The UK’s foreign minister, James Cleverly, said in a set piece speech on Britain’s ties with Beijing that a Chinese invasion of Taiwan would ruin worldwide trade and that distance would give no shelter from the inevitable disastrous blow to the global economy.
How to estimate disruptions caused by a conflict between China and Taiwan
If there was a blockade, it would be the interruption of Taiwan’s trade with the world, in particular its semiconductors business, that would have the most serious effects on economics worldwide. The global supply chain disruption, especially in large chip consuming sectors such as electronics, cars and computers, would have a devastating impact on the world economy. Due to a slowdown in global trade financing, shocking the world economy and potentially triggering debt crises between China’s more volatile trading partners, Global Trade with China will also decline.
China’s disruptions to international trade
Global investors will reduce their lending activities and thus decrease the availability of trade finance, which can have a negative impact on international trade. Another force would also affect trade with China. The conflict with Taiwan would worsen China’s domestic economic conditions, in particular disruption to the global silicon value chain described above, as it wrestles with the worst Covid situation.
Furthermore, it is very inevitable that both local and foreign investors would try to withdraw funds from China. China’s imports and exports have so far decreased in the first half of 2022 as a result of a spike in Covid cases sometimes, Russia’s invasion of Ukraine, and other issues. After a confrontation between China and Taiwan erupted in the last months of 2022, the market scenario is probably going to get worse. Analyse data visually and comprehend the trade environment for China published from Q1 to Q2 of 2022.
Effects on Taiwan-exposed value chains
In countries linked to the value chains of semiconductors, a conflict between China and Taiwan would be extremely damaging. These are economies in which auto production accounts for a significant share of GDP, as has been the case with Hungary, the Czech Republic and Slovakia, including global producers of car parts and vehicles like China, Japan, the United States or Germany.
Conflicts with China and Taiwan would have a substantial impact on the value chains of semiconductors in countries linked to them. As in Hungary, the Czech Republic and Slovakia, including global producers of car parts and vehicles such as China, Japan, the United States or Germany, these are economies where car production accounts for a significant share of GDP.
Consequences for China’s economic partners
Trade between China and its trading partners would be impacted by the China-Taiwan dispute. China’s need for international inputs would decrease due to a weaker currency, interruptions in export production, and a decline in domestic consumption. China’s trading partners in the Asia-Pacific would also be directly impacted by trade disruptions from a conflict, given China’s key involvement in regional value chains. Shipments of essential intermediate items from China that are delayed might swiftly result in production halts and financial losses.
During the first half of 2022, China imports from its major partners decreased by comparison to the preceding months. A major factor contributing to the disturbances in trade between China and other countries is the Covid situation, as well as global supply chain disruption. This list of the highest import partners from China shows their quarter by quarter values.
Impact on other international economies
Due to major trade and manufacturing disruptions around the world, global countries would be faced with rising inflation and shortages in key sectors.
This could include critical infrastructure inputs, such as telecommunications and medical equipment, and less strategic, but equally important, equipment commodities for harvesting and mining, which could disrupt business as usual in many economies.