The Financial Times is reporting that new research commissioned by the US government has found that a conflict over Taiwan would cause a huge shock to the world economy.
According to the report, a military clash over the island would cause $2.5 trillion in economic losses. The figure was released to the outlet by people familiar with the research, which was performed by the Rhodium Group research firm.
The biggest disruptions would be to the automotive and electronics sectors, due to their dependency on semiconductors, according to the report. Most of the supply of semiconductor chips globally comes from Taiwan.
The report also noted that financial flows to Chinese companies would dry up, and that would produce a severe blow to global trade, as developing countries with close trade ties to China would be sent into economic crisis.
The report was assembled for the US State Department, which has shared the findings with its allies and partners. Washington and the European Union have been coordinating on strategy as they prepare for a conflict over the island.
Beijing’s position is that Taiwan is a rogue province and seeks to eventually reintegrate the island into its territory, however Taiwan has governed its own affairs independently since 1949, although it has never officially declared independence.
The US has attempted to pursue a bipartite policy, acknowledging, though not officially endorsing the position that Taiwan is a part of China, while at the same time, supplying weapons to the island and maintaining the Taiwan Strait is a traversable section of international waters.
The White House approved a $1.1 billion arms sale to Taipei in September, and Congress is working on legislation which would allow the State Department to provide up to $10 billion more in foreign military aid to the island over the next five years.
Tensions have been increasing around Taiwan since Nancy Pelosi visited the island in August, over objections from the Chinese government. Beijing launched large scale military drills around the island, and imposed a series of trade restrictions. Together there are fears at some point China may decide to attempt to invade the island and forcibly reintegrate it.
