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Breaking News China-US War?
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After the appointment of Chinese navy commander Dong Jun as the Minister of Defense, there was not much talk about Admiral Hu Zhongming, who became the head of the Chinese navy.
This appointment reflects the importance China attaches to its naval forces and, in particular, its submarine capabilities. The fact that Hu has operational and command experience on submarines further increases the importance of this appointment.
This is seen as a move in line with China's strategic goals of improving its submarine and overall naval warfare capabilities.
Xi Jinping's military appointments and changes in defense policy appear to be in line with a strategy that supports increased military presence and assertions of sovereignty in Taiwan and the South China Sea. These appointments are important for the regional balance of power and the risks of future military conflict.
Abrupt Dismissals Point to Xi Jinping’s Quiet Shake-Up of China’s Military
The expelled officials included some of the brightest rising stars in President Xi Jinping’s military: two generals who oversaw satellite launches and manned space missions; an admiral who helped entrench Beijing’s presence in the disputed South China Sea; and a missile commander who had honed China’s ability to respond to a possible nuclear war.
They were among nine high-ranking Chinese military figures who were recently removed as delegates to the country’s Communist Party-run legislature, abruptly and without official explanation.
Experts say the move indicates that Mr. Xi’s latest offensive to root out alleged corruption and other misconduct in the People’s Liberation Army, or P.L.A., has been gaining momentum and is focused on the politically sensitive agencies responsible for developing weapons and military installations. In October, China suddenly dismissed the defense minister, who had worked for years in the military’s arms acquisition system. Months earlier, two commanders of the Rocket Force, which controls China’s nuclear missiles, were replaced.
Since coming to power in 2012, Mr. Xi has launched scorching, high-decibel crackdowns on Communist Party officials and generals. This latest campaign in the military, however, has been conducted mostly in the quiet, with no official acknowledgment that it is even underway.
Experts who track China’s military said Mr. Xi’s strategy appeared to be a surgical attack designed to assert his control over the arms sector. They noted that dismissals apparently excluded longstanding allies of Mr. Xi, at least for now.
The pattern suggested a “targeted crackdown” that “serves notice that even in the most critical technological sectors, the party is willing to crack down to ensure the long-term healthy development of these sectors,” said Tai Ming Cheung, a professor at the University of California San Diego who has long studied China’s weapons development programs.
Professor Cheung noted that China’s arms development programs are one of the “most secretive” aspects of its military, into which vast funds have been poured over the past several decades. “It is ripe for corruption on a grand scale,” he wrote in an email.
China announced the dismissals from the legislature, called the National People’s Congress, in a terse statement late on Friday. Two days earlier, the Chinese People’s Political Consultative Conference — a top political advisory body — said that it had expelled three executives from military-related state-owned companies: one from the China North Industries Group Corporation, or Norinco, a weapons conglomerate; and the others from the China Aerospace Science and Technology Corporation.
The anti-corruption drive may tarnish Mr. Xi’s image of political invulnerability, because the officers who have been removed all owed their advancement to him.
On the other hand, Mr. Xi’s bold moves against serving military officers are a sign that he retains unrivaled control despite China’s economic woes, said Christopher K. Johnson, a former C.I.A. analyst of Chinese politics.
“Xi’s willingness to take on the embarrassment of such a massive purge shows how determined he is to ensure that his military can carry out his mandate to ‘fight and win wars,’” Mr. Johnson said.
Not long after Mr. Xi came to power, he launched a crackdown on graft in the military, warning that such abuses would endanger China’s security as the country’s rivalry with the West intensified. Dozens of commanders and generals were convicted of corruption in the form of selling military assets, contracts or promotions.
But at the time, he was still consolidating his power as China’s leader, and that crackdown focused mostly on retired officials. “Now, his power is sufficiently incontestable that he can go at the roots of the problem with relative abandon,” Mr. Johnson said.
Military investigators “have long identified armament procurement as one of the top areas for corruption in the P.L.A,” according to Professor Cheung. But in earlier anticorruption campaigns, few of the officials known to have been arrested had worked in this sector. “This time around, the weapons acquisition and defense industries appear to be among the prime areas to be targeted,” he said.
Why Mr. Xi chose to act now is less clear. The first visible signs of the crackdown were the removal last year of the two rocket force commanders, followed by Gen. Li Shangfu, the defense minister. It’s possible that problems found in the rocket force have snowballed into a broader investigation, experts say.
Some of the officers ousted in recent days had crossed paths with General Li when he was in the General Armaments Department, which oversaw procurement, or the agency that succeeded it after Mr. Xi moved to reorganize the military in 2015. But others did not, suggesting that the investigations extend beyond General Li’s circle, said Yao Cheng, a former Chinese naval officer now living in the United States.
The dismissed officers included Dai Laihang, a retired air force commander who has pushed for pilots to get more realistic training. Another was Jin Xinchun, a naval commander who was formerly deputy chief of the South Sea fleet, which encompasses the South China Sea. He earlier served as the head of the fleet’s equipment department. Another was Li Yuchao, a general in China’s missile force who had earlier overseen exercises for launching a nuclear counter-strike after coming under nuclear attack. He was removed from his post in 2023.
In the short term, the high-level shake-up could slow the rollout of some weapons or facilities, as they are more closely studied for potential defects and contracts are pored over for problems, said Ou Si-fu, an expert on the Chinese military at the Institute for National Defense and Security Research in Taiwan. But such potential delays were likely to be limited, he said.
