Home Americas

A ‘Trillion Dollar’ War! US Congress To Simulate US-China Conflict; Investors, Bankers To Gauge Economic Impact

After upping its ante against China by providing military aid to Taiwan under foreign military financing (FMF) reserved for sovereign nations, the US is simulating a ‘Taiwan war game’ with financial and business executives in New York on September 11 to underscore the risk associated with investing in China.

The Biden Administration has been going after China’s economic might. In August 2023, the US government announced restrictions on investments by US venture capital and private equity firms, as well as joint ventures, in Chinese artificial intelligence, quantum computing, and semiconductors.

The proposed rules have been opened for a 45-day public comment period. They will be turned into draft regulations that will take effect next year. The executive order applies to investments in the cities of Hong Kong and Macao, as well as mainland China.

The curbs on the US investments in advanced technology industries in China are done to protect national security at a time of heightened tensions with Beijing.

The US House of Representatives China committee, led by Republican Head of the panel Mike Gallagher and top Democrat Raja Krishnamoorthi, will put their heads together with representatives of investment banks, current and former executives of pharmaceutical companies, and retired four-star US military officers. The names of the participants have been kept under wraps.

In August, the panel accused the American multinational investment company BlackRock and US Equity Indexes MSCI of “unwittingly funding” groups that develop weapons for China’s People’s Liberation Army, compromising US national security.

The wargame with financial top shots will consider the economic implications of a US-China conflict over Taiwan. In April 2023, the lawmakers conducted a war game on Capitol Hill that brought attention to the fact that the US and its allies were woefully underprepared to deal with the sanctions on China and economic war with Beijing should China decide to attack Taiwan.

Following meetings with Apple chief executive Tim Cook and Disney chief Bob Iger at the beginning of 2023, Gallagher told the media that Hollywood and Silicon Valley were underestimating the odds of China making good on its threat against Taiwan.

The bipartisan delegation of the US Congress will meet other financial executives in New York to scrutinize “how American investment in China could undermine US national security. The committee will hear testimony from former chair of the Securities and Exchange Commission, Jay Clayton, and Jim Chanos, the hedge fund short seller.

Krishnamoorthi told the Financial Times that it was “important that our committee hear from the financial industry about how (Chinese Communist Party) policies are affecting Americans’ savings and investments and what Congress needs to do to help protect American investors and our national security.”

 The Economics Of Conflict Over Taiwan

The US State Department in 2022 estimated that a conflict over Taiwan would cause an annual loss to the tune of US $2.5 trillion. The disruptions would be felt immediately and would be difficult to reverse. The estimate is for a blockade scenario when the conflict does not become kinetic.

The most significant global economic activity that will come to a halt is in the semiconductors field. Major chip-consuming sectors such as electronics, automotive, and computing would be hit hard.

Taiwan is the world’s 16th largest trading economy, with cumulative imports and exports valued at US $ 922 billion. Approximately US $565 billion in Taiwanese value-added trade would be at high risk of disruption from a blockade.

A conflict over Taiwan will also disrupt more than US $270 billion in trade between China and the rest of the world, even before any sanctions ARE implemented. In case of a conflict, foreign investors are likely to dump their Chinese securities holdings.

As of June 2022, foreign investors held over one trillion dollars in onshore Chinese bonds and equities, and as of September 2022, more than $775 billion in offshore Chinese equities listed in the United States.

Read More

Exit mobile version