WEBVTT - Taiwan’s Path Forward Could Have Global Impact 0:00:02.600 --> 0:00:07.280 You're listening to Asia Centric from Bloomberg Intelligence, the podcast 0:00:07.320 --> 0:00:10.440 that pulls back the curtain non global business so you 0:00:10.520 --> 0:00:14.840 can invest better across the Pacific rim. I'm Tom Corbett 0:00:14.840 --> 0:00:16.120 in Hong Kong and. 0:00:16.040 --> 0:00:19.640 I'm John Lee. Taiwan's election was cast as a stark 0:00:19.760 --> 0:00:24.120 choice between two very different destinies, but relations with China 0:00:24.160 --> 0:00:27.040 may be only part of the picture. For the island's. 0:00:26.640 --> 0:00:30.600 Voters, Taiwan's new leaders have their work cut out for them, 0:00:30.680 --> 0:00:34.040 navigating the way forward for its more than twenty three 0:00:34.240 --> 0:00:38.720 million people while walking a tightrope in relations between two 0:00:38.760 --> 0:00:40.240 global superpowers. 0:00:40.640 --> 0:00:44.920 Taiwan's voters are also concerned about its economy, growth, jobs 0:00:44.960 --> 0:00:48.159 and prosperity, and how china response could set a new 0:00:48.240 --> 0:00:51.680 tone in relations with the US and for Taiwan's business clan. 0:00:52.200 --> 0:00:54.800 What will the next four years look like for the 0:00:54.840 --> 0:00:59.120 Taiwanese people and for Taiwan's standing on the global stage. 0:00:59.400 --> 0:01:03.280 Let's bring in two experts to sort it out. Jennifer 0:01:03.360 --> 0:01:08.640 Welch is chief geoeconomics analyst at Bloomberg Economics. She also 0:01:08.800 --> 0:01:14.080 served in the Trump and Biden Whitehouses shaping US Taiwan policies. 0:01:14.120 --> 0:01:16.480 She joins US from Taipei. 0:01:16.200 --> 0:01:20.839 And Mayva Kuza, senior global economists for Bloomberg Economics, joins 0:01:20.920 --> 0:01:21.800 us from Switzerland. 0:01:22.240 --> 0:01:24.440 Jennifer and Mava, it's great to have you. 0:01:24.520 --> 0:01:27.560 Hijahntam, great to be here, Thanks so much for having us. 0:01:28.160 --> 0:01:31.959 Taiwan just elected lighting To as the new president. Is 0:01:32.000 --> 0:01:35.360 this a resounding success for the ruling party, the Democratic 0:01:35.400 --> 0:01:39.040 Progressive Party or DPP. On one hand, they sealed an 0:01:39.120 --> 0:01:42.840 unprecedented third presidential term, but on another it was one 0:01:42.880 --> 0:01:46.400 of the tightest mansions in years. Jennifer, what's your key takeaway? 0:01:47.760 --> 0:01:49.560 Yeah, I'm not sure that they would use the term 0:01:49.600 --> 0:01:53.440 resounding and to describe their victory. As you noted, they won, 0:01:53.760 --> 0:01:56.240 but they won by a pretty narrow margin, and perhaps 0:01:56.280 --> 0:02:00.920 more concretely, they failed to secure a majority of their legislature. 0:02:01.280 --> 0:02:04.080 They're going to be facing a divided government as a result, 0:02:04.200 --> 0:02:06.480 and that could be a major challenge for them going 0:02:06.520 --> 0:02:10.320 forward in terms of advancing their domestic agenda. But other 0:02:10.400 --> 0:02:13.000 than that, yes, it's a historic win. This is the 0:02:13.040 --> 0:02:15.959 first time that any party has secured a third term 0:02:16.000 --> 0:02:20.799 since Taiwan began holding open elections several decades ago, and 0:02:21.080 --> 0:02:24.720 certainly a really strong sign of Taiwan's maturing and very 0:02:24.800 --> 0:02:26.600 vibrant democracy. 