The island at the center of the artificial intelligence boom—and increasingly the global economy—lies on geological and geopolitical fault lines. Taiwan, the producer of most of the world’s advanced semiconductors, faces inte
nsifying pressure from mainland China and growing uncertainty about US support. War doesn’t appear imminent. If it were to erupt, though, the shock to the global economy would be seismic.
In this report, Bloomberg Economics sets out five possible paths for how tensions in the Taiwan Strait could unfold—from war to rapprochement—and models their
economic impact. In the most extreme case, a US-China conflict over Taiwan would cost the global
economy about $10.6 trillion, roughly 9.6% of global gross domestic product, in the first year alone, eclipsing the impact of the Covid-19 pandemic and the 2007-09 global financial crisis.
• A US-China war over Taiwan would severely curtail the world’s access to logic semiconductors, the essential input for everything including cars, planes, AI data centers and smartphones.
• Trade between the two superpowers and their closest partners would likely collapse. Shipping through one of the world’s busiest sea lanes would grind to a halt. Global m
arkets—increasingly dominated by bullish bets on AI—could crater. Industries dependent on Taiwan’s chips, including smartphones, PCs and autos, would be severely affected.
• The damage would be global. Taiwan’s economy would be decimated. We estimate China’s GDP would fall by 11% and the US’s by 6.6% in the first year. In addition to the main actors, the European Union could have GDP drop b
y 10.9%, India by 8% and the UK by 6.1%. Closer to the fighting, South Korea could shave 23% off GDP, and Japan 14.7%.
• There are other potential outcomes. The Chinese government might try to coerce Taiwan throug
h blockade. Or, in an optimistic but unlikely scenario, both sides could move toward detente.
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The semiconductor shortages that hit as the world reopened from 2020 Covid lockdowns und
erscored how essential chips are to the global economy. A crisis in the Taiwan Strait would deliver a much greater shock.
Taiwan makes 62% of the world’s most advanced logic semiconductors and is a key
manufacturer of legacy chips as well. Globally, 5.3% of value-added production is in sectors using chips as direct inputs into production, or almost $6 trillion.
Taiwan Semiconductor Manufacturing Co. (TSMC) accounts for 70% of global foundry revenue, powering customers such as AMD, Apple, Broadcom, Nvidia and Qu
alcomm. Taiwan’s semiconductor production isn’t just TSMC. Companies including UMC and PSMC are major names in mature-node manufacturing, anchoring the island’s strength in automotive, industrial and consumer chip supply.