The State Department has shared research with partners and allies that estimates a Chinese blockade of Taiwan would cause $2.5 trillion in annual economic losses, according to six people familiar with the material, which was commissioned by research firm Rhodium Group. The stark warning was shared with European Commission and European government officials as the US and partners begin to consider how they might use sanctions against China for any military action against Taiwan. Washington is using the report to stress to European countries that a conflict in Taiwan would have significant implications for them. Two officials said the US and EU had begun talks on how to prepare for a potential conflict over Taiwan. The Financial Times earlier this year reported that the US had held emergency planning talks with the UK for the first time. Two people familiar with US-EU discussions said some officials believed preparing contingency plans and making them public could become part of a strategy to deter China. Some US and European officials believe the specter of massive global economic damage from a conflict in Taiwan is necessary to rally international support to deter China. The US also used the example of the Russian invasion of Ukraine to emphasize the need to consider contingencies. The sharing of the rhodium research comes as senior US officials and military officials are increasingly talking about the threat to Taiwan. Foreign Secretary Antony Blinken said twice last month that the US believed China had moved up its timetable for “reunification” with Taiwan. Joe Biden and Xi Jinping are expected to discuss Taiwan when the US and Chinese presidents hold their first face-to-face meeting as leaders in Bali on Monday on the sidelines of the G20 summit. Over the past year, Biden has said on four occasions that the US would defend Taiwan from an unprovoked Chinese attack. The State Department declined to comment on the report. A spokesman said the US has “an enduring interest in peace and stability in the Taiwan Strait, which is a matter of international concern.” He said he would support Taiwan “in accordance with our long-standing one China policy” – under which the US recognizes Beijing as the sole government of China and recognizes, without endorsing, the position that Taiwan is part of China . A senior EU official compared the release of the report to the US move last year to distribute information about Russia’s military build-up around Ukraine, when some EU capitals rejected the idea that Vladimir Putin would invade. “We have learned a lesson from this,” the official added. Daniel Rosen, a Rhodium partner who leads the group’s China practice, declined to comment on whether the consulting firm had written a report for the State Department. However, he said Rodion had been working on financial scenarios related to Taiwan for years and would soon release a public memo. Recommended The report said Taiwan would take the biggest hit, but the economic blow to China would also be huge and that the effects would reverberate throughout the global economy. He said that Southeast Asia – a region where many countries want to avoid taking sides and claiming that a China-Taiwan conflict has nothing to do with them – would be badly hit economically. In terms of industries, semiconductor-dependent supply chains led by the automotive, server and PC and mobile phone sectors will suffer the most disruption, the report predicts. The US has grown increasingly concerned in recent years about its reliance on Taiwan for brands. The report warns that trade finance for Chinese companies will dry up once Beijing crosses the conflict line over Taiwan, causing a major shock to global trade. It also said that because of China’s importance as an economic partner to developing countries, such a shock could push more than a dozen emerging markets into financial crisis. Additional report by Henry Foy in Brussels