It also remains uncertain if the scrutiny has extended to officials and commanders whom Mr. Xi appointed to the top leadership team for his third term as Communist Party leader in 2022.
They include Gen. Zhang Youxia, who is second only to Mr. Xi in the military hierarchy and has longstanding personal ties to him. General Zhang was earlier a director of the P.L.A. General Equipment Department and its revamped successor. At least three Communist Party officials in the Politburo — the party’s council of 24 top cadres — rose through the ranks in the armaments or aerospace sector.
“Xi Jinping already basically has in hand all the detrimental material that could be used against all military officers and party-government officials, so he could find a reason to move against anyone at anytime,” Mr. Ou said. As for the fate of General Zhang and the other top Politburo officials, Mr. Ou said: “To date, the signs are that they can survive.”
Abrupt Dismissals Point to Xi Jinping’s Quiet Shake-Up of China’s Military
The purge of several commanders from China’s legislature was the latest sign of widening investigations focused on the sensitive arms sector, experts say.
US Intelligence Shows Flawed China Missiles Led Xi to Purge Army
- China missiles filled with water, not fuel: US intelligence
- Xi seeking to root out corruption, prepare military for combat
US intelligence indicates that President Xi Jinping’s sweeping military purge came after it emerged that widespread corruption undermined his efforts to modernize the armed forces and raised questions about China’s ability to fight a war, according to people familiar with the assessments.
The corruption inside China’s Rocket Force and throughout the nation’s defense industrial base is so extensive that US officials now believe Xi is less likely to contemplate major military action in the coming years than would otherwise have been the case, according to the people, who asked not to be named discussing intelligence.
The US assessments cited several examples of the impact of graft, including missiles filled with water instead of fuel and vast fields of missile silos in western China with lids that don’t function in a way that would allow the missiles to launch effectively, one of the people said.
The US assesses that corruption within the People’s Liberation Army has led to an erosion of confidence in its overall capabilities, particularly when it comes to the Rocket Force, and also set back some of Xi’s top modernization priorities, the people said. The graft probe has ensnared more than a dozen senior defense officials over the past six months, in what may be China’s largest crackdown on the country’s military in modern history.
At the same time, the US assesses that Xi hasn’t been weakened by the widening purge, according to the people. Rather, they said, his move to oust senior figures — including some promoted under his watch — shows his hold over the Communist Party remains firm and that he’s serious about improving discipline, eliminating corruption and ultimately preparing China’s military for combat over the long term.
Spokespeople for the White House National Security Council didn’t immediately comment. When asked about the US intelligence, Lieutenant Colonel Martin Meiners, a Pentagon spokesman, said the Department of Defense’s annual China report discusses Xi’s efforts to strengthen and accelerate anti-corruption investigations in the PLA, without providing more details.
China’s Defense Ministry couldn’t be reached for a comment on a weekend in Beijing.
The US assessments couldn’t be independently verified. In the past, US policy makers have been frustrated by the inability of intelligence agencies to provide insights into Xi’s inner circle after being surprised by decisions out of Beijing, including rapid moves to consolidate control of Hong Kong and militarize the South China Sea.
Xi has devoted billions of dollars to his aim of transforming the military into a modern force by 2027. Central to that was his elevation of the Rocket Force, which would play a pivotal role in any invasion of self-ruled Taiwan. In a potential warning for Beijing, Russia’s war efforts in Ukraine have been publicly hobbled by corruption, a problem that PLA researchers as far back as 2014 called “the number one killer that impairs the military’s ability to fight.”
Evidence of Xi’s corruption purge has bubbled to the surface in recent months.
In the latest round on Dec. 29, China’s top legislative body unseated nine defense figures, including five linked to the missile force and at least two from the Equipment Development Department, which is charged with arming the military.
Days earlier, China’s main political advisory body publicly removed three executives from state-owned missile manufacturers. That spate of purges came after the October ousting of China’s former defense minister, Li Shangfu, who was only in the position for seven months.
Those are just the removals Beijing has made public. Unlike other parts of the Chinese system, the military doesn’t announce its corruption investigations. Another Rocket Force major-general was quietly removed from Beijing’s municipal legislature in November, Chinese news outlet Caixin reported.
Public signs of Xi’s push to eliminate graft in the armed forces first emerged in July, when China’s top military body announced a new mechanism to detect and prevent corruption risks. Days later, the Equipment Development Department launched a retrospective graft probe that overlapped with Li’s tenure as its chief.
In a rare move, the department listed eight issues it was investigating, including “leaking information” and helping certain companies secure bids. Soon after came reports three top Rocket Force chiefs had been probed and removed.
The Chinese military’s official newspaper pledged in a Jan. 1 editorial to wage a “war on graft” this year, signaling more purges could be on the cards.
Xi, Biden and the $10 Trillion Cost of War Over Taiwan
War over Taiwan would have a cost in blood and treasure so vast that even those unhappiest with the status quo have reason not to risk it. Bloomberg Economics estimate the price tag at around $10 trillion, equal to about 10% of global GDP — dwarfing the blow from the war in Ukraine, Covid pandemic and Global Financial Crisis.
China’s rising economic and military heft, Taiwan’s burgeoning sense of national identity, and fractious relations between Beijing and Washington mean the conditions for a crisis are in place. With cross-Strait relations on the ballot, Taiwan’s Jan. 13 election is a potential flashpoint.
