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Taiwan conflict: Growing concern about escalation

Bad Homburg, 11/16/2023
by FERI Cognitive Finance Institute
  • China's offensive strategy for "New World Order" increases global risks
  • Presidential elections in Taiwan in early 2024 as a critical date
  • Taiwan's high technology at the center of geopolitics and geoeconomics  
  • FERI Cognitive Finance Institute analyzes current developments in the Taiwan conflict

Increasing tensions over Taiwan are currently intensifying the hegemonic conflict between the US and China, with more and more signs pointing to a possible escalation in the near future. Behind this is China's offensive strategy for a "New World Order - Made in China". "The latest threatening gestures from Beijing do not bode well. In the event of an attack on Taiwan, a very dangerous scenario with serious consequences for the whole world looms," says Dr. Heinz-Werner Rapp, founder and director of the FERI Cognitive Finance Institute, in a recent analysis of potential escalation risks in the Taiwan conflict. Concerns about a further escalation of the Taiwan conflict were obviously also an important reason for the recent top-level talks between US President Joe Biden and China's head of state Xi Jinping in San Francisco.

China aims for "new world order" and intensifies threats  

China has recently systematically increased its pressure on Taiwan through intensified military maneuvers in the region and increasingly aggressive rhetoric. In addition to a complete naval blockade of the island state and attacks against Taiwan's data networks, China's escalation strategy also envisages the eventual seizure of the island by force. Head of state Xi Jinping has repeatedly emphasized China's territorial claim to Taiwan and explicitly called for reunification with the "renegade province". The situation could come to a head around the upcoming presidential elections in Taiwan in January 2024. Should a China-critical candidate win, Beijing could activate its plans for military intervention in the near future. "The risk of escalation is heightened by the fact that China's President Xi Jinping has stylized the new state doctrine of national rebirth and strength as 'fateful' and linked its success directly to his person. This puts China under immediate pressure to act on the Taiwan issue. In the worst case scenario, there is a threat of direct military confrontation between China and the USA," says Rapp. 

Taiwan's comprehensive strategic importance 

Due to its island location directly off the Chinese coast, Taiwan is of enormous strategic importance for both China and the USA. For China, it is primarily about safe navigation for energy transportation and merchant ships, but increasingly also for the Chinese fleet. From the US perspective, Taiwan offers an enormous geostrategic advantage as an "unsinkable aircraft carrier" to secure its own power interests in the Western Pacific. In addition, the USA is highly dependent on state-of-the-art chip technology, much of which is produced in Taiwan. "From the US perspective, Taiwan is absolutely indispensable for all future developments in the field of high technology. A takeover by China would have enormous security-relevant consequences for the USA. This point in particular makes it clear why Taiwan plays such a central role in the great power conflict between the US and China," explains Rapp. 

High uncertainty: What will the USA do?

Whether the USA would actually stand by Taiwan militarily in the event of a Chinese invasion is difficult to answer with any certainty at present. The main risk is that even the smallest of events could trigger a military confrontation between the USA and China - and thus a potential world war. Theoretically, the USA could also give up Taiwan to China, for example in order to achieve concessions in other strategically relevant areas. However, this does not seem very realistic at present, as it would severely limit the USA's freedom of movement in the Pacific. "The further development around Taiwan therefore also depends on the outcome of the presidential elections in the USA next year," adds Rapp. If there is a new edition of the volatile Trump presidency from 2024, even previously immovable parameters of US foreign policy could quickly change. "The next two years are therefore of crucial importance for Taiwan - and all the associated risks. This window of opportunity is also becoming more explosive for the global capital markets," warns Rapp. For the time being, professional investors should keep a very close eye on how the rival superpowers USA and China position themselves in the Taiwan conflict in order to better assess potential risks for the global economy. 

The German analysis "Focus on Taiwan - Acute risk of escalation due to China's 'New World Order'" has been published by the FERI Cognitive Finance Institute as a "Cognitive Briefing" and can be found in the download area of this page.

About FERI Cognitive Finance Institute

The FERI Cognitive Finance Institute was founded in 2016 by Dr. Heinz-Werner Rapp as a strategic research center of the FERI Group. The focus is on analyzing long-term trends and complex future scenarios, taking into account holistic perspectives for the economy, society and financial markets. The institute uses the latest approaches from areas such as behavioral economics, complexity theory and cognitive science and integrates these into a proprietary research methodology with high forecasting quality ("cognitive finance").

FERI has been operating as an independent multi-asset investment company since 1987, specializing in investment research, investment management and investment consulting. The name FERI stands for "Financial & Economic Research International".

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