0:02:27.320 --> 0:02:29.840 And Jennifer, it's pretty much safe to say that this 0:02:30.000 --> 0:02:32.880 is the party that mainland China did not want to see. 0:02:32.919 --> 0:02:36.120 When what do you think the reaction will be from mainland. 0:02:35.880 --> 0:02:40.600 China, Well, we're still watching and observing what China's going 0:02:40.680 --> 0:02:42.360 to do, and this is very much a live issue. 0:02:42.360 --> 0:02:45.160 In fact, we just saw the news that China has 0:02:45.280 --> 0:02:50.000 established relations with Nauru, one of Taiwan's few remaining diplomatic partners, 0:02:50.080 --> 0:02:53.560 leaving Taiwan with just twelve partners left on the world stage, 0:02:53.800 --> 0:02:57.720 including the Vatican. So my take on this is though 0:02:57.760 --> 0:03:01.440 that Beijing's reaction has still been fairly considering the spectrum 0:03:01.520 --> 0:03:03.799 of things that they could possibly do in the week 0:03:03.840 --> 0:03:06.960 of the election. For example, we haven't seen a heightened 0:03:07.000 --> 0:03:09.840 amount of military activity, yet we haven't yet seen them 0:03:09.880 --> 0:03:12.400 roll out economic measures that they had been sort of 0:03:12.440 --> 0:03:14.560 singling they'd be willing to take in the week of 0:03:14.600 --> 0:03:16.560 the election if they didn't get the results they wanted. 0:03:16.960 --> 0:03:19.000 And I think a major reason for this is one 0:03:19.320 --> 0:03:22.680 because of that legislative outcome that the DPP is not 0:03:22.760 --> 0:03:26.120 going to be having full control over both the presidency 0:03:26.280 --> 0:03:29.720 and the legislative un and two, I think part of 0:03:29.760 --> 0:03:33.280 it is that they believe that Lie sort of extended 0:03:33.320 --> 0:03:36.720 an olive branch in his victory speech enough at least 0:03:36.800 --> 0:03:40.520 to give them no immediate cause for concern. But I 0:03:40.560 --> 0:03:43.200 think in the weeks and months between now and the 0:03:43.240 --> 0:03:46.680 inauguration in May, when Lai will be sworn in as president, 0:03:46.960 --> 0:03:49.760 we're likely to see additional steps from Beijing seeking to 0:03:49.880 --> 0:03:53.119 shape his approach and probably up the pressure on Taiwan. 0:03:54.040 --> 0:03:57.120 Mayva Kuzam Jennifer Welch. Let's get into the heads of 0:03:57.120 --> 0:04:00.600 the Taiwan voters for a moment. How heavily do cross 0:04:00.640 --> 0:04:08.480 straight relations figure in their thinking, especially considering economic considerations growth, jobs, wages, unemployment. 0:04:08.560 --> 0:04:11.200 Right there is in the low double digit Is this 0:04:11.400 --> 0:04:13.120 really all about China? 0:04:13.800 --> 0:04:16.520 Well that's a really good question, Tom, because actually, when 0:04:16.520 --> 0:04:19.000 you speak to a lot of Taiwanese voters, despite all 0:04:19.040 --> 0:04:22.440 the headline attention from international media on the cross rate issue, 0:04:22.640 --> 0:04:25.160 but most voters here have been concerned about are that 0:04:25.279 --> 0:04:28.600 more bread and butter issue of cost of living, you know, 0:04:28.680 --> 0:04:32.359 the economy or social policies. That's where a lot of 0:04:32.360 --> 0:04:34.880 the focus has been. And yes, cross right issues are 0:04:34.880 --> 0:04:38.599 an important topic, not just in terms of China being 0:04:38.640 --> 0:04:43.280 a major economic trading partner and obviously a major consideration 0:04:43.400 --> 0:04:46.440 for Taiwan, but also you know, for how Taiwan thinks 0:04:46.440 --> 0:04:49.120 about itself and its role on the world stage. But yes, 0:04:49.320 --> 0:04:52.200 the vast majority of voters are far more concerned, just 0:04:52.240 --> 0:04:55.160 like many voters around the world, with issues that affect 0:04:55.160 --> 0:04:57.080 their day to day life, and that tends to be 0:04:57.120 --> 0:04:59.160 more in the economic realm. 