In Research China: The risk of a Taiwan war and what it implies – part 1, 11 August, we looked at the risk of a Taiwan war. In this follow-up we consider the implications, both of a possible war and of the rising tensions.
Apart from being a human tragedy with significant loss of lives, we believe a war on Taiwan would trigger a deep global recession through the effects from sanctions, huge disruption to supply chains as well as from a sharp rise in uncertainty due to the risk of a war developing into WWIII.
While we do not expect a war in the short term, the heightened tensions itself and risk of a war on a 5-10 year horizon, will also have implications. Companies will increasingly consider how many eggs they have in the China basket and de-globalisation and decoupling trends will see an extra push. On the geopolitical front we move faster towards what could resemble a new Cold War between the West and China/Russia, albeit a different Cold War than the first, as the world will stay more connected economically and the rest of the world is reluctant to choose sides. This leads to a multipolar and more fragmented world.