- Aug 13, 2023
- 6 min read

How a China-Taiwan War could affect you

The placid waters of the Taiwan Strait is gathering a storm that threatens to batter economies across the globe. As Chinese warplanes and warships circle the democratic island of Taiwan with increasing menace, the prospect of a sudden lightning strike looms ever larger. Make no mistake - while Taiwan sits squarely in Beijing's crosshairs, a conflict in the Strait would indiscriminately engulf manufacturing hubs, financial centers, and corporations worldwide in its destructive path.

Think of something worse than the COVID-19 supply chain disruptions. Think of frenzied stock markets in freefall combined with runaway inflation. Think of regional instability jolting the global economy to its very core. The reality is that- the modern commerce never sleeps, and it has woven Taiwanese semiconductors, electronics, and plastics into virtually every aspect of our intricately interconnected lives.

Now imagine tearing apart those commercial links overnight. It would be sheer economic carnage beyond calculation. When missiles fly over the Taiwan Strait, we will all feel the immense financial pangs in our pocketbooks and throughout struggling supply chains. The devastating reverberations of war in one of the busiest trade arteries on planet Earth would show no mercy. The trillion dollar question becomes - how can we use the formidable forces of diplomacy and deterrence to preserve prosperity for all?

Rising Tensions Across the Taiwan Strait

As tensions have been rising dramatically in recent years over the status of Taiwan, with mainland China ramping up aggressive military threats and bombastic rhetoric about retaking the self-governed island by force if necessary. While the precise chances of an outright war remain uncertain, a Chinese invasion of Taiwan could profoundly destabilize the entire global economy for years to come.

Taiwan's history is complex. Since 1949, Taiwan has governed itself after losing the Chinese civil war. China continues to consider Taiwan as an integral part of China's territory; and is adamant to eventually reunite it with the mainland. This long-running dispute has flared up periodically over the decades, with the risk of open conflict always lurking.

Today, hawkish Chinese President Xi Jinping is taking an increasingly hardline stance toward Taiwan, refusing to rule out military action to assert control over what it sees as a rogue breakaway province. These coercive threats have put the region on edge and could provide kindling for a conflagration drawing in superpowers like the United States. The prospects of a peaceful resolution seem to be fading as militaristic rhetoric ratchets up on both sides of the Strait.

Global Semiconductor Supply Under Threat

If there is a war, the semiconductor industry in Taiwan would be a major issue. Taiwan produces over 60% of the world's semiconductors, which are important parts that make electronics work.

Any disruption to Taiwanese semiconductor foundries or suppliers resulting from Chinese military action, blockades, or cyberattacks would drastically deepen the existing chip shortage. This could in turn massively exacerbate supply crunches and price increases for smartphones, cars, appliances, computers, and myriad other tech-dependent products that consumers and businesses rely upon everyday. The modern economy simply cannot function without a steady infusion of Taiwanese semiconductors.

Taiwan's semiconductor firms, most notably the Taiwan Semiconductor Manufacturing Company (TSMC) which alone holds 53% of global market share, cannot be easily replaced. Their cutting-edge fabrication plants and expertise in producing the most advanced chips are far beyond anything that Chinese mainland fab plants or other competitors can currently replicate. Knocking out Taiwan's semiconductor capabilities, even temporarily, via a Chinese offensive would have debilitating consequences across all facets of the tech sector worldwide.

Energy Security Gravely Threatened

In addition to semiconductors, another sector that faces serious perils from potential conflict in the Taiwan Strait is global energy security. A Chinese naval blockade or other military disruption targeting Taiwan could rapidly choke key shipping lanes that are vital arteries facilitating massive volumes of oil and liquefied natural gas (LNG) imports upon which Taiwan survives.

This holds grave importance for energy supplies worldwide, as over 75% of Taiwan's energy is imported from overseas, including a full 22% of its LNG needs from Qatar and Australia alone. With global LNG prices already skyrocketing over 150% higher year-on-year amid shortages, any turmoil that constrains Taiwan's access to worldwide gas supplies will have dramatic knock-on effects on prices not just regionally, but in Europe and beyond as global markets battle for scarce LNG cargoes.

Overall, Taiwan and neighboring countries including Japan and South Korea account for over a third of globally traded LNG. Disrupting these flows of liquefied gas as winter approaches in the northern hemisphere could spell disaster for communities and industries that rely on abundantly available and reasonably priced energy. Chinese aggression in the Taiwan Strait therefore poses a significant hazard to energy security far outside the immediate area of operations.

Catastrophic Trade and Financial Market Disruptions

The outbreak of war around a major global trade hub and flashpoint like Taiwan would immediately convulse surrounding commercial activities and supply chains. Even if the conflict remained localized, its economic reverberations would swiftly echo worldwide. Inflation, transport delays, choked ports, export controls, and cratering economic growth could spread across Asia in no time as factories shutter and cargo ships remain stuck in port.

