If war with China is on the horizon, why aren't companies preparing for it?
Everyone talks like war may be coming but no one is acting that way
“People may say the words, but they don’t seem to be acting that way.”
That’s Open AI’s CEO Sam Altman talking about the advent of AI. But I think the same can be said for a potential war between China and the U.S. over Taiwan. Everyone talks like war may be coming but no one is acting that way. By “no one”, I mean companies, stock markets, financial institutions and U.S. government agencies other than the Department of Defense. These organizations need to prepare for this highly possible (if not probable) event that would shake the foundations of global diplomacy, politics, economics, technology and society. Yet these organizations continue to act as if all is business as usual.
This study by the Rhodium Group projects that
“the global disruption from a Taiwan conflict would put well over two trillion dollars in economic activity at risk, even before factoring in the impact from international sanctions or a military response. This note offers a look at just some of the likely disruption channels in a blockade scenario, and this figure should be regarded as a floor; the full scope of imperiled activity would surely be greater. Importantly, most of these disruptions would materialize almost immediately (particularly the impacts in financial markets) and would be hard to reverse. These impacts would be felt across the global economy, including in countries that may appear to be only tangentially linked to Taiwan.”
A “White Swan Event”
Nassim Nicholas Taleb popularized the term “Black Swan Event” in 2001. It can be thought of as an event which is highly unlikely but extremely impactful. It thus surprises and affects everyone to a large degree. Think of the fall of the Soviet Union or the 2008 financial crisis. The term “black swan” was based on the belief that, prior to 1697 when black swans being discovered in Australia, everyone thought the only swans that existed were white. The discovery not only reset peoples’ understandings about swans, but led to the term “black swan” being used to illustrate that beliefs previously thought impossible could actually occur.
I think of a “White Swan Event” as an event that is highly probable and extremely impactful yet no one prepares for it. Why they do not is open to question. Perhaps the effects are too horrible to contemplate or thought too expensive to prepare for, so those responsible do not provide for them.
Despite the huge dislocations and costs that the world would suffer, it does not appear many organizations have prepared for the very real possibility of a war between China and the U.S. They are acting in White Swan fashion. And yet, tensions are rising.
Moves and Countermoves
After a period of cooling tensions between China and the U.S., things appear to be heating up again. Taiwan is again the main flashpoint but moves and countermoves are happening on a global scale.
Chinese Type 05 amphibious fighting vehicle in 2021. CGTN Image
The Balloon Du Jour
Starting with the large balloon the U.S. military shot down over the Atlantic after it had crossed much of America, other flying objects were destroyed by U.S. jet aircraft in the following days. While there was speculation these might be some kind of alien craft (which is an odd idea - what kind of advanced culture sends an interstellar spaceship that can neither defend itself nor communicate its intent?), Adam Popescu in the Free Press has what I think is a better take - the other flying objects are from China as well:
“the balloons were likely dispatched by a Chinese company that’s not at all a company in the way Americans imagine them, but really, an extension of the Chinese military intelligence regime.”
What is the advantage of sending balloons? Popescu asks this of Mira Ricardel (former deputy national security advisor), Miles Yu (head of the China Center at Hudson Institute) as well as others.
Ricardel suspects the point of launching the balloons was “to see what the U.S. response will be.”
The Chinese are especially adept at sending balloons into “near space,” Yu said. “If you fly a balloon at 60,000 feet, it’s much easier to take lateral images of ground installations rather than use a satellite hundreds of miles off the ground,” he said.
Balloons are cheap, fast, easy to use, and can be equipped with infrared cameras “to see what’s happening beneath the clouds,” said Anastasia Quanbeck, a spokesperson for Aerostar, an aerospace company based in Sioux Falls that operates stratospheric balloons worldwide.
They can also stay airborne—around 80,000 feet—for years at a time, all the while broadcasting data back home in real time. Like TikTok hoovering up our data, but from a very high altitude.
