Taiwan war would devastate global economy, US warns

A war in Taiwan would cause the biggest global financial crisis since the Second World War, the US has said.

Speaking weeks before Xi Jinping’s trip to Washington, a US official said that a conflict over Taiwan would bring staggering costs to the world, adding that the country needed to boost its defence capabilities.

Raymond Greene, the director of the American Institute in Taiwan, told a defence forum in Taipei: “Beyond human toll, any conflict across the Taiwan Strait would cost the global economy more than during the Second World War.”

He added that there was no topic “more timely or important than how to secure peace across the Taiwan Strait”.

Experts previously warned that a war over Taiwan could cost the global economy more than $10tn (£7.38tn).

The figure, first estimated by Bloomberg Economics in 2024, would be equivalent to approximately 10 per cent of global GDP, which is far greater than the cost of other recent conflicts and the global recession.

By contrast, the estimated total cost of the war in Iraq and Syria, which lasted 20 years, was believed to be around $2.89tn (£2.13tn), according to Neta Crawford, a professor at Oxford University.

As of July, the conflict in Iran is calculated to have cost a maximum of $300bn (£221bn). The estimated cost of a Taiwan invasion would be 33 times that amount.

The 2008 global financial crisis in the first year cost around $4tn (£2.95tn), less than half of what experts predict a war over Taiwan would cost.

The reason for the significant cost associated with Taiwan is, in large part, because of the global reliance on Taiwan’s semiconductor industry, which manufactures virtually all of the world’s advanced chips.

It also factors in disruption to global shipping lanes and the effect on markets.

At the forum on Wednesday, Mr Greene stressed the importance of the upcoming meeting between Xi Jinping and Donald Trump, scheduled for Sept 24 in Washington.

“The upcoming US-China summit is an opportunity to further advance strategic stability on the basis of fairness and reciprocity that can avoid misunderstandings and miscalculations,” said Mr Greene.

Mr Trump and Mr Xi last met face-to-face in Beijing when the Chinese president said that Taiwan was “the most important issue in China-US relations” and the American president said that both sides “ought to cool down”.

Mr Xi was preparing a large business delegation to accompany him on his visit to Washington, two sources told Reuters, an unusual move given US scepticism towards Chinese investment and Beijing’s strained ties with private enterprise.

The Chinese president rarely travels abroad with corporate executives, many of whom fell out of favour after Beijing’s regulatory crackdowns on the technology, education and property sectors that began in 2020.

Mr Greene pushed Taiwan to continue developing its asymmetric defence capabilities, especially regarding uncrewed systems, by increasing its defence spending.

Drones were a central topic at the defence forum on Wednesday, with officials and analysts alike encouraging Taiwan to learn from the war in Ukraine and develop its indigenous drone production capabilities.

“Uncrewed systems are to today’s conflicts what the machine gun was in World War One and the tank in World War Two: a game-changing technology that redefines the battlefield,” said Mr Greene.

Although Taiwan’s government under president Lai Ching-te has made concerted efforts to increase the defence budget to the target of 5 per cent of GDP by 2030, it has faced constant setbacks from the Kuomintang, the major opposition party.

Last month, Taiwan’s legislature approved a plan to spend more than $7bn (£5.16bn) on drones over the next six years. However, it was considerably less than Mr Lai and his party, the Democratic Progressive Party, had hoped to spend.

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