Tensions between the People’s Republic of China (PRC) and Taiwan have ramped up to their highest level in decades over the past year, and a new report warns that more than $2 trillion in global economic activity could be disrupted if China attempts to blockade Taiwan.
The PRC regards Taiwan as a rogue, breakaway province, although it has never ruled the democratic, self-governing island nation since the Chinese Communist Party (CCP) seized control of the mainland in 1949 following a 22-year civil war. Chinese leader Xi Jinping and other senior CCP officials have repeatedly declined to rule out the use of force to bring about Taiwan’s “reunification” with the PRC.
The Rhodium Group, a think tank that analyzes economic data and specializes in research related to China, recently released a report on potential disruptions to the global economy caused by a conflict between China and Taiwan, which their team characterized as a conservative and partial estimate of the potential economic impact. Rhodium’s researchers noted, “Unsurprisingly, we find that the scale of economic activity at risk of disruption from a conflict in the Taiwan Strait is immense: well over two trillion dollars in a blockade scenario, even before factoring international responses or second-order effects.”
Rhodium’s report found that the primary economic disruption would result from Taiwan being cut off from global trade, given the major role Taiwan plays in semiconductor supply chains. According to some estimates, Taiwan produces 92% of the world’s most advanced computer chips in addition to one-third to half of the less sophisticated chips that play a critical role in the manufacturing processes for things like cars, smartphones and PCs.
“A rough, conservative estimate of dependence on Taiwanese chips suggests that companies in these industries could be forced to forego as much as $1.6 trillion in revenue annually in the event of a blockade,” Rhodium found. The researchers noted that trillions more in economic activity could be disrupted due to second-order effects that hit industries reliant on Taiwanese chips: “Ultimately, the full social and economic impacts of a chip shortage of that scale are incalculable, but they would likely be catastrophic.”
Rhodium also projected that banks’ willingness to extend credit to businesses engaged in global trade, particularly firms doing business with China, would likely be reduced amid a blockade. The analysis found that this dynamic could potentially result in the disruption of more than $270 billion in trade between China and the rest of the world.
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Source: Fox business