China-Taiwan war would cost US$2 trillion

Mark O'Neill July 27, 2026 11:47

A war between China and Taiwan would cost US$2 trillion and affect the whole world, because of the importance of the island’s chip industry and China’s integration into the world economy.

That is the judgement of Tsai Ying-wen, President of Taiwan between 2016 and 2024, and a member of the Democratic Progressive Party (DPP). The current president, Lai Ching-teh, is leader of the DPP.

Tsai was speaking in an interview with the French news weekly magazine, L’Express.

“A crisis in the Taiwan Straits would not be confined to the region,” she said. “It would affect the whole world. The Straits are one of the most important commercial routes in the world.

“Taiwan produces about 70 per cent of the world’s semi-conductors and 95 per cent of top-end chips. It is a pillar of the AI revolution. The Chinese economy is far more deeply integrated into the global economy than that of Russia. For all these reasons, the results of a major conflict around Taiwan would be more far-reaching than those of the war in Ukraine,” she said.

A long crisis in the Straits would damage commerce, production chains and global economic growth and slow considerably technological innovation and the development of AI for many years.

“The Rhodium Group (an American research body) has estimated that the economic losses from such a conflict could reach US$2 trillion,” she said.

Beijing has said repeatedly said that the reunification with Taiwan is a matter of time. Over the last three years, the People’s Liberation Army has conducted large-scale encircling drills around the island, flown sorties by its jets and conducted live-fire exercises, coastguard enforcement patrols and gray-zone manoeuvres.

Tsai said that the countries of East and Northeast Asia were closely following the situation in the Straits and were fearful of all the intentions of China toward Taiwan.

“They know that an incident in the Straits would have important repercussions for the security of all the region. China threatens not only Taiwan but also other countries. For many countries of the region, the area is closely tied to the larger security architecture which has contributed to peace and stability in the Indo-Pacific for decades,” she said.

Some Taiwan people fear that President Donald Trump will be less loyal to their country than his predecessors. He prefers business to principle and has frequently expressed his liking for President Xi Jinping.

On relations with the U.S., Tsai said that commercial exchanges between Taiwan and the U.S. continued to grow. “American companies have made significant investments in Taiwan. At a time when high-end technologies are of critical importance in economic growth, the co-operation between Taiwan and the U.S. plays a very important role in global production chains and the development of technology.”

In the first five months of this year, Taiwan’s exports to the United States surpassed those from China. In the period, Taiwan exported $116.1 billion in goods and services to the U.S., compared with $105.5 in exports from China.

This was driven by the boom in artificial intelligence boom and shifting trade policies. The U.S. has also replaced China as Taiwan’s top trading partner.

This boom is being drive by surging global demand for advanced semiconductors, microchips, and AI servers manufactured by companies like TSMC. In addition, a bilateral trade agreement signed early in the year set specific tariff terms for Taiwan. This encouraged direct shipping routes rather than assembly via mainland factories. The Trump government wants to reduce reliance on China, especially in hi-tech products.

The U.S.’ biggest technology companies including Apple, Microsoft, Amazon Web Services, Google, Oracle and Meta are spending heavily on AI infrastructure — between U.S.$750 billion and U.S.$1 trillion combined this year alone, said Rupert Hammond-Chambers, president of the U.S.-Taiwan Business Council in Arlington, Virginia.

“The essential difference (in Taiwan’s economic growth) is the emergence of TSMC as the world’s indispensable technology company,” he said. “In the great-power technology competition between the U.S. and China, Taiwan is the pivot point in the battle. Its semiconductor industry is at the centre of accelerated AI adoption.”

In the first quarter of this year, Taiwan’s economy grew 14.6 per cent over the same period in 2025. The surge was primarily driven by AI-related exports and knock-on effects in investment, the stock market and consumer spending.

Diplomats say that the first preference of Xi is a takeover of Taiwan by consent.

Since this will not happen, he will have to use force.

“The most likely choice is an increase of ‘gray-zone’ warfare and then a blockade to force a surrender,” one European diplomat said. “An invasion could lead to the destruction of these invaluable, and irreplaceable, hi-tech facilities. That is not in China’s interest.”

Mark O'Neill

A Hong Kong-based writer, teacher and speaker.