Few put a high probability on an imminent Chinese invasion. The People’s Liberation Army isn’t massing troops on the coast. Reports of corruption in China’s military cast doubts on President Xi Jinping’s ability to wage a successful campaign. US officials say tensions eased somewhat at the November summit between President Joe Biden and Xi, who pledged “heart-warming” measures to woo foreign investors.
Still, the outbreak of war in Ukraine and Gaza are reminders of how long-simmering tensions can erupt into conflict. Everyone from Wall Street investors to military planners and the swathe of businesses that rely on Taiwan’s semiconductors are already moving to hedge against the risk.
National security experts in the Pentagon, think tanks in the US and Japan, and global consulting firms are gaming out scenarios from a Chinese maritime “quarantine” of Taiwan, to the seizure of Taiwan’s outlying islands, and a full-scale Chinese invasion.
Jude Blanchette, a China expert at the Center for Strategic and International Studies, says interest in a Taiwan crisis from multinational firms he advises has “exploded” since Russia’s 2022 invasion of Ukraine. The subject comes up in 95% of conversations, he said.
Russia’s invasion of Ukraine, and the semiconductor shortage as the world reopened from Covid lockdowns, provide a small glimpse of what’s at stake for the global economy. The impact of war in the Taiwan Strait would be far bigger.
Taiwan makes most of the world’s advanced logic semiconductors, and a lot of lagging edge chips as well. Globally, 5.6% of total value added comes from sectors using chips as direct inputs — nearly $6 trillion. Total market cap for the top 20 customers of chip giant Taiwan Semiconductor Manufacturing Co. is around $7.4 trillion. The Taiwan Strait is one of the world’s busiest shipping lanes.
Modeling the Cost of a Crisis
Bloomberg Economics has modeled two scenarios: a Chinese invasion drawing the US into a local conflict, and a blockade cutting Taiwan off from trade with the rest of the world. A suite of models is used to estimate the impact on GDP, taking account of the blow to semiconductor supply, disruption to shipping in the region, trade sanctions and tariffs, and the impact on financial markets.For the main protagonists, other major economies, and the world as a whole, the biggest hit comes from the missing semiconductors. Factory lines producing laptops, tablets and smartphones — where Taiwan’s high-end chips are the irreplaceable “golden screw” — would stall. Autos and other sectors that use lower-end chips would also take a significant hit.
Barriers to trade and a significant risk-off shock in financial markets add to the costs.
In the case of a war:
- Taiwan’s economy would be decimated. Based on comparable recent conflicts, Bloomberg Economics estimates a 40% blow to GDP. A population and industrial base concentrated on the coast would add to the human and economic cost.
- With relations to major trade partners turned off and no access to advanced semiconductors, China’s GDP would suffer a 16.7% blow.
- For the US, further from the center of the action but still with a lot at stake — through the reliance of Apple on the Asian electronics supply chain, for example — GDP would be down 6.7%.
- For the world as a whole, GDP would be down 10.2%, with South Korea, Japan and other East Asian economies most impacted.
A key assumption in this scenario is that the US would succeed in enlisting allies in concerted and severe economic sanctions against China.
US officials say that the Chinese reaction to then-US House Speaker Nancy Pelosi’s visit to Taipei in August 2022 helped convince other Group of Seven countries that the risk of conflict is real. Beijing saw it as a shift in the status quo that made Xi appear weak, particularly after domestic commentators suggested that China would be able to stop her from landing in Taipei.
The fallout from the Pelosi visit, which saw China conduct large-scale naval drills seen as practice runs for a blockade, helped build diplomatic muscle memory for concerted reactions, the US officials said.
“China’s rhetoric and the People’s Liberation Army response to Pelosi’s visit triggered a wave of quiet corporate contingency and scenario planning,” said Rick Waters, managing director of the China practice at Eurasia Group and formerly the top China policy official at the State Department.
Bloomberg Economics also modeled what a yearlong blockade of Taiwan by mainland China would mean for the global economy:
- For Taiwan, a small, open economy that has thrived through trade, GDP in the first year would be down 12.2%.
- For China, the US, and the world as a whole, GDP in the first year would be down 8.9%, 3.3% and 5% respectively.
The Bloomberg Economics exercise is — as far as we are aware — unique in bringing together geopolitical and economic modeling expertise. Still, the results are significantly driven by the scenario assumptions, and the band of uncertainty is wide. A war or blockade of shorter duration, and with less significant disruptions to semiconductor supply and trade, would have a smaller impact.
A Consequential Election
Even if the outcome of Taiwan’s election doesn’t trigger an immediate crisis, it will define the direction of cross-Strait relations.
Lai Ching-te campaigning in Kaohsiung on Jan. 8.Photographer: Yasuyoshi Chiba/AFP/Getty Images
Lai Ching-te — currently serving as vice president in the Democratic Progressive Party administration — has been at pains to present himself as a continuity candidate, with no plans to disturb relations with Beijing.
In the past, though, he described himself as a “pragmatic worker for Taiwanese independence.” For Beijing, which views the island as part of its territory, any formal push for independence would cross a red line. At his meeting with Biden, Xi expressed deep concern about the possibility of a Lai win, according to a senior administration official.
The DPP counterpoint, which aligns with the assessment in Washington, is that Beijing’s belligerence is the problem — not Taiwan’s desire for continued autonomy.
