If China Attacks Taiwan: China's Economic Vulnerabilities

Today’s episode is the third in a series of three that examine the potential consequences for China if a military operation against Taiwan were to fail. In each of these episodes, we’re speaking with authors of a recently published German Marshall Fund study of the possible costs that China would incur across four different, but interrelated areas: the Chinese economy, the military, Chinese social stability, and international costs. The report is titled, “If China Attacks Taiwan” and it is posted on GMFUS.org.  Our podcast today focuses on the potential costs for the Chinese economy.

To recap, the study considered two scenarios that could take place in the next five years. In the first scenario, a minor skirmish escalates into a multi-week maritime blockade of Taiwan by China. Although several dozen members of the Chinese and Taiwanese military are killed, U.S. intervention eventually forces China to de-escalate.  In the second scenario, a conflict escalates into a full-fledged invasion, with Chinese strikes on not only Taiwan but also U.S. forces in Japan and Guam. After several months of heavy fighting, Chinese forces are degraded and eventually withdraw after suffering many tens of thousands of casualties.

Our guests today are Charlie Vest and Logan Wright, who co-authored the chapter on the implications for the Chinese economy of a failed operation against Taiwan. Logan is a partner at Rhodium Group and leads the firm’s work on China’s economy and its global impact. Charlie is an associate director at Rhodium Group, where he manages corporate research and advisory work on China.

Timestamps:

[00:00] Introduction
[02:34] Key Takeaways: China’s Ambitions vs. Economic Realities 
[05:41] The Escalation Dilemma in China's Decisionmaking
[09:56] Immediate Disruptions to Trade and FDI
[13:52] Gray-Zone Military Engagement and Political Pressures
[16:48] Could Beijing Underestimate the Costs of US Intervention? 
[24:12] Policy Tools and Limitations for Economic Stabilization and Recovery
[27:19] Long-Term Economic Effects
[29:24] Impact of Social Instability