0:04:59.360 --> 0:05:01.960 Which is kind of contrary to what we hear in 0:05:02.000 --> 0:05:05.880 the Western narrative that this is a big all about 0:05:06.080 --> 0:05:10.440 China elections, so to speak, What, in your assessment do 0:05:10.600 --> 0:05:16.240 Western observers, particularly in the US, perhaps not understand or 0:05:16.320 --> 0:05:19.839 not yet or not fully appreciate about the nuances between 0:05:20.120 --> 0:05:22.520 the Taiwan elections and relations with China. 0:05:22.600 --> 0:05:24.760 And in fairness to Western media, I will say one 0:05:24.800 --> 0:05:27.680 of the biggest differences between the candidates going into this 0:05:27.760 --> 0:05:30.400 election was on crosstrate issues like when you look at 0:05:30.400 --> 0:05:34.000 their economic policies and their social policies, there's not a 0:05:34.080 --> 0:05:38.640 huge amount of ideological changes there. What they really had 0:05:38.640 --> 0:05:41.960 a difference of opinion on is what Taiwan's relationship with 0:05:42.200 --> 0:05:46.080 mainland China should be and how Taiwan should conduct that relationship. 0:05:46.640 --> 0:05:49.719 So in fairness, there is a major difference there, and 0:05:49.760 --> 0:05:52.880 that's probably the biggest areas of divergence among the candidates. 0:05:53.480 --> 0:05:55.960 And is there any demographic trends that we should be 0:05:56.000 --> 0:05:58.000 aware of. I have been reading in the press that 0:05:58.080 --> 0:06:00.280 some of the younger voters were more support of the 0:06:00.360 --> 0:06:01.560 ruling party or the DPP. 0:06:02.320 --> 0:06:04.640 Actually, one of the most interesting trends in this election 0:06:05.040 --> 0:06:07.920 is how many youth voters we think were brought over 0:06:07.960 --> 0:06:12.200 to the third party, the Taiwan People's Party led by Coinja. 0:06:12.279 --> 0:06:15.520 He has had a lot of attraction among youth voters, 0:06:15.680 --> 0:06:17.880 and that was true when he was mayor of Taibei 0:06:17.960 --> 0:06:21.839 as well. In fact, if you're looking for an interesting excursion, 0:06:21.920 --> 0:06:24.760 he's got a really great rap video that he did 0:06:24.760 --> 0:06:26.760 as part of one of his re election campaigns. It 0:06:26.880 --> 0:06:29.200 was the signal of how he's been able to curate 0:06:29.200 --> 0:06:31.520 a lot of interest among youth. I went to a 0:06:31.600 --> 0:06:33.920 TPP rally on Friday night just to kind of get 0:06:33.920 --> 0:06:36.080 a sense of the ground, and I'd say about ninety 0:06:36.120 --> 0:06:38.240 five percent of the people I saw there were youth, 0:06:38.279 --> 0:06:40.560 And there were so many folks there that I couldn't 0:06:40.560 --> 0:06:43.880 even approach the rally stage, it was that crowded. I 0:06:43.920 --> 0:06:46.080 couldn't even see it from where I was. The streets 0:06:46.080 --> 0:06:49.320 were so jammed. So he really attracted a lot of youth, 0:06:49.320 --> 0:06:51.760 and that became a really interesting facet in this election 0:06:51.880 --> 0:06:55.600 because he wasn't just drawing from the other opposition party 0:06:55.600 --> 0:06:58.800 that Guilming down. He was probably drawing youth that would 0:06:59.080 --> 0:07:02.240 otherwise traditional voted for the DPP. And I think what's 0:07:02.240 --> 0:07:04.800 going to be really interesting to watch going forward is 0:07:05.400 --> 0:07:08.960 do those youth voters stick with the TPP four years 0:07:08.960 --> 0:07:10.960 from now or even two years from now in the 0:07:10.960 --> 0:07:14.280 next sort of local elections, or are they going to 0:07:14.280 --> 0:07:17.600 eventually mature back into the DPP ranks. A lot of 0:07:17.600 --> 0:07:20.480 this might really determine the future of this new third 0:07:20.520 --> 0:07:23.400 party and how much sort of running room they have 0:07:23.520 --> 0:07:25.480 still in Taiwanese politics. 0:07:25.520 --> 0:07:29.240 That youth vote is having a big impact on other democracies, 0:07:29.360 --> 0:07:31.960 not just in Taiwan. Do you think we're on the 0:07:32.000 --> 0:07:35.520 cusp of a generational shift in attitude, so to speak 0:07:35.560 --> 0:07:36.120 in Taiwan? 0:07:36.800 --> 0:07:38.640 I think it's it's going to be something to watch 0:07:38.680 --> 0:07:41.240 because the thing that's been most interesting among this youth 0:07:41.320 --> 0:07:44.559 vote is the generation just before them, as they mentioned, 0:07:44.640 --> 0:07:47.920 was very heavily inclined towards the DPP and also to 0:07:48.000 --> 0:07:51.920 this more China skeptic perspective. It was culminated in something 0:07:51.960 --> 0:07:55.760 called the Sunflower Movement that happened under the previous administration 0:07:55.840 --> 0:07:59.480 in Taiwan around this trade agreement that Taiwan was pursued 0:07:59.520 --> 0:08:03.160 with mainland China, and a lot of the same students 0:08:03.200 --> 0:08:05.880 and activists who are involved in that movement have since 0:08:05.920 --> 0:08:09.680 become major sort of officials in the DPP. The generation 0:08:09.840 --> 0:08:13.680 behind them didn't have that experience and doesn't seem to 0:08:13.720 --> 0:08:17.440 necessarily have the same level of China skepticism as the 0:08:17.440 --> 0:08:20.160 one in between them. So it's going to be really 0:08:20.200 --> 0:08:24.640 interesting to watch how use views towards China and Taiwan 0:08:24.960 --> 0:08:28.760 evolved and what translates that into in terms of like 0:08:28.840 --> 0:08:31.600 which of the parties that they tend to lobby behind. 0:08:32.040 --> 0:08:34.360 But I think that's going to be the key demographic 0:08:34.400 --> 0:08:36.600 that these parties are going to have to capture going forward, 0:08:36.840 --> 0:08:38.800 and it might be the one that's hardest to place 0:08:38.920 --> 0:08:42.120 where exactly they'll land. They seem to again be more 0:08:42.120 --> 0:08:45.600 in this middle zone of actually not as concerned about 0:08:45.679 --> 0:08:48.839 China as the generation above them, but something to watch for. 0:08:48.800 --> 0:08:53.560 Sure, Jennifer, With the latest election results, what does these 0:08:53.679 --> 0:08:58.000 meanful relationships between mainlane China and the US. There seem 0:08:58.080 --> 0:09:02.680 to be some progress between both countries after President's Biden 0:09:02.720 --> 0:09:05.079 and She met last November. Do you think this will 0:09:05.080 --> 0:09:06.360 still be the case going forward. 0:09:07.520 --> 0:09:09.240 I think it will still be the case going forward. 