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Potential Chinese invasion of Taiwan: U.S. response and economic consequences

Kitco News

(Kitco News) - Taiwanese independence is geopolitically unsustainable, and it's not a matter of if China will take action towards unification, but when, according to a panel of experts on the Asia-Pacific region.

Harold Kempfer, former U.S. Marine Corps intelligence officer and CEO of Global Risk & Intelligence Planning Inc. joined Matt Gertken, VP of Geopolitical Strategy of BCA Research, in a discussion with Michelle Makori, editor-in-chief of Kitco News, to talk about the likelihood of a Chinese incursion on Taiwan and possible U.S. response.

While Taiwan sees itself as a sovereign state, the official position of Beijing is that Taiwan is a province of China and should not be internationally recognized as a separate governing entity.

The "One China" policy, which dictates that there is only one official Chinese government that does not include the parliament of Taiwan, has been a cornerstone of U.S.-Chinese relations for decades.

In the past few weeks, tensions between the Taiwan and the Mainland have escalated as a record number of Chinese fighter jets flew within Taiwan's aircraft identification zone.  

"Geopolitically, Taiwan is a threat to any Chinese empire," Gertken said. "[Taiwan] has a naval power, which is its own, but also a military alliance with the United States. This is just geopolitically unsustainable for a government rooted in Beijing. While Beijing couldn't really do anything about it for 70 years, over the past 20 years we've seen such an increase in economic power that the Chinese are getting very close to where they're able to do something about it."

In particular, China's military build-up over the last two decades has worried both Taiwan's Defense Ministry and U.S. military planners.

"China's military has dramatically expanded. For example, their marine corps, which would be used for an amphibious invasion of Taiwan, has jumped from 10,000 in 2017 to somewhere about 35,000 today. That's a huge leap. And then if you look at the platforms that they would use for amphibious assault, they basically built that from scratch over the last few years. So, they have a number of platforms that they could use and things necessary to actually conduct an invasion," Kempfer said.

Kempfer has previously served in the military in the West Pacific region and later worked with the U.S. Department of Defense on issues related to Chinese expansion in the Pacific.

Taiwan, however, has also increased its defensive capabilities, and so an outright Chinese invasion would be no easy feat, especially considering the possibility of U.S. intervention in the defense of Taiwan, Kempfer added.

"Amphibious operations are tough, they're not easy to do, and there's a very good chance that it could end up looking more like Gallipoli than Normandy for the Chinese," he said.

With the withdrawal of Afghanistan and the winding down of American military involvement in the Middle East, the U.S. now has more resources to dedicate to the Pacific theater. This would mean that the window of opportunity for Beijing to act is narrowing.

The trigger for direct action would be economic and domestic political pressures on the Chinese government.

"If mainland China experiences a massive economic and financial crisis, you could see this nationalism that's been building up there and it could really start to become explosive. Also, you could have political destabilization in China, whether connected to an economic event or not and that could also cause the leadership to be less rational," Gertken said.

If armed conflict were to break out, commodities would see a significant rally, Gertken added.

"Historically, it's the preparation of war and war itself that really causes super bull markets for commodities," he said.

For more information on the market and economic impacts of heightened geopolitical tensions around Taiwan, watch the interview above. Follow Michelle Makori on Twitter: @MichelleMakori

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.