemployment problem — and overall economic rut — will be exacerbated by a Taiwan Strait Crisis, leading to a massive decrease in discretionary spending. China’s youth are both reliant on the medium-skill manufacturing jobs that would be lost and are the largest buyers of foreign consumer goods.
• Firms that rely on China for both production and consumption — such as cosmetics, over-the-counter medications, and packaged food products — may find themselves squeezed between increased production and capital costs and decreasing revenues simultaneously.

Medium to Long-Term Impact: Moderately Adverse

• The long-term impact largely depends on the policy response of the world’s major economies, particularly concerning sanctions and continued decoupling. It is possible — if sanctions and decoupling are maintained — that the situation never returns to the status quo ante-conflagration.
• No country has the infrastructure, labor pool, and middle-class growth at the scale necessary to replace China’s role in maintaining the availability of cheap consumer goods and demand for middle-range and luxury products.
• A long-term decoupling of the Chinese and global economies would result in a long-term elevation of the price equilibrium for most consumer goods.
• The permanent price elevation could allow firms to profitably enter markets previously cornered by Chinese manufacturers.
  • Certain Chinese-made consumer products may not face direct sanctions, but through supply chain disruptions, domestic and non-Chinese foreign consumer goods may become newly competitive.

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