Blaine's Bulletin: China's War On Taiwan And Our Economy

One sunny Friday, you wake up and start your day like you always do. You pour yourself a cup of coffee and begin getting ready for work, take the kids to school, or start your daily duties. Your routine is interrupted by an emergency radio broadcast: “China has invaded Taiwan”. You go on to listen to the trade speculations made by the broadcasters, but this surely can’t affect you – you’re thousands of miles away in Missouri, right? Shrugging it off, you continue to enjoy your morning. A few minutes later the voices on the radio begin talking about the stock market dropping. You’re not a Wall Street trader so this again doesn’t really affect you, does it? Then you learn that your retirement savings, the account you’ve been contributing to for decades has lost 40% of its value. In the span of a few moments, your day takes a dramatic turn, leaving you wondering how it all unraveled so quickly.

The unsettling truth is – If China invaded Taiwan today, more than just your retirement account would be impacted. In fact, most Americans would be shocked at how quickly the fallout from a Chinese invasion of an island more than 7,000 miles away would hurt America’s main streets.  The U.S. would immediately enact massive financial sanctions and major trade restrictions on China. China would do the same to us. Military actions would follow. The two largest economies in the world who are also each other’s largest trading partners would, for all intents and purposes, be at war.

Obviously, the greatest tragedy of war, is the lives lost on all sides. A war with China would result in thousands of Taiwanese, Chinese, and American deaths. It's an outcome we have to avoid at all costs. The secondary effects would be the economic devastation to our country. Trade between our countries would stop. We would no longer buy goods and products from them, and they would stop buying our crops, cars, and other products. The supply chain disruptions during Covid would pale in comparison to the economic paralysis we would experience.

An analysis from global financial firm GTS has estimated a short-term stock market plummet of up to 34% after an invasion, as uncertainty about the U.S. response may lead institutional investors and retail investors to quickly exit their equity positions while market makers struggle to accurately price stocks in this volatile environment. The long-term effects would be much greater. Bloomberg speculates that a military engagement over Taiwan would cost roughly $10 trillion and reduce global GDP by 10%. This drop would be almost twice what was observed in the aftermath of the global financial crisis and Covid pandemic, events which triggered peak to trough declines of 57% and 35% in the S&P 500.

This week I introduced the Fortifying U.S. Markets from Chinese Military Aggression Act. This bill directs the Financial Stability Oversight Council (FSOC) at the Treasury Department to establish an advisory committee to analyze, study and report on market implications and vulnerabilities related to Chinese military aggression with the goal of establishing open lines of communications between policy makers, government agencies, and capital markets. FSOC will develop recommendations and support analysis to identify security concerns surrounding the safety and soundness of the United States financial system and any potential loses faced by the United States. This will act as a safety measure to protect American consumers like you, so you won’t relive the 2008 stock market crash.

While FSOC may not serve as a comprehensive solution for predicting or preventing Chinese military aggression, it could serve as a crucial tool in mitigating the infiltration and influence exerted by the Chinese Communist Party (CCP) on our economy and nation. By loosening the grip that the CCP holds over our financial institutions and economy, our government would be better positioned to shield citizens from potential retaliation by China.

Establishing robust oversight through FSOC could help identify and address vulnerabilities within our economy that could be exploited by hostile foreign actors. This heightened awareness and regulatory framework would strengthen national security and economic resilience, reducing the leverage and impact of external threats. Essentially it reduces the leverage other nations have on us while increasing ours.

This bill cannot prevent war, but it can eliminate the notion of mutually assured economic destruction China hopes will prevent the U.S. from standing our ground. Planning for the day China invades Taiwan, but removing America’s economy from the equation protects our communities, your financial future, and ultimately bolsters national security.

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