Lai’s opponents — Hou Yu-ih of the Kuomintang and Ko Wen-je of the Taiwan People’s Party — are both promising pragmatic steps to improve relations with Taiwan’s giant neighbor, without sacrificing the island’s de facto independence.
Hou Yu-ih, left, on the campaign trail in New Taipei City on Jan. 5.Photographer: I-Hwa Cheng/AFP/Getty Images
US officials say China may be planning a multipronged reaction to the election, with military incursions, economic sanctions and grey zone tactics like cyber-attacks.
Officials in Washington and Taipei say the period from the election in January to inauguration of the new president in May is a danger zone for Chinese actions aimed at hemming in Taiwan’s next president.
Straitened Circumstances
Whoever wins will have to deal with a changed, and challenging, set of cross-Strait realities.In 1979, when the US switched diplomatic recognition from Taipei to Beijing, US GDP was ten times that of China, China’s military was in the early stages of modernization, and Taiwan was still under single-party rule.
Ko Wen-je arrives at an election rally in Kaohsiung on Jan. 7.Photographer: Alastair Pike/AFP/Getty Images
Fast forward to today and China’s GDP has closed much of the gap with the US, its military boasts near-peer status — especially close to home — and Taiwan’s liberal democracy is a visible contrast to China’s authoritarian system.
Statements by leaders in Beijing and Washington have added to the tension.
Xi has said more than once that Taiwan is not an issue that can be “passed down generation after generation.” Along with his efforts to modernize the military, those statements have spurred speculation he wants to deliver unification on his watch, with 2027 cited as a danger year by US intelligence and military officials.
At his meeting with Biden, Xi vented frustration with the view that China’s forces are aiming at readiness for an invasion by 2027, which he said was mistaken, according to a senior US official.
For his part, Biden has said the US would come to Taiwan’s aid in the event of a Chinese invasion. That bluntness eroded layers of carefully crafted ambiguity about the US position, stoking anger in China and concerns the US is emboldening pro-independence boisterousness.
Bloomberg Economics’ Taiwan stress index — based on warning words used by China’s Ministry of Foreign Affairs and military incursions in Taiwan’s air defense identification zone — shows the temperature over the last year and a half elevated.
Investors and businesses are already preparing for the worst. Kirk Yang, chairman of equity investment fund Kirkland Capital and an expert on Asia technology firms, says the fund’s position in Taiwan is now close to zero. Geopolitical tensions have “added incentive to scale back investments at a faster pace” he said.
He’s in good company. Legendary investor Warren Buffett sold down his stake in TSMC in the first quarter of 2023, citing geopolitical risk as the reason.
Businesses and governments are also making preparations. Greenfield investment in electronics and electrical equipment rocketed to $181 billion in 2022 from $48 billion in 2020 as governments in the US, Japan and Germany opened their wallets to diversify sources of semiconductor supply.
If there’s an upside from the Bloomberg Economics analysis, perhaps it’s this: The $10 trillion cost of a crisis would be so high for all players that the incentive to avoid it is strong.
The status quo might be no one’s ideal outcome, but for Taipei, Beijing and Washington the alternatives are worse. That’s a reason Taiwan’s ambiguous autonomy might remain an equilibrium outcome, even as the conditions that make it so shift.
Anti-landing barriers on the Taiwanese islands of Kinmen, across from Xiamen in mainland China.Photographer: An Rong Xu/Bloomberg
Methodology
For the war and blockade scenarios, Bloomberg Economics use a suite of models to assess the impact of disruptions to semiconductor supply, trade barriers, and financial market shocks.Supply chain disruptions are assessed using OECD Trade in Value Added data for 2018. OECD input-output data are used to estimate the direct disruptions to sectors using semiconductors as an input (computer, electronics and optical products; electrical equipment; machinery and equipment; motor vehicles, trailers and semi-trailers; other transport equipment), and to assess the spillover impact onto other sectors – for example the impact on metal output if production of automobiles slows.
Trade shocks are assessed using the WTO Global Trade Model (GTM) (Aguiar et al, 2019). The GTM is a recursive computational general equilibrium model based on the GTAP model (version 7) (Corong et al, 2017). We shock tariffs and non tariff measures, including as a proxy for sanctions and export controls.
US allies are defined based on trade shares, treaty relationships, and Bloomberg Economics’ judgement. Australia, Canada, the European Free Trade Association, the European Union, Japan, Mexico, South Korea and the UK are defined as US allies.
Financial shock impacts are estimated following a structural approach based on the Bayesian Global VAR model (Bock, Feldkircher and Huber, 2020). The model is amended slightly by adding log real equity prices for each country as in Mohaddes and Raissi (2020). Uncertainty in the financial markets is modeled as a global shock to the VIX.
A key uncertainty in the analysis is the extent to which missing semiconductor output from Taiwan could be replaced by output in other locations, worked around by manufacturing firms, or backstopped from inventories.
The Bloomberg Economics scenarios assume that all production using semiconductors as inputs has to be reduced in line with the reduction in semiconductors availability:
-For advanced electronics such as smartphones using cutting-edge logic chips, this translates into a 60% reduction in production in the blockade scenario, rising to 85% in the war scenario when access to South Korean production is also severely curtailed.
-For sectors using lagging-edge logic chips, like those used in autos and home electronics, that means 35% in the blockade scenario when Taiwan’s output goes offline, and 62% in the war scenario when output from China, Japan, and South Korea is also lost.