0:09:09.240 --> 0:09:11.400 That's my base case. But I will say as someone 0:09:11.480 --> 0:09:15.920 who was there for Bali in twenty twenty two, where 0:09:16.000 --> 0:09:19.520 we likewise had very good sort of feelings coming out 0:09:19.559 --> 0:09:23.160 of that meeting, shared sense of the importance of stabilizing 0:09:23.160 --> 0:09:26.560 the relationship. Just a few months later, we had the 0:09:26.679 --> 0:09:30.839 Chinese spy balloon incident, which really threw all of those 0:09:30.880 --> 0:09:34.120 plans off the rails, and it took several months for 0:09:34.320 --> 0:09:36.680 those to get back on track in terms of when 0:09:37.520 --> 0:09:40.600 US Cabinet members started visiting China again and then eventually 0:09:40.720 --> 0:09:43.719 laying down the plans for the San Francisco meeting. So 0:09:44.000 --> 0:09:46.520 I think what that goes to show is that meeting 0:09:46.600 --> 0:09:50.559 was a really positive sign. Another positive sign, I should say, 0:09:50.800 --> 0:09:53.760 their ability to still sit down and meet and agree 0:09:53.840 --> 0:09:56.800 on sort of the fundamentals of this relationship. But on 0:09:56.840 --> 0:09:59.560 the other hand, this is a really fragile sort of 0:09:59.600 --> 0:10:04.080 equal that can be easily challenged by another major crisis 0:10:04.160 --> 0:10:07.360 or point of tension, and whether it's something as completely 0:10:07.400 --> 0:10:11.920 unexpected as that spy balloon, or it's something like, for example, 0:10:12.080 --> 0:10:16.440 tensions over Taiwan. And I think a huge factor looking 0:10:16.480 --> 0:10:19.440 forward is going to be what is Beijing's reaction to 0:10:19.480 --> 0:10:23.080 the election, What does Beijing think Washington's reaction to the 0:10:23.120 --> 0:10:26.600 election is, and how does that relationship proceed over the 0:10:26.600 --> 0:10:29.600 coming months between now and the inauguration and then immediately 0:10:29.600 --> 0:10:30.920 after the inauguration in May. 0:10:31.559 --> 0:10:34.640 And Jennifer's remarks are a great segue to bring in 0:10:34.760 --> 0:10:39.320 Mavokuzam with Bloomberg economics. Maybe, but you have put forth 0:10:39.720 --> 0:10:43.920 a widely publicized is it a model? Five theories, five 0:10:44.080 --> 0:10:52.000 scenarios modeling Taiwan, US and China relations, ranging from lasting 0:10:52.080 --> 0:10:56.520 stability to full blown conflict. Talk a little bit about 0:10:57.320 --> 0:11:00.240 how that came about, how you modeled it and how 0:11:00.280 --> 0:11:04.080 you arrived at the potential ten trillion dollar cost of 0:11:04.120 --> 0:11:05.960 a conplic to the global economy. 0:11:06.760 --> 0:11:09.360 Hey, thanks Tom, Yes, that's right. We've looked into those 0:11:09.679 --> 0:11:14.120 five scenarios, the status COO and then some improvement scenarios 0:11:14.240 --> 0:11:17.960 and some scenarios of very severe escalation in the relationship 0:11:18.000 --> 0:11:22.600 between Taiwan mainland China and the US, and in particular 0:11:22.720 --> 0:11:26.080 this extreme case scenarios that you mentioned term, which is 0:11:26.200 --> 0:11:30.280 by no way our main baseline scenarios within the status chool, 0:11:30.360 --> 0:11:33.120 is sticky, and it's sticky for a reason. And one 0:11:33.120 --> 0:11:35.280 of these reasons, of course, is human costs. But the 0:11:35.320 --> 0:11:37.640 other reason is exactly what you've just said, that the 0:11:37.640 --> 0:11:41.160 economic costs of a severe escalation would be disastrous for 0:11:41.720 --> 0:11:44.400 all the main parties involved and for the global economy. 