China Invasion Of Taiwan Could Devastate Wall Street
China and Russia could change the world order in 2022 by invading Taiwan and Ukraine, respectively, sending shockwaves to the global community that will reach Wall Street.
Yet the impact of each geopolitical event on Wall Street will be quite different.
Russia's invasion of Ukraine will be a few days or, at most, a few weeks event. It will push energy and U.S. Treasuries prices higher and the rest of the market lower.
But the impact won't last that long, as the likelihood of the U.S. and its allies intervening is near zero. Meanwhile, there will be no significant interruptions in the global supply chain. Thus, things will return to business as usual on Wall Street.
The situation is quite different if China invades Taiwan or tries to change the status quo in some other shrewd way. Then, the U.S. will have little choice but to intervene.
Under the Taiwan Relations Act, the U.S. has promised to provide the island with "defense articles and defense services" to maintain its independence. A failure of America to interfere with China's plans will be taken as weakness by its regional allies, like Japan and the Philippines, that are already threatened by China's aggression in the region. No superpower wants to find itself in such a position as Thucydides infers in the writing of the Peloponnesian War.
"The fast rise of superpower disturbs the status quo," said Yannis Tsinas, a former Washington military diplomat. "Historically, in 12 out of 16 cases, it leads to war!"
Juscelino Colares, a professor of business law and co-director of the Frederick K. Cox International Law Center, sees a move of China on Taiwan provoking an arms race in the region.
"Such a destabilizing move would surely provoke Japan and other regional powers to embark on an arms race that would be costly to all sides and might exacerbate the risk of war," Colares said. "Clearly, it's time the United States and its regional allies make it plainly clear to the China Communist Party that any move against the democratic island nation would be met with the imposition of high costs on China, starting with the immediate suspension of most-favored-nation status, if not most trade."
China's invasion of Taiwan will place Beijing in charge of the island's tech industry, which is at the core of the global tech supply of semiconductors, which power every electronic device, including those used by the U.S. Army. It will hurt America's technology giants that rely on Taiwan's technology products and manufacturing facilities and are listed on Wall Street.
To make matters worse, these technology giants are part of every primary Wall Street index where institutional money is invested, including the pension funds of the average American citizen.
China's invasion of Taiwan could push America into a corner and devastate Wall Street.
"A Chinese Communist Party (CCP) military takeover of Taiwan would pose far greater geopolitical risk for the West than any eventual Russian incursion into, or even full control of, Ukraine," said Colares. "First, China has a 300-ship navy, larger than, though not as well equipped as, the United States Navy. Russia's incursion or even full control over Ukraine would not affect world trade and international security to the scale that a CCP takeover of Taiwan would.
"Combining greater control of the South China Sea, reached through unlawful island building in disputed waters over the last decade, with complete control over the Taiwan Straits could potentially disturb not only Western economic ties with Southeast Asia, South Korea and Japan, but would allow the Chinese Communist Party to exert control over $3.37 trillion in trade."
There is little likelihood of either major geopolitical event involving Russia or China occurring in 2022, according to Adam DeMarco, a West Point graduate and marketing director for Warrior Rising, which helps the U.S. military find business opportunities.
"Russia and China are both in advantageous positions in dealing with Ukraine and Taiwan, respectively," he said. "Russia uses Ukraine as a means to prevent further 'westernization' along its borders while China's threats against Taiwan serve to both increase regional strength and with dominating the South China Sea and Taiwan Strait.
"Both Russia and China are fully capable of executing what would be, at this point, a devastating campaign against their neighbors. However, the second- and third-order effects of such would also be detrimental to their own economic national interests.
"Therefore, while their saber-rattling should be taken absolutely seriously, the likelihood of a force-on-force invasion is increasingly unlikely moving into 2022."
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