Reality could end up being better. For example, other countries could amp up chip production, or auto firms and other manufacturers might find work arounds for missing inputs.
It could also be worse. For example, if Taiwan’s chips are not replaceable and use of them is distributed widely across products. If production for all sectors using leading and lagging edge chips goes to zero, the blow to global GDP in the war scenario increases from 10.2% to 14%.
— With assistance from Betty Hou, Eleonora Mavroeidi, Jennifer Creery, Bhargavi Sakthivel, Sam Dodge, and Nick Hallmark
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@Anmdt @Cabatli_TR @Test7 @Zafer @Ryder @Gary @NEKO @TheInsider @dBSPL @Mis_TR_Like @NilgiriXi, Biden and the $10 Trillion Cost of War Over Taiwan
War over Taiwan would have a cost in blood and treasure so vast that even those unhappiest with the status quo have reason not to risk it. Bloomberg Economics estimate the price tag at around $10 trillion, equal to about 10% of global GDP — dwarfing the blow from the war in Ukraine, Covid pandemic and Global Financial Crisis.
China’s rising economic and military heft, Taiwan’s burgeoning sense of national identity, and fractious relations between Beijing and Washington mean the conditions for a crisis are in place. With cross-Strait relations on the ballot, Taiwan’s Jan. 13 election is a potential flashpoint.
Few put a high probability on an imminent Chinese invasion. The People’s Liberation Army isn’t massing troops on the coast. Reports of corruption in China’s military cast doubts on President Xi Jinping’s ability to wage a successful campaign. US officials say tensions eased somewhat at the November summit between President Joe Biden and Xi, who pledged “heart-warming” measures to woo foreign investors.
Still, the outbreak of war in Ukraine and Gaza are reminders of how long-simmering tensions can erupt into conflict. Everyone from Wall Street investors to military planners and the swathe of businesses that rely on Taiwan’s semiconductors are already moving to hedge against the risk.
National security experts in the Pentagon, think tanks in the US and Japan, and global consulting firms are gaming out scenarios from a Chinese maritime “quarantine” of Taiwan, to the seizure of Taiwan’s outlying islands, and a full-scale Chinese invasion.
View attachment 64607
Jude Blanchette, a China expert at the Center for Strategic and International Studies, says interest in a Taiwan crisis from multinational firms he advises has “exploded” since Russia’s 2022 invasion of Ukraine. The subject comes up in 95% of conversations, he said.
Russia’s invasion of Ukraine, and the semiconductor shortage as the world reopened from Covid lockdowns, provide a small glimpse of what’s at stake for the global economy. The impact of war in the Taiwan Strait would be far bigger.
View attachment 64608
Taiwan makes most of the world’s advanced logic semiconductors, and a lot of lagging edge chips as well. Globally, 5.6% of total value added comes from sectors using chips as direct inputs — nearly $6 trillion. Total market cap for the top 20 customers of chip giant Taiwan Semiconductor Manufacturing Co. is around $7.4 trillion. The Taiwan Strait is one of the world’s busiest shipping lanes.
Modeling the Cost of a Crisis
Bloomberg Economics has modeled two scenarios: a Chinese invasion drawing the US into a local conflict, and a blockade cutting Taiwan off from trade with the rest of the world. A suite of models is used to estimate the impact on GDP, taking account of the blow to semiconductor supply, disruption to shipping in the region, trade sanctions and tariffs, and the impact on financial markets.
For the main protagonists, other major economies, and the world as a whole, the biggest hit comes from the missing semiconductors. Factory lines producing laptops, tablets and smartphones — where Taiwan’s high-end chips are the irreplaceable “golden screw” — would stall. Autos and other sectors that use lower-end chips would also take a significant hit.
Barriers to trade and a significant risk-off shock in financial markets add to the costs.
View attachment 64609
In the case of a war:
View attachment 64611
- Taiwan’s economy would be decimated. Based on comparable recent conflicts, Bloomberg Economics estimates a 40% blow to GDP. A population and industrial base concentrated on the coast would add to the human and economic cost.
- With relations to major trade partners turned off and no access to advanced semiconductors, China’s GDP would suffer a 16.7% blow.
- For the US, further from the center of the action but still with a lot at stake — through the reliance of Apple on the Asian electronics supply chain, for example — GDP would be down 6.7%.
- For the world as a whole, GDP would be down 10.2%, with South Korea, Japan and other East Asian economies most impacted.
A key assumption in this scenario is that the US would succeed in enlisting allies in concerted and severe economic sanctions against China.
US officials say that the Chinese reaction to then-US House Speaker Nancy Pelosi’s visit to Taipei in August 2022 helped convince other Group of Seven countries that the risk of conflict is real. Beijing saw it as a shift in the status quo that made Xi appear weak, particularly after domestic commentators suggested that China would be able to stop her from landing in Taipei.
The fallout from the Pelosi visit, which saw China conduct large-scale naval drills seen as practice runs for a blockade, helped build diplomatic muscle memory for concerted reactions, the US officials said.
“China’s rhetoric and the People’s Liberation Army response to Pelosi’s visit triggered a wave of quiet corporate contingency and scenario planning,” said Rick Waters, managing director of the China practice at Eurasia Group and formerly the top China policy official at the State Department.