0:11:44.840 --> 0:11:47.480 But coming back to this war scenario, just to give 0:11:47.520 --> 0:11:50.200 a flavor of how we've looked into it. So what 0:11:50.240 --> 0:11:53.000 we've done is that we've worked closely with Jennifer to 0:11:54.160 --> 0:11:57.680 decide on the modeling assumptions to design this scenario of 0:11:57.800 --> 0:12:01.080 what could happen in a very severe scale. And this 0:12:01.240 --> 0:12:04.240 very severe escalation would be a case where China would 0:12:04.280 --> 0:12:08.079 launch an invasion of Taiwan that would draw the US 0:12:08.120 --> 0:12:11.040 into a local conflict. So what could happen in that case. 0:12:11.080 --> 0:12:13.760 The first thing, of course, is that Taiwan's economy would 0:12:13.800 --> 0:12:15.440 be cut off from the rest of the world. So 0:12:15.480 --> 0:12:18.280 we have modeled a case of one hundred percent cut 0:12:18.600 --> 0:12:21.040 in Taiwan's trade with the rest of the world, we 0:12:21.080 --> 0:12:24.760 would have US soldiers fighting directly with Chinese soldiers, and 0:12:24.800 --> 0:12:27.160 in that case, we would expect that the two economies, 0:12:27.200 --> 0:12:30.600 the two countries would actually cut off all relationships, especially 0:12:30.679 --> 0:12:34.000 economic relationships. So we've also modeled only one hundred percent 0:12:34.080 --> 0:12:37.080 cut in all trade between the US and China. What 0:12:37.120 --> 0:12:40.120 would also happen is that the Taiwan's trade is actually 0:12:40.440 --> 0:12:43.560 the busiest shipping route in the world, with lots of 0:12:43.640 --> 0:12:48.000 shipping from Stasia, from Japan, from Korea transiting to go 0:12:48.080 --> 0:12:51.320 to their different destination. It would hurt one of the 0:12:51.400 --> 0:12:54.600 biggest manufacturing hub in the world. We are looking at 0:12:54.640 --> 0:12:57.840 a one year war scenario and eighty percent of trade 0:12:57.920 --> 0:13:01.319 in this region would be disrupted. Eighty percent of trade 0:13:01.480 --> 0:13:06.280 coming out of South Korea, Japan and Selfistasia would be disrupted. 0:13:06.760 --> 0:13:10.720 And finally, we would expect uslies to take very severe 0:13:10.920 --> 0:13:14.880 retaliation or severe economic functions against China, as we've seen 0:13:15.040 --> 0:13:18.760 precently of course in the uk Usha a question. And 0:13:18.840 --> 0:13:21.679 so that's a sort of modeling basis that we've used, 0:13:21.920 --> 0:13:25.040 and from there we've used different suite of models to 0:13:25.080 --> 0:13:26.800 look into what the implications would be. 0:13:27.360 --> 0:13:29.040 And I think just to add on to that and 0:13:29.080 --> 0:13:32.400 elaborate on what we are saying, Yes, we exsess that 0:13:32.679 --> 0:13:36.280 the risk of a war at this point is low probability. However, 0:13:36.320 --> 0:13:41.000 it's a high enough probability and risk and a high 0:13:41.160 --> 0:13:44.160 enough impact, certainly a very severe impact that we think 0:13:44.240 --> 0:13:48.439 warrants examination of what that would entail. I think, more broadly, 0:13:48.480 --> 0:13:51.000 if you look past the specific scenario of a war, 0:13:51.600 --> 0:13:54.800 the odds of a crisis are also not that small. 0:13:55.080 --> 0:13:56.680 If we had to put a number on it, we'd 0:13:56.720 --> 0:13:59.560 say about one in four. And there are a lot 0:13:59.600 --> 0:14:01.960 of reasons for that, but some of the main ones 0:14:02.000 --> 0:14:05.839 are that we've just seen the traditional pillars of stability 0:14:05.840 --> 0:14:08.439 in the street really eroding over the last few years. 