South Korea would be hit hard if China invaded Taiwan and a war broke out, according to a forecast by Bloomberg Economics.
On Jan. 9 (local time), Bloomberg Economics, an economic research institute affiliated with Bloomberg News, said the geopolitical crisis in Taiwan could intensify ahead of a presidential election in Taiwan on Jan. 13, and released a projection of what would happen if China invaded Taiwan and a war broke out and what would happen if the Chinese armed forces surrounded Taiwan without a war.
If China invaded Taiwan and a war broke out, it could cost about US$10 trillion, or 10.2% of global GDP, according to the report. This is larger than a 5.9% decline in global GDP during the 2020 COVID-19 pandemic or the 2009 global financial crisis. Trade, semiconductor, and financial shocks are estimated to prune global GDP by 4%, 17.8%, and 1.5%, respectively.
If the United States and its allies intervened in a China-Taiwan war, Taiwan’s GDP would fall by 40%. Impacts on Taiwan’s leading semiconductor companies such as TSMC would be astronomical. Production lines for laptops, tablets, and smartphones would stop and automobiles and other sectors that use low-cost semiconductors would also suffer, according to Bloomberg.
Indeed, Wall Street investors and various companies that rely on Taiwanese semiconductors are already preparing for such a war risk. Berkshire Hathaway Chairman Warren Buffett sold his entire stake in Taiwan’s TSMC in 2023, citing geopolitical tensions.
Notably, a China-Taiwan war would cut South Korea’s GDP by 23.3%. This would be the second biggest hit after one on Taiwan. It would be higher than Japan (-13.5%) and even higher than China (-16.7%), a warring party. This is because if the U.S. military entered the war between Taiwan and China, China would likely retaliate, and the war would likely escalate into an armed conflict between the two countries.
In terms of the magnitude of a GDP decline under a blockade of Taiwan, the country would see a 12.2% decline in its GDP. This is because Taiwan is a small, open economy with much dependence on trade. China, the United States and global GDP would shrink by 8.9%, 3.3%, and 5%, respectively.
As Bloomberg explains, the analysis was driven by assumptions in a scenario, the range of uncertainties is wide, and few see an imminent Chinese invasion of Taiwan as likely. However, it emphasized that long-standing tensions such as the wars in Ukraine and Gaza may suddenly lead to a conflict.