View attachment 64612
Bloomberg Economics also modeled what a yearlong blockade of Taiwan by mainland China would mean for the global economy:
The reason for the smaller impact relative to the war scenario is that while the global economy still loses access to all of Taiwan’s chips, other shocks — including tariffs between the US and its allies and China, the disruption to Asian shipping and financial market fallout — are scaled down.
- For Taiwan, a small, open economy that has thrived through trade, GDP in the first year would be down 12.2%.
- For China, the US, and the world as a whole, GDP in the first year would be down 8.9%, 3.3% and 5% respectively.
The Bloomberg Economics exercise is — as far as we are aware — unique in bringing together geopolitical and economic modeling expertise. Still, the results are significantly driven by the scenario assumptions, and the band of uncertainty is wide. A war or blockade of shorter duration, and with less significant disruptions to semiconductor supply and trade, would have a smaller impact.
A Consequential Election
Even if the outcome of Taiwan’s election doesn’t trigger an immediate crisis, it will define the direction of cross-Strait relations.
Lai Ching-te campaigning in Kaohsiung on Jan. 8.Photographer: Yasuyoshi Chiba/AFP/Getty Images
Lai Ching-te — currently serving as vice president in the Democratic Progressive Party administration — has been at pains to present himself as a continuity candidate, with no plans to disturb relations with Beijing.
In the past, though, he described himself as a “pragmatic worker for Taiwanese independence.” For Beijing, which views the island as part of its territory, any formal push for independence would cross a red line. At his meeting with Biden, Xi expressed deep concern about the possibility of a Lai win, according to a senior administration official.
The DPP counterpoint, which aligns with the assessment in Washington, is that Beijing’s belligerence is the problem — not Taiwan’s desire for continued autonomy.
Lai’s opponents — Hou Yu-ih of the Kuomintang and Ko Wen-je of the Taiwan People’s Party — are both promising pragmatic steps to improve relations with Taiwan’s giant neighbor, without sacrificing the island’s de facto independence.
Hou Yu-ih, left, on the campaign trail in New Taipei City on Jan. 5.Photographer: I-Hwa Cheng/AFP/Getty Images
US officials say China may be planning a multipronged reaction to the election, with military incursions, economic sanctions and grey zone tactics like cyber-attacks.
Officials in Washington and Taipei say the period from the election in January to inauguration of the new president in May is a danger zone for Chinese actions aimed at hemming in Taiwan’s next president.
Straitened Circumstances
Whoever wins will have to deal with a changed, and challenging, set of cross-Strait realities.
In 1979, when the US switched diplomatic recognition from Taipei to Beijing, US GDP was ten times that of China, China’s military was in the early stages of modernization, and Taiwan was still under single-party rule.
Ko Wen-je arrives at an election rally in Kaohsiung on Jan. 7.Photographer: Alastair Pike/AFP/Getty Images
Fast forward to today and China’s GDP has closed much of the gap with the US, its military boasts near-peer status — especially close to home — and Taiwan’s liberal democracy is a visible contrast to China’s authoritarian system.
Statements by leaders in Beijing and Washington have added to the tension.
Xi has said more than once that Taiwan is not an issue that can be “passed down generation after generation.” Along with his efforts to modernize the military, those statements have spurred speculation he wants to deliver unification on his watch, with 2027 cited as a danger year by US intelligence and military officials.
At his meeting with Biden, Xi vented frustration with the view that China’s forces are aiming at readiness for an invasion by 2027, which he said was mistaken, according to a senior US official.
View attachment 64613
For his part, Biden has said the US would come to Taiwan’s aid in the event of a Chinese invasion. That bluntness eroded layers of carefully crafted ambiguity about the US position, stoking anger in China and concerns the US is emboldening pro-independence boisterousness.
Bloomberg Economics’ Taiwan stress index — based on warning words used by China’s Ministry of Foreign Affairs and military incursions in Taiwan’s air defense identification zone — shows the temperature over the last year and a half elevated.
Investors and businesses are already preparing for the worst. Kirk Yang, chairman of equity investment fund Kirkland Capital and an expert on Asia technology firms, says the fund’s position in Taiwan is now close to zero. Geopolitical tensions have “added incentive to scale back investments at a faster pace” he said.
He’s in good company. Legendary investor Warren Buffett sold down his stake in TSMC in the first quarter of 2023, citing geopolitical risk as the reason.
View attachment 64614
Businesses and governments are also making preparations. Greenfield investment in electronics and electrical equipment rocketed to $181 billion in 2022 from $48 billion in 2020 as governments in the US, Japan and Germany opened their wallets to diversify sources of semiconductor supply.
If there’s an upside from the Bloomberg Economics analysis, perhaps it’s this: The $10 trillion cost of a crisis would be so high for all players that the incentive to avoid it is strong.
The status quo might be no one’s ideal outcome, but for Taipei, Beijing and Washington the alternatives are worse. That’s a reason Taiwan’s ambiguous autonomy might remain an equilibrium outcome, even as the conditions that make it so shift.
Anti-landing barriers on the Taiwanese islands of Kinmen, across from Xiamen in mainland China.Photographer: An Rong Xu/Bloomberg
Methodology
For the war and blockade scenarios, Bloomberg Economics use a suite of models to assess the impact of disruptions to semiconductor supply, trade barriers, and financial market shocks.
