China War Over Taiwan Would Trigger Global Financial Crisis, US Warned

A congressional commission has warned lawmakers a war over Taiwan could be “cataclysmic” for the global economy, potentially slashing global GDP by as much as 10 percent.

Why It Matters

Taiwan is among the 10 top U.S. trade partners and sits at the center of global supply chains and along one of the world’s busiest shipping lanes. The “Silicon Island” also commands more than 60 percent of global semiconductor foundry capacity and produces over 90 percent of the world’s most advanced chips, fueling emerging tech, from artificial intelligence to electric vehicles.

China claims Taiwan as its territory and says unification is inevitable, by force if necessary. The Chinese military has ramped up pressure on the island in recent years through air and naval exercises. A war in the Taiwan Strait would trigger economic and humanitarian disaster—and potentially draw the U.S. into a conflict with its nuclear-armed strategic rival.

Newsweek has contacted China’s Foreign Ministry and Taiwan’s Ministry of Foreign Affairs for comment.

What To Know

Taiwan’s central position in global tech ecosystems makes it “a key partner” in U.S. efforts to prevent China from dominating artificial intelligence and advanced computing, according to the U.S.-China Economic and Security Review Commission’s annual report to Congress.

That role also means a war over Taiwan could be “cataclysmic,” the report warned, potentially “wiping out as much as 10 percent of global GDP”—an unprecedented economic hit in modern times. The authors said the ramifications of such a scenario could be “on par with the 2008 Global Financial Crisis.”

Such a conflict would also carry “an acute risk of nuclear escalation and raise the threat of Chinese geographical expansion in the Indo-Pacific,” the authors said.

Rising Chinese military activity and a widening capabilities gap with the People’s Liberation Army have pushed Taipei to boost defense spending and expand orders of U.S.-made weapons platforms, including F-16V fighter jets and HIMARS missile systems.

The United States, Taiwan’s main arms supplier, is bound by the Taiwan Relations Act to help ensure the island can maintain a sufficient self-defense capability.

However, Washington continues to adhere to a policy of “strategic ambiguity,” leaving a question mark on whether it would directly intervene in a cross-strait conflict.

What People Are Saying

“Taiwan remains the most significant potential flashpoint for military conflict between the United States and China,” the congressional commission wrote. The People’s Liberation Army “has enhanced China’s ability to launch a blockade or invasion of Taiwan with almost no advance warning,” it said, citing continuous PLA military activities near the island and new amphibious platforms designed for rapid assault.

Li Haidong, a professor at China Foreign Affairs University, dismissed the commission’s conclusions. “The essence of this annual report is a highly politicized document based on pre-set conclusions,” he told nationalistic state-run outlet the Global Times.

What Happens Next

The commission recommended that Congress direct the Pentagon to evaluate its ability to meet U.S. obligations under the Taiwan Relations Act—including responses to both conventional conflict and gray-zone tactics—forms of coercion that stop short of warfare.

It also advised a review of whether Washington’s commitments to Taiwan could be upheld if Washington is simultaneously engaged in responding to aggression from U.S. adversaries such as Russia, Iran, or North Korea.