The Massive Economic Impact If China Invades Taiwan

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:16)

Tracy, you know, for years, I've always thought that if you want to be like a smart sounding pundit at the beginning of the year, and someone asks you like, what risks are you thinking about right now? You like stroke your chin and look off and you say, mm, I'm really worried about like geopolitical risk.

And that's always like a safe answer anytime, any year. Like that always makes you sound sophisticated.

Tracy Alloway (0:38)

Yes, unexpected geopolitical risks are an evergreen category of punditry. This is true. There is one specific risk within that category that I feel like has come up every year for almost as long as I can remember. And that is the risk of something happening between China and Taiwan. And I have a really embarrassing confession to make.

I wrote my dissertation on, I wrote it in Beijing and it must have been in like 2005 or 2006, predicting that China would invade Taiwan before the Beijing Olympics. I think that was like 2008 or something.

Joe Weisenthal (1:16)

So when people talk about the risk of China invading Taiwan or attempting to formally reunify, this is like 20 years people have been talking about this and it keeps not happening.

Tracy Alloway (1:26)

Yes, and getting it wrong consistently for 20 years, or at least I have.

Joe Weisenthal (1:31)

But it does seem, for whatever reason, and we'll get into it, that we are once again in a wave of heightened concern.

And there are two very active wars happening right now currently between Russia and Ukraine, the Israel and Hamas war. And so the idea of war, unexpected war, is on people's minds. And then we know that tension has been building in various ways. Taiwan, there was all of the angst over the Nancy Pelosi trip a couple of years ago, for example, and the heightened awareness that the world has on semiconductors that are manufactured in Taiwan. And sort of a more aggressive posture, I believe from Xi Jinping and the military of more aggressive war games and exercises. So many people are concerned about some prospect of a hot conflict in the next few years.

Tracy Alloway (2:25)

Yeah, you mentioned semiconductors, and I feel like this is really the key thing, which is in the past two or, well, I guess four years now since the outbreak of the global pandemic, we have had a sort of crash course in the importance of the Taiwanese economy to the broader world. And I feel like that's sort of done a couple things. So one, it's made everyone a lot more nervous about what could happen if that supply chain gets disrupted again, although in a very different way. And then secondly, maybe it's given a little bit of ammunition to China to saber rattle on this issue even more, right? If it threatens something against Taiwan, the whole world now knows what's at stake.

Joe Weisenthal (3:07)

Yeah, that's absolutely right. So this is one of these things that is, you could feel it building more and more people are talking about it. My understanding and what I've seen is people say, oh, in DC, everyone is like obsessed with this question. I don't feel like that's as much the case in New York, but I do get the impression that in DC, talk of a war is very high. And so I think like, we have to do more on this. And I think geopolitics in general, thinking back to some of our conversations with Zolton, et cetera, about this sort of rearranging world, we need to dive into these questions a little bit more.

Tracy Alloway (3:38)

Yeah, absolutely. And the other reason we need to do it is Taiwan is holding an election. In fact, we are recording this on January 9th. By the time this episode comes out, the election will have been held. And so, we'll know who the winning candidate is. But in the meantime, there is clearly a big reason to discuss this.

Joe Weisenthal (3:59)

Yeah, absolutely. Well, I'm very excited. We have two of our colleagues here at Bloomberg that we've never had on the podcast before, but they are the perfect guests to discuss this because they've been doing a lot of work in this area. We're going to be speaking with Jennifer Welch, Chief Geoeconomics Analyst at Bloomberg Economics, and Gerard DiPippo, Senior Geoeconomics Analyst at Bloomberg Economics. They both published a lot of work on some of these questions, related questions, wargaming the risk, the economic stakes involved here. And so we're going to start to go down our path of understanding this tension better. So Jennifer and Gerard, thank you so much for coming on Odd Lots.