Tue, Jul 02, 2024 page8

• Analyzing the Taiwan Shock Index

  • By Antonio Graceffo
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  War in the Middle East, global terrorism and the Ukraine war pose significant threats to the global economy. However, according to Global Guardian, a leading security solutions firm, a conflict between China and Taiwan would cause the greatest disruption since World War II. Its Taiwan Shock Index (TSI) analyzes the potential global impacts of such a war.

  Chinese President Xi Jinping’s (習近平) rhetoric about rejuvenating the People’s Republic of China heavily emphasizes “reunification” with Taiwan. Experts differ on when this might happen. Some point to 2027, the centenary of the Chinese People’s Liberation Army (PLA), as a symbolic and strategic milestone.

  Others suggest 2035, aligning with Xi’s vision for modernizing China’s defense and building a world-class military. Some believe it would be 2049, the centenary of the People’s Republic of China, when Xi envisions the country achieving full national rejuvenation.

  Consistent with expert predictions, Global Guardian’s analysis assumes a conflict between China and Taiwan would occur by 2049. Their assessment examines the global impact of a Chinese invasion and a blockade. Many experts, including Global Guardian, believe a blockade is more likely.

  An invasion would require the PLA Navy and Air Force to cross the 145km of the Taiwan Strait, facing intense defenses from Taiwan, the US and other allies. The high cost in lives and military hardware might outweigh the perceived benefits of taking Taiwan, making a blockade a more feasible strategy.

  A blockade would cost China fewer lives and military hardware.

  Moreover, Taiwan is particularly vulnerable to a blockade, importing 70 percent of its food, 88 percent of its energy and 50 percent of the chemicals needed to manufacture medicines. Its food storage capacity is only enough for about 10 months, while its energy storage would last just five months. Taiwan also has only 40 days’ worth of coal reserves and 10 days of natural gas.

  Either a war or a blockade of Taiwan would have a tremendous, detrimental effect on the world.

  Taiwan produces 20 percent of the world’s semiconductors, 37 percent of logic chips and 92 percent of advanced logic chips.

  A blockade would disrupt advanced technology development and global production capacity, potentially trimming US$5 trillion off global GDP.

  Sector shocks would affect advanced manufacturing, agriculture, consumer goods, energy and mining.

  The ongoing decoupling from China would accelerate, with advanced manufacturing firms facing significant hurdles and operations in China being prohibited. Chinese fertilizer and rare earth exports would vanish, driving price increases and further restricting the high-tech sector.

  While these effects would be damaging in the short run, other countries would eventually fill the market gaps, solidifying the decoupling.

  Global Guardian’s TSI estimates the destabilizing effect of a Taiwan conflict on every country, assigning risk ratings from “low” to “extreme.”

  The index combines a country’s political fragility score with its exposure score. The exposure score considers trade with China and neighboring countries affected by a war or blockade, foreign direct investment in China, and the extent to which a nation relies on Chinese weapons, surveillance and censorship technology for stability and control.

  The US would be significantly affected due to its high economic integration with China and its politically polarized climate, where the two major parties are in direct conflict over foreign and Taiwan policy.

  In South America, the effects would be extremely acute in countries with weak governmental institutions and high dependence on exports.

  Sub-Saharan Africa would suffer severely due to unstable governments and heavy reliance on Chinese investment and trade.

  The Middle East would be hit hard by the loss of China as an oil export destination.

  Europe would be less directly affected, but the Ukraine war and differing opinions on engaging with China could lead to disunity within the EU.

  The Asia-Pacific region would be extremely affected, as trade and investment are centered around China. A blockade of the Taiwan Strait, or an effective blockade caused by war, would trigger a crisis in Southeast Asia.

  Client states of China, such as Pakistan, Cambodia and Russia, would immediately feel the pinch as economic aid slowed or stopped completely.

  The prices of a wide array of goods would significantly increase due to disrupted global shipping and a shift in Chinese manufacturing focus from consumer goods to military equipment, vehicles, weapons and ammunition.

  Global companies invested in China would see their revenues drop or reach zero. Additionally, US sanctions would likely be imposed, making it difficult for these companies to repatriate profits earned in China or import replacement parts and components.

  Parallel to the TSI, Global Guardian’s Annual Threat Assessment evaluates each country’s risk, considering factors such as crime, health, natural disasters, infrastructure, political stability, civil unrest and terrorism. Mexico, Central America, Venezuela, Peru, Sudan, Niger, Iraq, Papua New Guinea and numerous other countries are already at extreme risk, while Pakistan and Libya are considered high risk.

  A conflict between Taiwan and China would exacerbate the already tenuous security situations in these countries, particularly those at high or extreme risk and dependent on China.

  A China-Taiwan conflict, whether as a blockade or a war, would be detrimental to the entire world, although some countries would suffer more than others. Analysts differ on when this event would occur, but many believe it is inevitable. Consequently, the US and Taiwan must expand their defense planning to include strategies for withstanding the economic shock caused by the conflict.

  Antonio Graceffo, a China economic analyst who holds a China MBA from Shanghai Jiao Tong University, studies national defense at the American Military University in West Virginia.
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