Chinese balloon - Source: AP
U.S. Troop Movements
As we wait to see if China continues its balloon strategy, the U.S. has been busy sending troops to Asia, both to Taiwan as well as the Philippines. Their mission is training of those countries’ military, however, in the case of Taiwan, the presence of American troops serves as well as a tripwire that would automatically bring American into the conflict if Taiwan is attacked. They also act as a response to the Chinese balloon incursion.
Chinese Arm Sales to Russia?
A potential major escalation by China would be for it to supply lethal weapons such as drones as well as ammunition to Russia. Putin needs both desperately. CNN reports that China is now considering exactly such a move, going on to say per its sources that “It does not appear that Beijing has made a final decision yet…but negotiations between Russia and China about the price and scope of the equipment are ongoing.”
Supplying drones and ammo to Russia would seemingly result in sanctions against any Chinese company. It would also likely trigger other economic and perhaps military responses from the U.S. and its allies, widening the scope of the primarily European conflict to yet another theater.
Meanwhile, the U.S. is developing drone swarm weapons for Taiwan
The Asia Times states the U.S. is “secretly amassing killer drone swarms to repel China.”
Drone Swarm - U.S. Army
The Asia Time’s article goes on to say…
“The US is moving to accelerate the development of autonomous drone swarm technologies, which have proved effective in the ongoing Ukraine war and in simulations showing their decisive effect in a Taiwan contingency scenario.”
Seeing drones’ effectiveness in the war in Ukraine, the U.S. military believe drone swarms are a low-cost means of taking out more expensive tanks and other military equipment as well as overmatching enemy air defenses.
Are we falling into the Thucydides Trap?
The Thucydides Trap is based on ancient historian Thucydides depiction of the Peloponnesian War between Athens and Sparta as the inevitable result of a rising power (Athens) forcing the established power (Sparta) to go to war to remain the single hegemon in ancient Greece. The term was coined in 2012 by American historian Graham T. Allison and applied to the challenge a rising China poses to the United States.
Of course, no war is inevitable, however, the opponents must take steps to ensure tensions do not rise to a level that makes war not only possible but probable. Therefore, to avoid the Trap, China and the U.S. must act in a restrained manner. However, this is difficult once the dance of escalation begins and each is reluctant to back down.
In a Sino-American War, the U.S. may win but everyone loses.
Wargame simulations run 24 times by defense thinktank Center for Strategic and International Studies show the U.S. would win in a shooting war with China over Taiwan. However, the military casualties on both sides would be huge.
Per this article about the simulation,
“In most scenarios, the US Navy lost two aircraft carriers and 10 to 20 large surface combatants. Approximately 3,200 US troops would be killed in three weeks of combat, nearly half of what the US lost in two decades of combat in Iraq and Afghanistan.
“China also suffers heavily. Its navy is in shambles, the core of its amphibious forces is broken, and tens of thousands of soldiers are prisoners of war,” it said. The report estimated China would suffer about 10,000 troops killed and lose 155 combat aircraft and 138 major ships…
While Taiwan’s military is unbroken, it is severely degraded and left to defend a damaged economy on an island without electricity and basic services,” the report said. The island’s army would suffer about 3,500 casualties, and all 26 destroyers and frigates in its navy will be sunk.”
Not Ripples. Tsunamis.
I asked ChatGPT for a list of potential effects of a Sino-American war. Besides the military destruction, ChatGPT offered an extensive list calamities, including:
Huge losses in financial markets
Massive disruption of supply chain, especially technology products
Large energy spikes
Sudden and rapid inflation
Severe humanitarian crises
Wide political instability
Major geopolitical shifts
A significant refugee crisis
This is only a partial list. As you can see, the implications are vast for an event that some experts are forecasting could occur as soon as 2024 if not before.
Do financial markets have plans in place for a war over Taiwan? What about the Fed and global banks? Technology firms? Energy companies? Food suppliers? Key government agencies? NGOs? Any firm that depends on China or Taiwan for parts or products?
It’s time for organizations think about the unthinkable and fulfil their responsibility to be ready for an event that could greatly affect them and all who depend on them.
Is your organization prepared or preparing for this eventuality? Please let me know in the comments.