Tensions are brewing across the Taiwan Strait: 2023 has seen China send 71 aircrafts around Taiwan in its largest recent Taiwanese military maneuver. In the meantime, China is rapidly modernizing its military, all while sending more bombers, fighter jets, and surveillance aircraft near Taiwan. These open displays of aggression are part of China’s efforts to pressure Taiwan into unifying with the mainland, and the rising hostility raises concerns of an impending war between the two nations—one that may lead to profound ramifications across the globe.
China and Taiwan: A Little History
It is 1949, and the Chinese Civil War is over. The Communist Party has defeated the Kuomintang, and the People’s Republic of China (PRC) is established in mainland China. The Kuomintang, on the other hand, has fled to Taiwan, an island 100 miles off the coast of China. There, the Kuomintang began to govern Taiwan under the Republic of China (ROC).
The civil war is over, but another issue has emerged: is Taiwan its own sovereign country, or is it a part of China? This dispute persists to this day, and it is at the heart of the mounting tensions between the two nations.
Today, China stands behind the One-China policy, which states that Taiwan and China are a unified nation under the PRC. Both the United States and the UN adhere to this policy, and they do not recognize Taiwan as a sovereign nation. However, this classification is at odds with Taiwan—which has its own passport, government system, and currency—as 61% of its population identifies as exclusively Taiwanese.
China’s response to the current dispute is not limited to its increasingly aggressive military displays. It has also restricted cross-strait communication with Taiwan, prevented Taiwan from joining the UN and other international coalitions, and deterred countries from forming diplomatic and economic ties with Taiwan.
Economic Implications
In the event that China goes to war with Taiwan or imposes a blockade, the resulting global market disruptions would be profound.
Taiwan is the world’s #1 producer of semiconductors—and that’s huge. Semiconductors are critically important for the production of electronic devices, vehicles, infrastructure, medical devices, and military equipment. Taiwan produces 92% of the world’s most advanced semiconductors, and the Taiwan Semiconductor Manufacturing Company (TSMC) alone holds a 54% share of the global semiconductor market.
In the event of a blockade, the Rhodium Group predicts that the technology sector may lose up to $1.6 trillion in revenue. Already, Congress has passed a $280 billion bill to increase the US’ domestic chip production, and China is making efforts to increase domestic chip manufacturing as well. Losing access to semiconductors would debilitate the supply chain and send ripple effects beyond the technology industry, possibly bringing harm to the e-commerce, entertainment, logistics, and automobile industries.
Holistically, the international market would be looking at a disruption of about $565 billion in Taiwanese trade if there were to be a kinetic conflict. Taiwan is the US’ 9th-largest trading partner, and in 2021, Taiwan also exported $70.25 billion in goods to Southeast Asia—most of which included electronic parts and optical equipment.
China is not free of repercussions either: as Taiwan’s #1 trading partner, China receives 42% of Taiwan’s exports. A conflict with Taiwan would inevitably put stress on China’s economy, and delays in exports from China would, in turn, harm its own trading partners, not to mention countries like Laos or Sri Lanka, which are heavily reliant on Chinese loans.
It is also impossible to ignore the fact that nearly half of the world’s commercial container traffic passes through the Taiwan Strait. In a press conference that took place this past June, US Secretary of State Antony J. Blinken acutely remarked: “The reason that this [conflict] is a concern for so many countries, not just the United States, is that were there to be a crisis over Taiwan…it would have dramatic consequences for virtually every country around the world.”
Possibilities of US Involvement
Will the US get involved if a conflict ultimately breaks out between Taiwan and China?
The US’ current foreign policy towards Taiwan is known as “strategic ambiguity”—that is, being deliberately unclear about whether it will come to Taiwan’s defense. In theory, strategic ambiguity prevents China from attacking Taiwan because it fears the possibility of the US backing Taiwan; at the same time, the possibility of the US not stepping in to help Taiwan holds Taiwan back from declaring independence from China.
While strategic ambiguity is meant to maintain peace between the three parties, it also puts the US in a precarious situation. China is spending upwards of $230 billion per year on its military; if strategic ambiguity fails to hold China back, a resulting conflict would force the US to take a decisive stance.
Although the future remains uncertain, one thing is clear: the involvement of the US, the world's largest national economy and leading global trader, would only make the economic climate a lot more complicated—and a whole lot more messy.
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