0:14:08.679 --> 0:14:11.839 You know, for example, Taiwan is associating itself with a 0:14:12.120 --> 0:14:16.480 distinct Taiwan identity. Beijing sees that and is extremely concerned 0:14:16.520 --> 0:14:19.560 by it, and is also sort of in line with 0:14:19.600 --> 0:14:23.760 its growing power, seeking to make progress towards unification with Taiwan, 0:14:23.800 --> 0:14:26.960 this sort of historic task for Beijing. And then meanwhile, 0:14:27.000 --> 0:14:29.320 you have the United States, which is historically plaid sort 0:14:29.320 --> 0:14:32.480 of a balancing role in the street. Also having a 0:14:32.600 --> 0:14:36.760 very tense relationship with China, and that really invokes Taiwan 0:14:36.880 --> 0:14:40.800 and makes cross straight issues more challenging. So there's a 0:14:40.800 --> 0:14:43.920 lot of dynamics that play that are really straining stability. 0:14:44.280 --> 0:14:45.840 And if you look at the other end of the 0:14:45.880 --> 0:14:49.640 probability spectrum, it's also not a pretty picture. For example, 0:14:49.680 --> 0:14:53.560 we would say that there's probably greater chance of relations 0:14:53.600 --> 0:14:56.320 getting tenser over the next few years than improving. 0:14:56.640 --> 0:14:59.800 So MAYEVI, could you put these in perspective? How big 0:15:00.080 --> 0:15:02.720 is ten trillion dollars as a percentage of global GDP. 0:15:03.600 --> 0:15:06.640 It's ten percent of global GDP, so it is ten 0:15:06.680 --> 0:15:09.720 trillion dollars in twenty twenty two GDP numbers, for example, 0:15:09.760 --> 0:15:13.520 But it's ten percent of global GDP. It's seventeen percent 0:15:13.600 --> 0:15:17.120 of Chinese GDP. It's nearly seven percent of US GDP. 0:15:17.520 --> 0:15:19.720 So of course the US is less exposed, it's further 0:15:19.720 --> 0:15:23.880 away from the conflict, it's not directly on the conflict zone. 0:15:24.240 --> 0:15:27.280 It's also a bit less industrial economy, so it's not 0:15:27.320 --> 0:15:30.640 as badly by the semiconductor's shock, but seven percent is 0:15:30.680 --> 0:15:33.160 still huge. And if you think ten percent of global 0:15:33.200 --> 0:15:37.760 GDP to give your perspective the global financial crisis or 0:15:37.800 --> 0:15:41.200 the pandemic crisis, the COVID crisis, we're about six percent, 0:15:41.800 --> 0:15:44.840 so GDP fell six percent below its previous round on 0:15:44.880 --> 0:15:47.800 the shock, so ten percent. It's bigger than the global 0:15:47.800 --> 0:15:50.880 financial crisis or the pandemic, so it would be a 0:15:50.960 --> 0:15:54.200 huge shock there. Of course, uncertaintyes it's a scenario, so 0:15:54.320 --> 0:15:57.480 things could develop very differently. And it also realized a 0:15:57.520 --> 0:16:00.320 lot on this assumption that semiconductors is what we called 0:16:00.320 --> 0:16:03.440 sometimes in supply chains, the golden screw, this very specific 0:16:03.480 --> 0:16:07.120 part without which you can't do anything. And we've worked 0:16:07.200 --> 0:16:10.360 very closely with your colleagues in Bloomberg Intelligence looking at 0:16:10.400 --> 0:16:14.400 how much semiconductor's capacity is made in Taiwan, almost made 0:16:14.400 --> 0:16:18.160 in Korea and Japan. And the big thing in that 0:16:18.320 --> 0:16:20.600 case is that sixty percent more or less of the 0:16:20.600 --> 0:16:24.280 most advanced logic semiconductors, the one we find in smart phones, tablets, 0:16:24.360 --> 0:16:27.360 sort of advanced electronics are made in Taiwan and most 0:16:27.400 --> 0:16:29.320 of the rest is made in South Korea. So that's 0:16:29.320 --> 0:16:32.600 already one thing, and we've just assumed that without those 0:16:32.640 --> 0:16:35.600 semiconductors