A recent report by the Economist Intelligence Unit has said that in case of a conflict in Taiwan, India would have a high exposure due to its high economic and geopolitical vulnerabilities. However, the impact on India would still be less than that on the regional economies of a similar scale.
The report titled “Conflict over Taiwan: assessing exposure in Asia” notes that although Asia will be the fastest-growing region over much of the 2020s, a potential conflict in the Taiwan Strait could have more severe effects than that of the Ukraine War.
China claims Taiwan as a Chinese province, making the island nation a hotbed of potential conflict amid the simmering US-China conflict.
Impact on India
The report states that the exposure of India, a strategic emerging market, is high but less than that of regional economies. India ranks 15th in overall vulnerability and 10th among countries with the highest geopolitical exposure in case of a conflict.
According to the report, India has a major territorial dispute with China and is a geopolitical swing state. These geopolitical realities would enable India to limit some of the economic repercussions arising from the conflict.
The report says that New Delhi’s relatively lower dependence on Beijing for its economy would help it avoid being drawn directly into the conflict and make it less exposed among Asia’s biggest economies.
India comes under the category of High Exposure, which ranks below the Highest, and Severe Exposure categories in the report. Indonesia, along with India, would be the least exposed to such a crisis but is not fully insulated from the effects of a crisis.
Most Affected Countries
According to the report, the countries with the highest exposure in case of such a conflict are the Philippines, Japan, and South Korea because they heavily rely on trade with China, have geographical proximity to the Taiwan Strait, and are important US allies.
The report says that the presence of US military bases in these three countries also makes them vulnerable to a pre-emptive Chinese attack.
Hong Kong, Vietnam, Thailand, Australia and Malaysia would be next on the list of countries that would be severely affected.
Philippines, Japan and South Korea are among the most exposed Asian countries to a possible conflict over Taiwan. Download EIU’s latest report to find out why: https://t.co/Uz7DKoO0eS pic.twitter.com/7Wm9vYfjoE
— Economist Intelligence: EIU (@TheEIU) July 3, 2023
Impact on Semiconductor Supply
The report highlights that a potential conflict in Taiwan would severely impact the regional information and communication technology (ICT) production and supply-chain networks, hampering industries dependent on semiconductor supplies, an area heavily monopolized by the island nation.
The report, however, suggests that while Northeast and Southeast Asia would be affected disproportionately, South Korea and Japan could emerge as alternative semiconductor suppliers in the long run.
Additionally, the conflict could either destroy chipmaking facilities in Taiwan or restrict their supply by disrupting air and maritime links. The report says that shocks due to these disruptions would be felt across global supply chains and, in turn, the global economy.
Taiwan produces over 60% of the world’s semiconductors and more than 90% of the most advanced ones.