Taiwan has become a focal point of tension between China and the United States, as the Chinese military frequently conducts real combat and blockade exercises in the waters surrounding Taiwan. The Pentagon views China as a threat to American interests, particularly in regard to potential conflicts in the Taiwan Strait, South China Sea, and with the Chinese government.
Despite China showcasing its military capabilities, Taiwan’s unique economic position and geographic location make it a particularly challenging target for Beijing. China’s legitimacy relies heavily on its economy, and a direct economic consequence of invading or blockading Taiwan would greatly undermine the foundation of the Chinese government.
According to Zoe Desch, Executive Assistant to the CEO of the Quincy Institute for Responsible Statecraft, in a publication titled “Responsible Statecraft,” there are three non-military factors that make a comprehensive military occupation or blockade of Taiwan impractical for China. Firstly, Taiwan’s significance as a hub for semiconductor manufacturing globally; secondly, the impact on trade and shipping routes through the Taiwan Strait and Luzon Strait; and thirdly, China’s own unfavorable economic conditions.
Taiwan is the world’s largest semiconductor manufacturing base. In the fourth quarter of 2024, Taiwan’s largest semiconductor manufacturer, TSMC, held 67.1% of the global chip market share, producing nearly all the most advanced chips. Taiwan’s semiconductor industry holds an irreplaceable position, not only dominating the chip industry but also providing unique support for production scale and quality.
Semiconductor chips are essential catalysts for global economic activity. If Taiwan halts chip production, the economies of the United States, China, and the world as a whole would shrink, leading to a global economic downturn. Chips support sectors like energy, manufacturing, utilities, and automotive industries, permeating various levels of the global economy.
While semiconductor chips themselves are not end products, they are core components that drive innovation and the development of emerging technologies like artificial intelligence and robotics. Taiwan’s leading position in this critical market is referred to as the “Silicon Shield,” indicating investments by both the U.S. and China to safeguard their stable output.
Military attacks or blockades on Taiwan would have profound economic repercussions globally. The world’s major economies heavily rely on chips produced in Taiwan. With the continued growth in chip demand, losing Taiwan’s manufacturing base could strangle the global supply chain in the coming years.
Any Chinese military action against Taiwan would disrupt international trade passing through the Taiwan Strait and Luzon Strait. The Taiwan Strait is a key route for international trade, with Taiwan’s port trade amounting to $586 billion in 2022 and an estimated $2.45 trillion in trade passing through the strait during the same period. In the event of conflict, Chinese ports would also likely be affected, as Chinese cargo ships would have to divert to ports along the eastern coast of China.
Although global shipping routes may circumvent conflict regions without significant price hikes, China’s role in maritime shipping infrastructure suggests that conflict would directly impact some of China’s most profitable ports and port cities. International cargo ships would no longer be able to dock at the extensive coastal areas for maintenance and cargo handling.
The shutdown of some ports due to prolonged conflict or blockade would trigger a chain reaction in the global shipping industry, leading to overburdened operations at remaining ports. From a geopolitical perspective, Beijing must also consider its relationships with global southern and BRICS countries, whose reliance on trade through the straits exceeds that of the G7. Given Beijing’s diplomatic efforts to engage with these nations, hindering their trade could result in diplomatic disasters, which Beijing would likely want to avoid.
China’s current economic situation is not favorable, as its economy has been continuously affected by the ongoing real estate crisis, subdued domestic consumption, and the negative impacts and uncertainties brought by trade war tariffs. The possibility of a Taiwan Strait conflict triggering a global economic crisis would significantly increase, exacerbating China’s existing economic issues. Furthermore, Taiwan accounts for 60% of China’s semiconductor imports. If China invades Taiwan, the halt in chip supply would cripple many of its industries, leading to paralysis. In addition to chip imports, China heavily relies on international trade, which accounts for 37% of its GDP, making it vulnerable to disruptions in international trade.
According to a study by Bloomberg Economics, a sudden event like a Chinese blockade of Taiwan could pose a 5% risk of global GDP reduction, with China and the U.S. potentially decreasing by 8.9% and 3.3% respectively. In the event of a Chinese invasion of Taiwan, global GDP could face a decline of up to 10.2%, with South Korea, Japan, and other East Asian countries being the hardest hit. The first year of conflict alone could incur losses of up to $10 trillion, prompting geopolitical countries to make every effort to avoid conflicts. If a fraction or all of Taiwan’s semiconductor foundry plants are destroyed, the impact would be even more significant, leading to a decade-long global economic recession or even longer. Therefore, countries are establishing their own semiconductor foundry plants to prevent unforeseen events. Inevitably, conflicts will result in permanent fractures in China’s trade relations with the U.S. and the EU.
Though both China and the U.S. are attempting to reduce their reliance on Taiwan’s advanced chips through localized production, Taiwan continues to retain its most advanced chip production capacity domestically to maintain global dependence on its chip industry.
Furthermore, due to issues like corruption, the Chinese military is undergoing purification, which seems to either suppress its combat readiness due to widespread corruption or political purification, both of which would hinder military preparedness. If Chinese military leaders are corrupt, it signifies inadequate combat readiness, while political purges would affect morale and internal cohesion.
As long as the U.S. continues to rely on Taiwan’s high-end chips, coupled with Taiwan’s strategic location and its democratic society, the U.S. will not easily abandon Taiwan and will definitely come to its aid. Additionally, Taiwan’s strong military capabilities deter the Chinese government from acting recklessly. These factors will continue to contribute to the stability and prosperity of the region.