Supply chain disruptions are assessed using OECD Trade in Value Added data for 2018. OECD input-output data are used to estimate the direct disruptions to sectors using semiconductors as an input (computer, electronics and optical products; electrical equipment; machinery and equipment; motor vehicles, trailers and semi-trailers; other transport equipment), and to assess the spillover impact onto other sectors – for example the impact on metal output if production of automobiles slows.
Trade shocks are assessed using the WTO Global Trade Model (GTM) (Aguiar et al, 2019). The GTM is a recursive computational general equilibrium model based on the GTAP model (version 7) (Corong et al, 2017). We shock tariffs and non tariff measures, including as a proxy for sanctions and export controls.
US allies are defined based on trade shares, treaty relationships, and Bloomberg Economics’ judgement. Australia, Canada, the European Free Trade Association, the European Union, Japan, Mexico, South Korea and the UK are defined as US allies.
Financial shock impacts are estimated following a structural approach based on the Bayesian Global VAR model (Bock, Feldkircher and Huber, 2020). The model is amended slightly by adding log real equity prices for each country as in Mohaddes and Raissi (2020). Uncertainty in the financial markets is modeled as a global shock to the VIX.
A key uncertainty in the analysis is the extent to which missing semiconductor output from Taiwan could be replaced by output in other locations, worked around by manufacturing firms, or backstopped from inventories.
The Bloomberg Economics scenarios assume that all production using semiconductors as inputs has to be reduced in line with the reduction in semiconductors availability:
-For advanced electronics such as smartphones using cutting-edge logic chips, this translates into a 60% reduction in production in the blockade scenario, rising to 85% in the war scenario when access to South Korean production is also severely curtailed.
-For sectors using lagging-edge logic chips, like those used in autos and home electronics, that means 35% in the blockade scenario when Taiwan’s output goes offline, and 62% in the war scenario when output from China, Japan, and South Korea is also lost.
Reality could end up being better. For example, other countries could amp up chip production, or auto firms and other manufacturers might find work arounds for missing inputs.
It could also be worse. For example, if Taiwan’s chips are not replaceable and use of them is distributed widely across products. If production for all sectors using leading and lagging edge chips goes to zero, the blow to global GDP in the war scenario increases from 10.2% to 14%.
— With assistance from Betty Hou, Eleonora Mavroeidi, Jennifer Creery, Bhargavi Sakthivel, Sam Dodge, and Nick Hallmark
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Zafer
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So Taiwan war will cost as much as 9.5% of the world GDP, some stable economies will shatter in the fallout but those who are used to roller coaster action will fare well enough.
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This is relevant to understand Bloomberg ties with China and how that might color the lens through which Mike Bloomberg and his media sees the country (which might mean they would want to exaggerate the numbers to make it seem a bigger problem than it would be, maybe). But the article itself comes from Washington Post which is famed for its more explicit realpolitik advocacy for U.S. state department goals.
Ravager
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I won't be so sure about that tho'...
Ravager
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To be honest ....i am pretty sure they would be burned so bad together that a new vacuum will be created and filled by someone new ..
I just can't put my head on who's who...
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That if US decided to face China head-on, US can chose to be involved indirectly, not joining the war but supplying weapons and materials under heavy military escort. Not sure if China dare to attack US if its like that.
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The US is too strong the only way to weaken it is itself. They've been enjoying good times for too long and good times create weak men/women/apache/transformer/newtonian fluid/cat/venusian or whatever shyt they identify them self.
Ravager
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If i were the chinese ..my utmost concern when retake taiwan is to isolated/quaranteed it and stop all the foreign medling by all means . Which in turn paving a way for a direct confrontation with the US/western power .
US - China direct confrontation is inevitability . The only question is .... when ??
Hari Sud
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War and Potential Costs & Impact
The global economic repercussions of the Ukraine war have, thus far, been contained. The U.S. has provided financial support of $100 billion, Europe $30-40 billion, but the toll on Ukraine, both in terms of lives lost and infrastructure damage, could amount to trillions. While the arms industry sees profits, the suffering in Russia remains largely unquantified.
Gulf Wars 1 and 2 incurred costs exceeding $200 billion for the U.S., causing substantial damage in Iraq. The Afghan war, with a $40 billion invasion cost, resulted in a trillion-dollar impact on the U.S., triggered by the Twin Towers attack. The enduring costs include 15 years of troops stationed in Afghanistan.
The financial toll of the Israel/Hamas war is uncertain, but the damage to the Suez Canal has global implications, impacting shipping worldwide. Inconveniences are felt both globally and in the conflict zones. It may result in higher shipping costs and delayed arrivals.
The above Wars with minimal consequences have yet to alter the world's way of life.
It is the much-discussed but not initiated conflict that poses a potentially devastating impact on the entire globe.
The prospect of a Chinese invasion of Taiwan carries severe consequences. Losses in life and military assets for China, Taiwan, and the U.S. could be substantial. China might lose a significant portion of its navy, Taiwan could face the loss of all or part of its armed forces, and the U.S. might lose one or two naval carrier groups. However, capturing Taiwan may still prove elusive for China.
A trillion-dollar disruption in Chinese exports could lead to a 10% global GDP decline. Taiwan's commercial losses would include the destruction of its chip-making FAB industry. While the U.S. may bear wounds, it would be relieved to confront a major belligerent power. The lasting impact might compel China to reassess its belligerence.
These significant costs may dissuade China from pursuing Taiwan, acknowledging the potential global repercussions.
