Greenspan: Chinese Invasion Of Taiwan Could Cause Economic Black Swan Event

The number of Chinese aircraft spotted around the island of Taiwan has nearly doubled each consecutive year since 2020 according to an AFP database using data from Taiwan's Ministry of Defense. Image | Donald Standeford.

By Donald Standeford, SJ Founder/Publisher
January 06, 2023 04:00 am UTC
Modified: 2023-01-06 04:00 am

UNITED STATES - Former Chair of the Federal Reserve of the United States Alan Greenspan warned that if China invades Taiwan it could trigger an economic "Black Swan" event that could affect Economies Worldwide.

The number of Chinese aircraft spotted around the island of Taiwan has nearly doubled each consecutive year since 2020 according to an AFP database using data from Taiwan's Ministry of Defense.

Black Swan events are "extremely rare" and "unpredictable" events that can cause "catastrophic damage" to an economy. It initially gained popularity after Nicholas Taleb wrote the book "The Black Swan" in 2007 which outlined the concept, according to an Article in Investopedia.

Greenspan said, "The black swan event I think markets, and really the world at large, ought to be most worried about is some kind of conflict erupting between China and Taiwan".

He added, "Xi Jinping has methodically consolidated power and made himself essentially president for life. He has been fairly candid in his intention to eventually bring Taiwan back into the fold, and he may begin to feel his window is closing".

Greenspan said that the global economy would be shaken due to the world's reliance on Taiwan's semiconductor trade, according to a Report by Business Insider. This has been confirmed by our own reports on the world's dependence on Taiwan's semiconductor trade.

Business Insider states that Taiwan is the "world's largest independent chip maker, and 15th largest stock by market capitalization", adding that it has a total value of around $400 billion.

"The sheer amount of world trade that currently flows through that region, and the number of semiconductors fabricated by Taiwanese firms upon which the technologies we enjoy rely, make any conflict a potential nightmare scenario," Greenspan said.

Factors That May Increase The Likelihood Of An Invasion From China On Taiwan

China's Semiconductor Exports declined by 26.7% from a year ago, with the largest one-month decrease recorded for the month of October, at 22.5 billion units, according to data released by the National Bureau of Statistics (NBS), making an invasion by China on Taiwan more tempting.

Although Taiwan has been a top chip manufacturer for the United States, the CHIPS Act announced last year has the U.S. investing billions in efforts to bring chip manufacturing in-house.

An invasion of Taiwan by China would allow the country to gain a Global Advantage over the chip market, and an edge over any competition.

Before that happened, however, any invasion of Taiwan would cease all microchip production going on within the country, causing the global microchip supply to dry up, especially the high-end chips that Taiwan' specializes in producing.

China has already told its military to Prepare For War, saying that its "security is increasingly unstable and uncertain". China is located so close to Taiwan, that it worries that its adversaries may use the island as a military foothold close to the Chinese mainland.

What Is The Impact An Attack On The Island Would Have On The World Economies?

Gareth Leather, a senior Asia economist at Capital Economics released a report that said even if a full-blown conflict were to be avoided,, a military blockade on Taiwan would still cause "a major economic shock to the global economy as it would lead to renewed shortages in the automotive and electronics sectors and put further upward pressure on inflation.”

He also wrote that if Taiwan's semiconductor supply was in any way disrupted for an extended period of time, electronics and automotive manufacturers would be forced to find alternative suppliers to fulfill their own needs, and many manufacturers would be forced to shut down as a result.

“It takes two-to-three years to build a semiconductor plant from scratch. Replacing lost manufacturing capacity would be extremely expensive — a new semiconductor factory costs tens of billions of dollars and it is extremely knowledge-intensive; indeed, TSMC dominates at the cutting edge because of its technological lead,” he said.

“Expansion and the launch of new services and firms would be harder. And without ready access to the fastest chips, innovation in areas such as artificial intelligence would slow,” he also stated.

What Is The Impact An Attack On The Island Would Have On China's Own Economy?

An invasion of Taiwan would not just hurt economies worldwide, it would also do a great deal of damage to China's own economy, which has already been in a downturn.

A Report by the Taiwanese Newspaper Taipei Times in August of 2022 said that an invasion on the island could even ruin China's economy altogether, as the fighting would disrupt shipping lanes, incur international sanctions, and further decouple relations and trade between China and the United States.

The report cites Bloomberg columnist Hal Brands who wrote, “A major war over Taiwan could create global economic chaos that would make the mess produced by Russia’s war in Ukraine look minor by comparison, for reasons going far beyond the nation’s crucial position in semiconductor supply chains".

Chinese Incursions Every Year Have Been Nearly Doubling Each Year Since 2020

The number of Chinese aircraft spotted around the island of Taiwan has nearly doubled each consecutive year since 2020 according to an AFP database using data from Taiwan's Ministry of Defense.

The following is the number of Chinese military aircraft spotted around the island in the last few years based on reports from Taiwan's Ministry of Defense:

2022: 1,727 military aircraft | Sorties: 1,241
2021: 960 military aircraft | Sorties: 538
2020: 380 military aircraft | 380 Sorties

Lee Hsi-min, Taiwan’s former chief of general staff, told AFP, "They want to show their determination, their will and to coerce the United States: don’t get too close to their red lines, don’t cross their red lines".