A War over Taiwan Could Create Global Economic Chaos
If China attacks Taiwan, the world’s wealth will be reduced by US$2.61 trillion (about 3413 trillion won), the Nihon Keizai (Nikkei) Shimbun reported on Aug. 2. It said that the West will impose sanctions on China like those on Russia, and China, as well as all countries that trade with China, will suffer huge economic damage.
“If China invades Taiwan, sanctions may be imposed on China, as is the case with Russia that invaded Ukraine,” the Japanese daily said. “If sanctions are put on China, a chaos will be created not only in the world financial market but in the global logistics. Including indirect impacts, the world will suffer immeasurable economic damage.”
The damage is expected to be greater than that from sanctions on Russia or the COVID-19 pandemic. According to Nikkei’s analysis, if China and 38 OECD countries are in conflict, such sanctions will wipe out US$1.34 trillion in added value that China gains from exports. The figure is about 10 percent of China’s nominal gross domestic product (GDP).
In addition, value added generated from 38 countries’ exports to China will also vanish. This means that demand worth a total of US$2.61 trillion, or 3 percent of the global GDP, will disappear. Most of the two-way investments between China and other countries will be halted, leading to a great fiasco in the world financial market.
In a scenario where trade between the United States, Europe, Japan, and China is halted, a total of US$1.91 trillion in added value will evaporate, including US$1.6 trillion in damage to China. This is equivalent to 2.2 percent of the global GDP. It is estimated that China will suffer an economic loss of 7.6 percent of its nominal GDP, Japan 3.7 percent, Europe 2.1 percent and the United States 1.3 percent.
“It is difficult to make a simple comparison, but China’s GDP is about 10 times that of Russia,” Nikkei said. In addition, considering that the COVID-19 pandemic has reduced global trade by 8 percent and the world GDP by 2 percent, even greater damage is expected. Considering such enormous economic damage, economic sanctions on China will be a double-edged sword. It will not be easy to impose sanctions like those on Russia.”
On the other hand, if economic sanctions against China become a reality, the world economy may be divided into a competitive system between advanced Western countries led by the United States and Europe and emerging countries led by China and Russia. China and Russia are steadily trying to expand their presence in emerging countries such as the BRICS -- Brazil, Russia, India, China, and South Africa -- and African countries. They claim that they can build a strong, self-sufficient economy even if the United States and Europe are out of the picture.
China is also making a move to reduce its dependence on the U.S. dollar, as it learned a lesson from the Ukraine crisis. Russia has increased the proportion of payments in the Chinese yuan when exporting coal to China after Western sanctions. An Indian cement conglomerate used the Chinese currency in its trade with Russia in June.