Gain access to the White House Watch newsletter at no cost
Your essential guide detailing what Trump’s second tenure signifies for Washington, commerce, and the global arena
The author serves as a Hoover scholar at Stanford University and has penned the upcoming publication ‘Defending Taiwan: A Strategy to Prevent War with China’
Iran did not need to scuttle even one oil vessel to disrupt one-fifth of the world’s petroleum availability. Merely a handful of missile and unmanned aerial vehicle attacks were sufficient to convince insurance providers to withdraw protection for ships navigating the Strait of Hormuz. In a matter of days, this crucial energy conduit became effectively inaccessible. To date, the financial sector remains unwilling to assume the peril — even though Washington has attempted to guarantee reinsurance protection, an arrangement contingent upon US Navy protection.
This constitutes a reproducible operational scheme. China, an entity far more potent than Iran, possesses the capacity to employ a refined iteration of identical economic coercion within the Taiwan Strait. The United States and its confederates ought to commence preparations commensurate with this threat.
Tehran’s approach involves economic erosion — presuming that the United States cannot endure elevated oil costs perpetually and will ultimately yield. Should that occur, Iran’s Revolutionary Guards would exert dominion over Hormuz. Petroleum supplies would resume — though solely at Tehran’s behest, or at a premium rate.
Beijing possesses the capacity to enact an analogous strategy without actively engaging commercial vessels with gunfire. A predicament concerning Taiwan might commence with a singular legal pronouncement: Beijing would assert its prerogative to regulate all ingress and egress pertaining to the island. China might signal its determination through missile or projectile launches and the establishment of “restricted areas”. Even without direct confrontation, should the peril of escalation appear substantial, independent transporters would be compelled to eschew the maritime and aerial domains surrounding Taiwan. The conventional “Five Powers Clause” embedded in commercial war-risk policies ceases protection during any hostilities involving the US and China. Given the difficulty in convincing shipping firms to hazard passage amidst a handful of unguided Iranian drones, consider the challenge of requesting them to confront the People’s Liberation Army.
The decision would consequently rest with Washington: acquiesce to a novel status quo where Beijing holds effective dominion over Taiwan’s trade — encompassing its semiconductor fabrication plants — or hazard an escalation to full-scale economic warfare and potentially armed confrontation. Even absent actual warfare, the broad economic and fiscal upheaval stemming from such a crisis regarding Taiwan might considerably surpass the current situation observed in the Gulf. Furthermore, the very nations presently contending with difficulties would bear the brunt of the impact.
Consider a hypothetical situation where China endeavors to acquire covert command over Taiwan’s commerce. The United States and its partners might still attempt to provision the island, challenging China to obstruct their efforts. However, China would not be obliged to deploy deadly force against these fleets. It could merely perturb them, or issue threats to that effect. Should commercial exchanges encircling Taiwan be physically impeded, the energy crisis for regional economies would vastly exceed present levels. Taiwan, Japan, and South Korea could discover that procuring energy consignments on the secondary market at any cost would be impossible, lacking a means of delivery.
Furthermore, a multitude of global sectors would falter, ranging from electronics manufacturing to automotive production. TSMC, headquartered in Taiwan, fabricates more than 90 percent of the planet’s cutting-edge semiconductors. No strategic stockpile of microchips exists, nor is there a comparable mechanism to International Energy Agency nations releasing 400 million barrels of oil. TSMC’s fabrication plant in Arizona cannot readily compensate for this absent provision. Taiwanese authorities could institute energy rationing for industries should deficiencies arise. Alternatively, under a siege, Taiwan might scale back its semiconductor output to compel global action ensuring its replenishment.
Presently, burgeoning semiconductor exports serve to buffer the economies of Taiwan and South Korea from the prevailing energy cost surge. During a Taiwan emergency, the semiconductor availability itself would be jeopardized; maintaining operations of energy-intensive fabrication facilities would be illogical. A disruption in semiconductor provision would exacerbate the economic and fiscal distress and might incite alarm in stock markets, especially within the US technology industry, potentially leading to swift worldwide financial spread.
An emergency concerning Taiwan might not be brief. Beijing’s approach, mirroring Iran’s contemporary tactic, would hinge on convincing the United States that an autocratic government, possessing extensive self-held reserves, is capable of enduring longer than an alliance of democratic states with more limited ones. China is accumulating immense inventories of petroleum, microchips, cereals, and a broad spectrum of additional raw materials. The rationale behind constructing a covert fortified economy is specifically to preclude its actual deployment.
The United States and its partners require their distinct collaborative inventory mechanisms, pre-established emergency supply chains, and an enduring structure for overseeing economic disruptions. Such initiatives will necessitate time for implementation, and they ought to undergo rigorous testing ahead of any emergency, rather than being improvised amidst one. During any Taiwan emergency, the paramount concern — preceding punitive measures against China or the disengagement of supply networks — would entail addressing the worldwide economic repercussions.
The Hormuz predicament has illustrated the nature of ad-hoc responses. A Taiwan emergency would prove far less lenient.