Taiwan is an island off the coast of China. It was once governed as part of China until 1949, but today it operates as an independent self-ruled democracy. Taiwan has become central to global technology, producing around 90% of the world’s advanced computer chips and 60% of all semiconductors, as well as other critical components that power everything from cars and iPhones to medical equipment.
But China’s core objective is the “reunification” of Taiwan with the mainland under the “One China” principle. China’s leader, President Xi Jinping and the Chinese Communist Party (CCP) have repeatedly stated this, emphasising that they reserve the right to take Taiwan back, by “all necessary means.”
In recent years, China has escalated pressure, conducting military exercises around Taiwan. U.S. intelligence reports suggest Xi has told his military to “be ready by 2027” to potentially invade Taiwan.
U.S. officials stress that “readiness” is not the same as “intent,” but it is clear from China’s military growth and its presence in the South China Sea that its defence and offensive capabilities have expanded significantly.
Taiwan, in response, has been improving its defences, though it remains vastly outscaled by China’s military. Taiwan benefits from security support and commitments from the United States, which has said publicly it would respond if China were to invade.
Any war over Taiwan would significantly disrupt trade between Asia, Europe, North America — and Australia — also given the Taiwan Strait is one of the busiest sea routes in the world.
If Taiwan were attacked, the conflict could easily escalate into a broader war. The U.S. would almost certainly respond, and would draw in allies such as Australia, Japan and European partners in to the war against China.
For Australia, a direct military war with China is likely, but its actually the economic fallout that would be more devastating to Australia. Australia and the world heavily rely on suppliers from China and technology from Taiwan. Prices of electronics and countless other goods in Australia would instantly double, with many supply lines disappearing completely.
Australia is already making preparations for such a scenario. Defence spending has been increased to around $100 billion a year, funding new ships, submarines, aircraft, missile systems, and the expansion of key bases too, particularly in the Northern part of Australia. Australia is also making military deals with America; allowing America to have much larger military bases within Australia. This boosts Australia’s defence, but if a conflict were to break out, it would increase the pressure on Australia to get involved.
Australia really needs to be much more independent. Australia relies too much on overseas suppliers for vehicles, refined fuels, electronics, solar panels, machinery, pharmaceuticals, medical equipment, clothing, and most manufactured goods. The only real way to fix this is to raise tariffs on goods being imported so that businesses within Australia can compete and grow within these missing sectors.
The U.S., meanwhile, has been working to move semiconductor production out of Taiwan by building their own duplicate factories on their own soil. But despite billions in investment, these plants have still not yet able to match the output, the efficiency and scale of Taiwan’s chip industry.
In China, the recent display of new hardware and the thousands of troops marching in Beijing’s Tiananmen Square during China’s 80th anniversary of World War II victory made it clear that their military has grown significantly, in line with its aggressive objective of regaining control of Taiwan. If such an event were to occur, the disruption to the world economy would likely be on a scale unseen before in modern history.