Therefore, the perspective is that previous wars, with the U.S. either directly involved or supporting one side, have not profoundly disrupted the world economy. However, a potential conflict between China and the U.S. over Taiwan could yield such extensive disruption that its impact would be universally felt, particularly affecting the Chinese economy and military strength. With that in mind, war over Taiwan may never occur.
The global economic repercussions of the Ukraine war have, thus far, been contained. The U.S. has provided financial support of $100 billion, Europe $30-40 billion, but the toll on Ukraine, both in terms of lives lost and infrastructure damage, could amount to trillions. While the arms industry sees profits, the suffering in Russia remains largely unquantified.
Gulf Wars 1 and 2 incurred costs exceeding $200 billion for the U.S., causing substantial damage in Iraq. The Afghan war, with a $40 billion invasion cost, resulted in a trillion-dollar impact on the U.S., triggered by the Twin Towers attack. The enduring costs include 15 years of troops stationed in Afghanistan.
The financial toll of the Israel/Hamas war is uncertain, but the damage to the Suez Canal has global implications, impacting shipping worldwide. Inconveniences are felt both globally and in the conflict zones. It may result in higher shipping costs and delayed arrivals.
The above Wars with minimal consequences have yet to alter the world's way of life.
It is the much-discussed but not initiated conflict that poses a potentially devastating impact on the entire globe.
The prospect of a Chinese invasion of Taiwan carries severe consequences. Losses in life and military assets for China, Taiwan, and the U.S. could be substantial. China might lose a significant portion of its navy, Taiwan could face the loss of all or part of its armed forces, and the U.S. might lose one or two naval carrier groups. However, capturing Taiwan may still prove elusive for China.
A trillion-dollar disruption in Chinese exports could lead to a 10% global GDP decline. Taiwan's commercial losses would include the destruction of its chip-making FAB industry. While the U.S. may bear wounds, it would be relieved to confront a major belligerent power. The lasting impact might compel China to reassess its belligerence.
These significant costs may dissuade China from pursuing Taiwan, acknowledging the potential global repercussions.
Therefore, the perspective is that previous wars, with the U.S. either directly involved or supporting one side, have not profoundly disrupted the world economy. However, a potential conflict between China and the U.S. over Taiwan could yield such extensive disruption that its impact would be universally felt, particularly affecting the Chinese economy and military strength. With that in mind, war over Taiwan may never occur.
Hari Sud
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US treating China with kid gloves
The relationship between the United States and China is characterized by a cautious approach on the part of the U.S., often perceived as treating China with kid gloves. The primary reason for this delicate handling is attributed to the significant commercial interests that tie the two nations together. The profitability of Wall Street, driven by trade and economic relations with China, serves as a deterrent for the U.S. to adopt a more assertive stance.
China, recognizing the economic vulnerability of the U.S., understands that the real leverage lies in economic rather than military strength. Consequently, China refrains from actions like invasion of Taiwan that could jeopardize its lucrative export market to the U.S., estimated at a staggering $700 billion. This mutually beneficial relationship sees the Chinese economy thrive on the demand for affordable and replacement products from American consumers, making it a market unlike any other in the world.
Attempts by American politicians, exemplified by Trump's imposition of tariffs on $200 billion worth of Chinese products, have proven ineffective. Rather than deterring imports, local sellers adjusted prices to compensate for the tariffs, allowing the influx to persist. Under the Biden administration, despite outwardly addressing the China trade deficit, the influence of Wall Street prevails, inhibiting any substantial measures that could upset the delicate economic balance.
The cycle continues, with the American consumer market heavily reliant on inexpensive Chinese products. China, possessing advantages such as a ready market, favorable currency exchange, and superior infrastructure, maintains its dominance in catering to the demands of the American consumer.
For these reasons, there would be no Taiwan invasion by China or U.S. - China war.
The relationship between the United States and China is characterized by a cautious approach on the part of the U.S., often perceived as treating China with kid gloves. The primary reason for this delicate handling is attributed to the significant commercial interests that tie the two nations together. The profitability of Wall Street, driven by trade and economic relations with China, serves as a deterrent for the U.S. to adopt a more assertive stance.
China, recognizing the economic vulnerability of the U.S., understands that the real leverage lies in economic rather than military strength. Consequently, China refrains from actions like invasion of Taiwan that could jeopardize its lucrative export market to the U.S., estimated at a staggering $700 billion. This mutually beneficial relationship sees the Chinese economy thrive on the demand for affordable and replacement products from American consumers, making it a market unlike any other in the world.
Attempts by American politicians, exemplified by Trump's imposition of tariffs on $200 billion worth of Chinese products, have proven ineffective. Rather than deterring imports, local sellers adjusted prices to compensate for the tariffs, allowing the influx to persist. Under the Biden administration, despite outwardly addressing the China trade deficit, the influence of Wall Street prevails, inhibiting any substantial measures that could upset the delicate economic balance.
The cycle continues, with the American consumer market heavily reliant on inexpensive Chinese products. China, possessing advantages such as a ready market, favorable currency exchange, and superior infrastructure, maintains its dominance in catering to the demands of the American consumer.
For these reasons, there would be no Taiwan invasion by China or U.S. - China war.
BaburKhan
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Water-Filled Missiles, Silo Problems Behind China Purge: Report
New reported details about Chinese corruption allegations raise questions about the country's military readiness and modernization efforts.
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