Real Wealth Concepts

Will China Invade Taiwan?

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Many people think Russia’s invasion of Ukraine opens the door to a Chinese invasion of Taiwan, partly because China hasn’t aggressively denounced the action and in many ways is supporting Russia. In contrast, I think the invasion of Ukraine actually had the opposite effect. It reduced the likelihood of Chinese military action.

While China is a rising global force with a desire to project its power on the global stage, China remains heavily dependent on global trade. Global trade that is made possible by the world’s only superpower with worldwide naval reach: America.

What does “dependence on global trade” really mean? China imports critical resources to run its economy, and then exports goods to raise money. China lacks the internal capability to do either on its own and remains closely intertwined with the rest of the world. Moreover, global safe passage of vulnerable ocean freighters is made possible by the implicit protection provided by the US navy. You know this, I know this, Chinese leadership knows this.

While Taiwan is a matter of pride for China, I believe Chinese leadership is pragmatic and not willing to forego its economic endowment for the sake of national ego. After witnessing the Western response to Russia’s invasion of Ukraine, China must recognize the massive potential economic cost of invading Taiwan. This cost would have real implications on Chinese citizens, offsetting any benefits to reunification. Of course, this assumes an invasion is even possible.

The logistical challenge of a full-scale island invasion, particularly if Taiwan receives Western support, significantly weakens China’s military advantage. China could ultimately win such a conflict, but at what cost? A bombed-out Taiwan and permanent insurgency? A land invasion involving massive casualties (US plans to invade Japan during WWII required about 1.2 million troops)? While China will continue to assert that it has the capability to invade Taiwan, the military cost of doing so is simply too high. Again, Russia’s invasion of Ukraine – a land crossing into a neighbouring country – has proven how easy it is to underestimate the true costs of war.

The US knows China knows this. This is why it is antagonizing China. In fact, there are elements of the US administration that want a China-Taiwan conflict, just as they desired a Russia-Ukraine conflict. One way to keep your enemies weak is to trick them into fruitless wars that erode their military capabilities, drain their resources and ally the world against them. There certainly is motive: Russia and China are both American adversaries.

Consider this: until early 2022, Ukraine was at best an afterthought for most of the West. Even during the 2014 annexation of Crimea and downing of flight MH17, Ukraine barely registered on Western media radars for more than a week. Curiously though, the 2022 invasion received almost movie-like media attention, with its hero and antihero, Zelensky and Putin respectively. Within days of the invasion, the American war propaganda machine went into full swing. Western support was united by sanctions, military aid, fundraisers and Ukrainian flags flying from cars and porches across the Western world. Why? Because America found a way to rust Russia from the inside out without putting boots on the ground. Unfortunately, the Ukrainian people are caught in the middle.

Some might point to the Russian Ruble, trade surplus and FX reserves as signs Russia is actually coming out ahead during this conflict, but the destruction of its fighting capability and inability to access key components for production and resource extraction will set Russia back years. America is kneecapping Russia without actually going to war.

I suspect some in the US would love China to invade Taiwan for similar reasons. Of course, the economic consequences would be very damaging for all countries, as almost every supply chain involves China in some way. Still, in this game of geopolitical chicken China would receive the most economic and military damage. The pain felt by America due to broken supply chains would be temporary, but the damage to China would last decades.

Most Americans and Chinese, however, would prefer the status quo.

China is already facing long-term demographic decline, resource constraints and a private debt bubble. How many headaches can Chinese leadership manage at once?

The potential consequences of a Taiwan invasion is simply not worth it for one of the world’s most pragmatic and strategic nations. Paradoxically, these growing domestic issues likely mean the feasibility of an invasion diminishes over time, while the necessity to do so rises.