Uncertainty is a scourge in the business world. Firms depend on forward-looking prognostications where fixed assumptions far outweigh variable ones. Uncertainty, especially among key assumptions related to logistics, financing, overall trade, and future demand make planning a real challenge. At a global level, we’re quickly approaching some very uncertain times.
The pending China/Taiwan conflict is ramping up. According to the RAND Corporation, should the US become entangled in just one year of fighting, US GDP could reduce by 5% to 10%. Vital waterways would be severely compromised, and most disturbing, an estimated 90% of Taiwanese manufactured semiconductors could be cut off from the global supply. Conflicts at this level should be avoided at all costs but history suggests that might not be the case this time.
Most of the world’s worst wars were initiated not when countries were at their height, but rather after they had already peaked and even declined. Take Japan in 1941 and Germany in 1914. China’s one-child policy is leading it into a demographic catastrophe. Some estimates point to roughly 70 million working-age folks will segway out of the market giving rise to120 million senior citizens. Their Covid-19 zero policy is hindering growth and energy, water, and farmland resources are disappearing at a troubling rate. But perhaps the most ominous news for President Xi Jinping is many of the world’s leading democracies are beginning to boot Chinese companies out of their financial markets. This was not the case just five years ago.
If a war is to come, some suggest strikes on US military assets in the region would come first. Guam and Okinawa are both home to some of the largest US bases in the Pacific. They are vulnerable to missile attacks and such attacks would serve to slow the US response to an amphibious and airborne invasion of Taiwan. However, amphibious assaults on an island like Taiwan are no walk in the park. Taiwan’s geography is characterized by impenetrable jungles and mountains in the east and very dense urban environments in the west. Defending such a variety of terrains provides the upper hand to the defender, not the invader.
A proactive first step would be to make the Taiwan Strait as treacherous as possible to cross. The US and its allies could turn the strait into a high-tech minefield with electronic sensors and jammers coupled with armed drones and missile launchers on the allied territory adjacent to the strait. This would be a real headache for Chinese forces. Another step would be strengthening Taiwan’s ability to defend itself. This was the objective in Ukraine, achieved in some instances but quite weak in others. Mobile missile launchers, radars, mines, a bolstered communications infrastructure, and additional ground troops are ideal starting points.
Taiwan is home to seven major ports and the 15th largest in the world (Port of Kaohsiung). Some of the busiest shipping lanes will likely be affected if China wades into an all-out conflict. Uncertainty levels are being ratcheted up once again.
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