If China Invades Taiwan, South Korea's GDP Could Drop by 23%

Economic Damage Larger Than War Participants
South Korea's Semiconductor, Trade, and Finance Severely Hit
Global GDP Drops by $10 Trillion... Bigger Impact Than COVID-19

A study has found that if China invades Taiwan, the global gross domestic product (GDP) would decrease by $10 trillion (approximately 13,204 trillion won), with South Korea's GDP shrinking by more than 23%. It is expected to suffer greater economic damage than China, the country directly involved in the war.

On the 9th (local time), economic research firm Bloomberg Economics analyzed and released the economic shocks in two scenarios amid escalating geopolitical tensions in Northeast Asia ahead of the Taiwan presidential election: one in which war breaks out, and another in which China blockades Taiwan without war.

Taiwan's new trainer aircraft flying over Taitung sky
[Image source=Yonhap News]

If war breaks out and China invades Taiwan with the United States intervening, Taiwan's economic damage is estimated to reach 40% of its GDP. Bloomberg noted that Taiwan's population and industrial facilities are concentrated along the coast, increasing casualties and costs.

The economic damages to the United States and China are expected to be 6.7% and 16.7% of their GDPs, respectively, due to disruptions in trade and supply chains.

Bloomberg particularly highlighted the impact on South Korea. The decrease in South Korea's GDP was estimated at 23.3%, which is higher than that of Japan (-13.5%), another Northeast Asian country, and even greater than that of China, the war participant. Bloomberg's analysis suggests that the shock will be significant across industries such as semiconductors, trade, and finance.

Earlier last year, the U.S. think tank Center for Strategic and International Studies (CSIS) released a simulation report assuming a Chinese invasion of Taiwan. The report predicted that two out of four combat aviation battalions of the U.S. Forces Korea could participate in the conflict. It also mentioned that if China mobilizes its navy on a large scale to surround Taiwan, the U.S. military might utilize Korean bases close to China and Taiwan, such as Osan Air Base, Gunsan Air Base, and Jeju Naval Base. In this case, even without South Korea's consent, the involvement of U.S. forces in Korea in the war could lead China to retaliate against South Korea. This implies the possibility of armed conflict between South Korea and China in the worst-case scenario.

Meanwhile, the economic shock of a Chinese invasion of Taiwan on the global economy is about $10 trillion, accounting for 10.2% of the world's GDP. This is greater than the impact of the 2020 COVID-19 pandemic and the 2009 global financial crisis.

Bloomberg stated, "If the war or blockade period is short and the impact on semiconductor supply chains and trade is not significant, the shock could be less severe," adding, "Although the Taiwan presidential election results may not immediately trigger a crisis, they will determine the future direction of cross-strait relations."

This content was produced with the assistance of AI translation services.