American companies are increasingly doubting its exposure in China and Taiwan for various reasons. Tensions over Taiwan remain high after House Speaker Nancy Pelosi’s recent visit, with military exercises on both sides of the Taiwan Strait inching toward shooting with real fire. Meanwhile, Chinese President Xi Jinping’s zero COVID policy keep going to cause unexpected and disruptive factory closures, and new US restrictions on imports made with forced Chinese Uyghur labor threatens billions of dollars of revenue for American companies.
For businesses, COVID shutdowns and new forced labor laws may be the most immediate concerns, but they can find the most efficient way to deal with new rules and regulations. However, in the event of a crisis across the Taiwan Strait, two immediate risks to the broader US economy stand out: disruptions to container shipping and digital flows. New evidence sheds light on how and why.
Surely there have been various scenarios of war games played behind closed doors in Beijing, Taipei and Washington. But public information about how a Chinese takeover of Taiwan would play out and how the island state might be vulnerable has been scant. Only a few hints have made it to the light of day, such as a Center for a New American Security to study and a recent Center for Strategic and International Studies effort. Those analyzes focus largely on military strategies and results rather than economic effects.
recent data revealed by open source intelligence methods, as detailed in our new Mercatus Center study, indicate that a malicious cyber threat actor in China is targeting Taiwanese ports and undersea data cable landing stations. This is not necessarily surprising, but it does underscore the immediate risks to the US economy, with its broad and deep exposure to and dependence on the region.
The data set is obtained from an unsecured Chinese website by New Comet Data Labs, an open source data collector, and contains 294,100 points of interest (POIs) in Taiwan, suggesting China’s military planning. These points cover hundreds of transportation facilities such as seaports and train stations, and more than 2,000 government facilities, including nearly 200 military installations and Taiwan’s equivalent of the Central Intelligence Agency. Also included are hundreds of locations related to information and communication technology, such as telecommunications facilities and submarine cable landing stations.
Interference with container shipping in the Taiwan Strait and nearby waters is relatively straightforward, but disruptions to the island’s digital infrastructure are often overlooked. That is an error.
Taiwan is a critical link in global value chains, largely due to the Taiwan Semiconductor Manufacturing Company, the world’s leading semiconductor chip maker. Much of that value creation depends on the island’s connection to the global Internet, which is supported almost entirely by hundreds of cables lining the ocean floor. That data network is vulnerable everywhere, including in Taiwan.
Even in peacetime, submarine cables are vulnerable to accidental damage from, for example, collisions with ship anchors, shark bites, and earthquake damage. An entire country can be disconnected for days when a submarine cable is cut. When the cables reach the shore, they connect to landing stations that are not always distinguishable from other small buildings. While repairing a cable or landing station is easy, doing it with flying rockets would be slow and dangerous, if not impossible.
It is difficult to estimate the damage to the global economy if Taiwan is off the grid for an extended period of time. American tech companies rely heavily on Taiwan for advanced computer chips. The cost to US industries would easily be multiplied if companies were forced to take more costly steps than waiting for the connection to be restored.
Beijing’s ambitions to take over the island are serious and practical. Washington should work closely with its allies in the region to strengthen the security of undersea cables and outline contingency plans for serious disruptions to digital and goods trade. Greater cooperation is the only way to strengthen the Indo-Pacific’s resilience against Chinese aggression and minimize collateral damage to the US economy.
Christina McDaniel is a Senior Fellow at the Mercatus Center at George Mason University and a former Deputy Assistant Secretary of the Treasury Department. Weifeng Zhong is a senior researcher at Mercatus and lead open source developer Policy change index project, which uses machine learning algorithms to predict the main political moves of authoritarian regimes. They are co-authors of a new study“Submarine Cables and Container Shipments: Two Immediate Risks to the US Economy if China Invades Taiwan.”