UK assess trade fallout if China moves on Taiwan

Fri 17 Feb 2023
Posted by: Richard Cree
Trade News

The British government is wargaming economic fallout that could follow a Chinese invasion of Taiwan, as security tensions rise between China and the West.

Concerns about the major disruption to global supply chains and consequences of any western response have been examined by civil servants.

A UK government source told the Guardian that officials were looking at “what we would do, and what that would mean for our economy” should China launch an invasion that prompted retaliatory economic and trade sanctions by western countries.

Economic modelling

Disruption to the distribution of microchips, which Taiwan dominates, is a major concern for the UK, as Brexit has left the UK with fewer options than other western countries, claims Bloomberg.

A 2021 paper by the International Monetary Fund modelling a “technological decoupling” of China from the US and Europe, found most open economies including the UK would suffer economic losses of 5% of GDP.

A 2022 exercise by Britain’s Office for Budget Responsibility on the impact of a “plausible rise in trade barriers” in the event of a Chinese invasion of Taiwan would drive borrowing up £20bn in a year. 
Within a decade, 5.2% would be wiped off GDP growth, creating a £57bn permanent hole in public finances.

UK chips strategy

Britain’s semiconductor industry is calling for support from the government, with insiders warning the country risks losing its microchip firms to the US and other countries if it doesn’t act soon, reports CNBC

While the US has signed off on $52bn of funding to boost domestic semiconductor manufacturing. And the EU has earmarked €43bn for Europe’s semiconductor industry, the UK is still waiting for a delayed semiconductor strategy.

Major players in the UK semiconductor sector have written to the PM, spelling out their frustration at the lack of any plan after two years of waiting, the Times reports

Relations with China

Relations between the UK and China have been under scrutiny for some time, with former PM Liz Truss perceiving China as more of a “threat”, and current PM Rishi Sunak saying the so-called “golden era” of UK relations with China were over.

This week, the BBC reported a Chinese Communist Party official accused of overseeing human rights abuses has cancelled a visit to the UK.

MPs had urged the government to block Erkin Tuniyaz from travelling to London.

Meanwhile, the ex-head of MI6, Sir Alex Younger, told the BBC that the UK must “wake up” to the threat posed by China's challenges to global security.

He said the on ongoing “balloon scenario demonstrates there is no trust” between China and western nations.