Taiwan's own $567 billion trading economy would grind to a halt, suffering immense losses while sparking wider financial panic and a loss of investor confidence in Chinese and emerging markets. The contagion of volatility could readily infect developed economies as well. Stock markets from New York to London to Tokyo could plummet dramatically, erasing trillions in value as the fog of war clouds business outlooks.

Trust in the banking system could evaporate if Chinese authorities move to freeze Taiwan's overseas assets or restrict financial flows, which would undermine economic governance. Cyberattacks emanating from either side also pose a serious threat to national critical infrastructure and the global financial system, as Beijing has already shown its willingness to sabotage and weaponize foreign banking networks when tensions arise.

It will affect all countries economically

Due to deepening globalization connecting all continents, the depressing economic impacts of a cross-strait war would spare no nation. Even countries not directly involved in the potential China-Taiwan conflict would face pronounced financial pressures from depressed consumer demand, trade woes, and reverberating market turmoil. Leaders around the world would struggle to insulate domestic audiences from the painful inflationary effects and supply crunches resulting from disruptions of Asian manufacturing and exports. Citizens everywhere stand to suffer reduced living standards as the world economy reels.

For developing nations, the economic fallout could erase years of hard-won gains, plunging millions back into poverty as jobs evaporate. With emerging markets hammered while interest rates spike, debt sustainability issues would return to the fore. The world's collective recovery from the COVID-19 pandemic would be reversed from the collateral damage of conflict over Taiwan. A conflict that is fundamentally political in nature could rapidly metastasize into a global economic crisis touching every household.

But Hope Remains Through Ardent Diplomacy

Yet despite the dire risks, war over Taiwan is not inevitable. The catastrophic economic impacts outlined above can be avoided through diligent statecraft. Leaders in Beijing, Taipei, Washington and beyond must summon the wisdom and vision to find compromise solutions that defuse tensions peacefully. While the differences run deep, diplomacy can still triumph over saber rattling and brinkmanship.

Constructive bilateral engagement between Beijing and Taipei officials is critical to managing flashpoint issues. Regional dialogues including all Asia-Pacific stakeholders could also foster mutual understanding and prevent miscalculations. The United States should continue pursuing cautious strategic ambiguity regarding Taiwan while gently nudging Chinese counterparts to respect international norms and institutions. With care, the uneasy status quo in the Taiwan Strait can be sustained.

In our interconnected world, the hopeful ideal of economic integration tempering political disagreements is being tested. But wise statecraft can still overcome the dangerous forces of nationalism through open channels of communication, pragmatic diplomacy, and enhanced cultural ties between Chinese and Taiwanese citizens. Compromise over Taiwan's status remains challenging, but not beyond imagination. With visionary leadership, global prosperity can be safeguarded against the threat of conflict for generations to come.

SOLVED: Protecting Your Finances Amid Geopolitical Turmoil

As an individual, there are prudent steps you can take to safeguard your own economic interests in the event of China-Taiwan conflict or in any other conflict:

- Maintain a diversified portfolio of investments across asset classes, sectors, and geographies. Avoid overexposure to volatile stocks.

- Hedge against inflation with commodities, treasury inflation-protected securities (TIPS), and other assets that appreciate with rising prices. Keep 6-12 months of living expenses in cash reserves as well.

- If you own or manage a business, carefully evaluate supply chain risks and locate backup or alternate suppliers to buffer against disruptions. Diversify client bases too.

- Ensure robust cybersecurity measures are in place, on both personal and enterprise levels. Geopolitical tensions tend to breed increased cybercrime.

- Closely follow government trade advisories, economic sanctions, and other policy responses to regional tensions. Adjust business strategies accordingly.

- Avoid emotionally panic selling into a declining stock market since bargains may emerge for long-term investors. Instead, stick to a financial plan and asset allocation aligned with your risk tolerance and time horizons.

- Research industries like defense, cybersecurity, and energy infrastructure that may see increased investment and revenues should conflicts arise.

By taking proactive precautions and keeping perspective, individuals can aim to limit their downside exposure should geopolitical crises like a China-Taiwan conflict emerge. But let us hope broader peace and diplomacy prevail.

#TaiwanStraitconflict #ChinaTaiwanwar #semiconductorsupplychain #Taiwansemiconductormanufacturing #TSMC #TaiwanLNGimports #Taiwantradeimpact #Chinastockmarketcrash #cyberattackrisks #inflationhedgeinvestments #cashreserves #commodityprices #TSMC #chipshortage #electronicssupplychain #ChinaTaiwansemiconductorwar #LNGprices #Taiwanenergyimports #oilsupplychain #supplychaindisruption #inflation #USChinatradewar #investorconfidence #geopoliticalrisk #TaiwanStraitstatusquo #ChinaTaiwanrelations #inflationhedge #cybersecurity #assetdiversification #cashreserves #commodityinvestments #geopoliticalrisks

NOTE: This article does not intend to malign or disrespect any person on gender, orientation, color, profession, or nationality. This article does not intend to cause fear or anxiety to its readers. Any personal resemblances are purely coincidental. All pictures and GIFs shown are for illustration purpose only. This article does not intend to dissuade or advice any investors.