Everything Is at Risk If China Takes Taiwan
Our way of life is at risk if China takes Taiwan. I don’t believe that the CCP wants to destroy its largest export customer, but if China were to take Taiwan, the CCP would have enormous leverage over the U.S. Government.
What is the probability of China taking Taiwan? Greater than 80%. Perhaps closer to 90%. I can’t think of a reason why China would not take Taiwan. Fear of U.S. retaliation? I don’t see that as a real factor. The Biden Administration is more concerned with DEI initiatives in the military and maintaining an open border (more on that in a future article), than it is concerned about the safety of its citizens or maintaining a strong Dollar and a stable price environment for Americans.
Beijing could halt the export of all chips manufactured by companies located in Taiwan such as TSM (approximately 80% of all chips are manufactured in Taiwan). Imagine what halting chip supply would do to the price of automobiles, phones, laptops and electronics. The price spikes of 2020 and 2021 for automobiles and electronics would look like a walk in park.
Does $5-10K for a used iPhone sound reasonable?
How about $200K for a used Toyota Tacoma?
Does $5-10K for a used or low-end laptop sound attractive? These hypothetical numbers may very well be conservative.
Alternatively, Beijing could allow chips to flow, but only after exacting a toll on all commerce into and out of Taiwan.
This is the approach I would take - collect a toll from all Taiwanese commerce. Thus, if Taiwan produces approximately $800 billion of goods and services each year, what cut may Beijing extract? 10%? 20%? 30%? These are large numbers.
On the jobs front, the State Department numbers below (approximately 200,000) feels low:
If China were to limit the flow of chips out of Taiwan, the number of jobs lost in the United States would be far more than 200,000 across industries in my view. Just think of how demand would fall if prices for goods and services became cost prohibitive for many. Millions of jobs would be lost.
What social policies would the halting of chips out of Taiwan give rise to?
Would the Biden Administration print another $2+ Trillion in helicopter money for Americans? This would only exacerbate the problem.
Would the Biden Administration pass a Universal Basic Income (UBI) bill? This too would only cause prices to move higher and further engender moral hazard among Americans.
U.S. Foreign Policy ought to be one of peace through strength. This does not mean higher capital allocations to the U.S. Military. Not when the U.S. Military is being embarrassed on the ground by Iran-sponsored proxies lobbing $50K autonomous drones at U.S. bases. More money for the Military is not the answer. Greater Efficiency and Accountability is the answer. These outcomes won’t happen under the Biden Administration.
Taiwan’s economic backdrop: With a population of approximately 23 million, Taiwan is a growing economy (1-3% Real GDP growth on a GDP base of approximately $800 billion). Taiwan’s unemployment rate is approximately 4% and its labor participation rate is approximately 59% (source: IMF. Here is more on Taiwan’s GDP for those who want further detail).
*Related article: What Happens If China Takes Taiwan?