The Taiwan Scenarios 4: The Catastrophe

insurance premiums would spike, and economies with deep exposure to China and Taiwan—such as those in Southeast Asia, was well as Australia, Korea and Japan—would begin to feel loss of markets and supply.

The world would understand that China was trying to achieve Taiwanese submission while staying below the threshold of war. While Beijing might seek to quickly normalize shipping if Taiwan agreed to a set of political demands, the economic shock would be felt globally. The Indo-Pacific’s most important sea lanes would become theatres of intimidation. And Beijing’s hopes of avoiding escalation would be dashed by mounting pressure for a coordinated regional response.

Blockade
If China instead chose blockade—general curtailment of exports from and imports to Taiwan—it would have chosen an act of war. By day seven, regional order would be under severe strain. Global container traffic (nearly half of the world’s container fleet flows through the strait) would face long delays and diversions. Taiwan’s semiconductor exports would stop cold, throwing global tech and manufacturing into crisis. Approximately US$565 billion in Taiwanese value-added trade would be at high risk of disruption from a blockade.

Financial markets would nosedive. China itself would face a severe economic shock as supply chains broke and foreign investors fled. Even with no shots fired, Beijing would already be facing the prospect of international sanctions, a collapsing currency and growing domestic unrest. The longer the siege continued, the more likely a military clash with Taiwan—or with the United States and its allies.

Invasion
The invasion scenario is the most dangerous. Catastrophe would unfold quickly.

Within a week of launching missiles and amphibious assaults, China would be embroiled in the largest war in the region since 1945. Taiwan’s military would be fighting back in urban warfare. Civilian casualties would mount. Global news would be filled with images of burning ships and bombed cities.

Within hours, commercial shipping and air travel in the region would cease. Regional stock markets would likely close. A conflict in the Western Pacific over the Taiwan question could result in an estimated 25 percent GDP contraction in Asia. Oil shipments to East Asia would be diverted or halted.

And China would enter economic freefall. Foreign reserves could be frozen. If applied, sanctions would sever China’s links to Western finance and critical technology. The likelihood of social unrest in China would rise. And, if the United States entered the fight, China would be at war with the world’s most advanced militaries, and