China’s next Taiwan targets are lifelines of the US economy

U.S. firms are increasingly second-guessing their exposure in China and Taiwan for various reasons. Tensions over Taiwan remain elevated after House Speaker Nancy Pelosi’s recent visit, with military exercises on both sides of the Taiwan Strait inching toward live-fire shooting. Meanwhile, Chinese President Xi Jinping’s zero COVID policy continues to cause unexpected and disruptive factory shutdowns, and new U.S. restrictions on imports made with Chinese Uyghur forced labor threatens billions of dollars of U.S. companies’ revenues.

For businesses, the COVID shutdowns and new forced labor laws may be the more immediate concerns, but they can find the most efficient path to deal with new rules and regulations. In the event of a crisis in the Taiwan Strait, however, two immediate risks to the overall U.S. economy stand out: disruptions to container shipments and digital flows. New evidence sheds light on how and why.

Various wargaming scenarios have surely played out behind closed doors in Beijing, Taipei and Washington. But public information on how a Chinese takeover of Taiwan would unfold and how the island state might be vulnerable has been scant. Only a few hints have reached the light of day, like a Center for a New American Security study and a recent Center for Strategic and International Studies effort. Those analyses largely focus on military strategies and outcomes 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 does underscore the immediate risks to the U.S. economy, with its broad and deep exposure to and reliance on the region.

The data set is gleaned from an unsecured Chinese website by New Kite Data Labs, an open-source data collector, and contains 294,100 points of interest (POIs) in Taiwan, suggestive of China’s military planning. These points cover hundreds of transportation facilities like seaports and train stations, and more than 2,000 government facilities, including close to 200 military facilities and Taiwan’s equivalent of the Central Intelligence Agency. Also included are hundreds of locations related to information and communication technology, such as telecommunication facilities and submarine cable landing stations.

Interferences with container shipments in the Taiwan Strait and nearby waters are relatively straightforward, but disruptions to the island’s digital infrastructure are often overlooked. That’s a mistake.

Taiwan is a critical link in global value chains, in no small part due to the Taiwan Semiconductor Manufacturing Company, the world’s leader in semiconductor chip fabrication. Much of that value creation depends on the island’s connection to the global internet, which is nearly entirely supported by hundreds of cables lining the ocean floor. That data network is vulnerable everywhere, including in Taiwan.

Even in peacetime, undersea cables are vulnerable to accidental damage from, for example, collisions with ship anchors, shark bites and earthquake damage. An entire country can be taken offline for days when an undersea cable is severed. When the cables reach shore, they are connected to landing stations not always discernable from other small buildings. While repairing a cable or landing station is straightforward, doing so with rockets flying would be slow and dangerous, if not impossible.

It’s hard to estimate the damage to the global economy if Taiwan is off-grid for an extended period of time. U.S. tech firms are heavily reliant on Taiwan for advanced computer chips. The cost to U.S. industries would easily multiply if companies were compelled to take more expensive actions than waiting for the connection to come back.

Beijing’s ambitions for taking over the island are serious and practical. Washington should work closely with its allies in the region to harden submarine cable security and sketch out contingency plans for severe disruptions to goods and digital trade. Increased cooperation is the only way to strengthen Indo-Pacific resilience against Chinese aggressions and minimize collateral damage to the U.S. economy.

Christine McDaniel is a senior research fellow with the Mercatus Center at George Mason University and former deputy assistant secretary at the Treasury Department. Weifeng Zhong is a Mercatus senior research fellow and a core developer of the open-sourced Policy Change Index project, which uses machine-learning algorithms to predict authoritarian regimes’ major policy moves. They are coauthors of a new study, “Submarine Cables and Container Shipments: Two Immediate Risks to the US Economy if China Invades Taiwan.”