While China may have some success in gaining support for its reunification model from among its partners, the absence of any congruity with the US and the West on this matter will only cause further agitation and stoke the rhetorical Cold War flames that have been burning for some time. In this context, the economic consequences of a world that is careening towards a new Cold War can only be the acceleration of the process of commercial, technological and now even financial decoupling that is driving the strategic competition between the US and China.
Implications for supply chains and the global economy
For the people of Taiwan, the current crisis with the mainland seems less dire and threatening than the previous quarrel in 1996. But there are two compelling reasons for expecting significant negative consequences for not just the economies of Taiwan and the mainland but also the rest of the world. First, the Chinese economy has more than doubled in size in the past 16 years and has practically caught up with the US. Second, Taiwan has become the supply-chain nerve center for semiconductors, particularly advanced chips, as the largest manufacturer in the world of this essential “fuel” of modern technology.
The world economy has already experienced firsthand major value-chain bottlenecks similar to those that Taiwan has had to endure due to the military exercises that China has been carrying out from its main ports. This happened after US president Donald Trump initiated a trade war with China and was made much worse by the pandemic. The People’s Liberation Army (PLA) Navy’s maneuvers make it difficult for commercial vessels to access Taiwan’s ports. The military exercises in the aftermath of Pelosi’s visit ran from August 4 to 7 but were then extended, finally ending on August 10. Beijing maintained, however, that it would conduct regular patrols in the Taiwan Strait.
Whenever the mainland rolls out such military operations, they are a de facto blockade of Taiwan’s ports and also can limit traffic through the island’s airspace. Passengers on trans-Pacific flights leaving Hong Kong around the time of the exercises reported lengthy departure delays due to flight path restrictions. All of this presents a warning to Taiwan that Beijing could well impose a full-on blockade on the island whenever it chooses. Such a move would have severe economic consequences not just for Taiwan but for the rest of the world. Consider the impact of Shanghai’s recent Covid-19 lockdown which lasted for about 100 days, with significant negative effects on the transport of goods from its port, one of the most important in the world.