A Chinese offensive against Taiwan could jeopardize American military presence in the western Pacific and threaten crucial semiconductor supply chains that are vital to much of the U.S. economy.
The Penghu Islands, situated about 30 miles west of Taiwan, might be among the first targets in a Chinese assault. This archipelago could act as a defensive base for Taiwan’s military forces, as noted by senior Taiwanese security officials and military experts, according to a recent report. In a military simulation involving retired U.S., Taiwanese, and Japanese military leaders, Penghu was captured just a day after China executed surprise strikes on military installations and infrastructure throughout Taiwan.
Chris Miller, an international history professor at Tufts University, expressed to a news outlet that, should China attack, it could catch the United States off guard, demanding a swift response. He noted that the economic fallout would be immense, potentially leading to losses amounting to trillions across the global economy, with disruptions likely more severe than those experienced during the COVID-19 pandemic or the Great Depression.
The risks extend well beyond Taiwan. China’s rapidly growing missile arsenal could target regional military bases, logistics hubs, ports, and communication systems. Its ballistic and cruise missiles also have the range to threaten American facilities based in Guam, as indicated in a Pentagon report.
A senior administration official claimed that Xi Jinping had pledged to President Trump that China would not invade Taiwan, promising a free and open Indo-Pacific for the remainder of Trump’s presidency.
According to estimates, conflict over Taiwan might affect $2 trillion in economic activity, which doesn’t even account for military spending or anticipated sanctions. Zack Cooper, a foreign policy analyst, stated that such a conflict could radically disrupt the global economy for years.
This heightened risk makes it more complicated for the U.S. to intervene in a potential conflict over Taiwan. American bases, aircraft, and surface ships across the first and second island chains would be vulnerable to Chinese missile and drone strikes, especially given significant U.S. forward deployments in Japan and Guam, as highlighted in a recent analysis.
China, on the other hand, would also face severe economic repercussions from an attack on Taiwan, and attempts to seize TSMC, a key semiconductor manufacturer, could be hindered by its dependence on specialized equipment and materials sourced from the U.S., Japan, and other countries.
A war could reveal one of China’s significant economic weaknesses: its dependence on imported energy transported by sea. In 2025, China imported an unprecedented 11.6 million barrels of crude oil each day, with a substantial portion of the crude moving through the strategically critical Strait of Malacca.
Although China has large oil reserves that could provide some buffer, its strategic stockpile has fluctuated. Before the onset of the Iran War, it had around 1.54 billion barrels, but that number fell to approximately 1.49 billion due to disruptions impacting imports.
The U.S. could potentially leverage this vulnerability by threatening to cut off energy shipments destined for China traversing through critical maritime routes. Chinese officials have referred to this as the “Malacca dilemma,” wherein they fear a blockade during a crisis.
The Iran War has demonstrated how quickly an international conflict can affect American consumers. Prior to the war, gasoline prices were around $2.94 a gallon, but they surged to roughly $4.52 by mid-May, reflecting a more than 50% increase.
These stresses might also strain U.S. military resources. During simulations of conflicts over Taiwan, U.S. forces quickly ran out of certain long-range missiles, and Taiwan depleting its stock of anti-ship cruise missiles in a similar timeframe.
Ongoing military engagements such as the Iran War are deteriorating the U.S. military’s global posture, shifting power dynamics in Asia. Reports indicate that the U.S. may have used up to 67% of its prewar PAC-3 Patriot missile reserves, leaving as few as 759 out of a starting 2,330 available. Analysts suggest it could take years to rebuild these stocks.
Cost estimates from prior military simulations reveal that even if China were to fail in an invasion attempt, the U.S., Taiwan, and Japan would still sustain significant losses, including ships, aircraft, and personnel. “China must weigh whether to attack U.S. forces at the outset,” Cooper remarked, indicating that either decision carries substantial risks for Beijing.
Former President Trump introduced uncertainty regarding U.S. support for Taiwan during a summit with Xi Jinping, suggesting that a delayed arms package might depend on China’s actions and described the arms sales as a negotiation tool. His statements raised questions about America’s commitment to Taiwan.
Beyond military considerations, a conflict could pose immediate risks to the American economy due to the country’s heavy reliance on foreign semiconductor production. Although the U.S. consumes about 25% of the world’s semiconductors, it only produces approximately 10% of its own needs, leaving it vulnerable.
The U.S. has taken steps to mitigate this risk; Taiwanese semiconductor firms are poised to invest $250 billion in U.S. operations, alongside equivalent commitments in credit guarantees to boost American production.
These Taiwanese companies plan to ramp up production in Arizona, with expectations for high-volume output to start in 2027, although timetables for additional facilities remain uncertain.
The Pentagon has increasingly correlated military readiness in the region with American economic stability. With projections indicating that the Indo-Pacific will encompass over half of the global economy, it emphasizes the importance of maintaining U.S. access and influence there to secure national prosperity.
Miller pointed out that reinforcing U.S. military deterrence in this context is crucial for national security and economic health, underscoring the need for proper investment in defense capabilities throughout the Indo-Pacific region.