we can build smart funds so these factory has 0:16:35.640 --> 0:16:38.520 come to HELT. That's the first cost. And then about 0:16:38.520 --> 0:16:42.480 a third of the less advanced logic semiconductors are made 0:16:42.520 --> 0:16:44.720 in Taiwan, and a lot of it is actually made 0:16:44.760 --> 0:16:46.840 in China and South Korea, but a lot is made 0:16:46.880 --> 0:16:49.880 in China. So you use access to probably about sixty 0:16:49.920 --> 0:16:53.000 percent of all the semiconductors that you need in cars, 0:16:53.040 --> 0:16:56.120 that you need in consumer electronics, that you needed, all 0:16:56.120 --> 0:16:59.120 the transport equipment at very big chocked supply chains. If 0:16:59.120 --> 0:17:01.400 you lose ten percent or those semiconductors, you need to 0:17:01.600 --> 0:17:04.480 decrease production by ten percent. And on top of that, 0:17:04.560 --> 0:17:07.480 of course, if you decrease production of cars by sixty percent, 0:17:07.880 --> 0:17:10.560 production of all the steel or robber that goes in 0:17:10.560 --> 0:17:13.120 cars also goes down by sixty percent. So there are 0:17:13.119 --> 0:17:16.639 the second round effects. There are lots of uncertainties, but 0:17:16.680 --> 0:17:20.080 I think the sort of scale of thinking how exposed 0:17:20.520 --> 0:17:24.359 Western supply chains and Western industries are to these very 0:17:24.400 --> 0:17:28.840 specific semiconductors coming from Taiwan and from Asia give us 0:17:28.840 --> 0:17:30.640 a scale of the show can they risk? 0:17:31.480 --> 0:17:35.119 And Jennifer, you mentioned that this is a low probability event. 0:17:35.200 --> 0:17:37.879 I think you mentioned one out of four chance it 0:17:38.119 --> 0:17:42.880 could happen, but walls in Ukraine as well as Gaza 0:17:43.080 --> 0:17:47.160 have reminded us that long simmering feuds can erupt into 0:17:47.320 --> 0:17:50.480 conflict if these wars increase. 0:17:50.119 --> 0:17:53.080 The odds, And just to be clear, the one and 0:17:53.160 --> 0:17:56.080 four was more for a major crisis in the street, 0:17:56.680 --> 0:18:00.240 I think we would put the probability of war as 0:18:00.280 --> 0:18:03.639 probably less than half of that, so somewhere in the 0:18:03.640 --> 0:18:06.639 ballpark of more like a one in ten. And I 0:18:06.680 --> 0:18:09.399 want to be really clear here when it comes to geopolitics, 0:18:09.440 --> 0:18:13.560 you know, assigning probabilities to really complex, dynamic geopolitical environments 0:18:13.680 --> 0:18:17.040 is more of an art than a science, So I 0:18:17.080 --> 0:18:20.000 really want to emphasize here is more it's a low probability. 0:18:20.040 --> 0:18:23.240 The exact number is sort of a wide confidence range 0:18:23.280 --> 0:18:25.640 when you put it that way, I think in terms 0:18:25.800 --> 0:18:29.639 of what the ongoing conflicts in Ukraine and the Middle 0:18:29.680 --> 0:18:32.399 East suggest and what the implications are for conflict in 0:18:32.440 --> 0:18:35.159 the Taiwan Street, it's sort of a mixed bag, you know. 0:18:35.200 --> 0:18:37.000 I think in particular, if you look at the war 0:18:37.040 --> 0:18:41.120 in Ukraine, it has some detern effects. Right because we're 0:18:41.119 --> 0:18:44.800 approaching the two year anniversary, Russia is still at war. 0:18:44.960 --> 0:18:47.800 It didn't achieve the quick victory that I think Moscow 0:18:48.119 --> 0:18:50.280 thought it was going to achieve, and that it probably 0:18:50.640 --> 0:18:53.280 indicated to Beijing that it thought it was going to achieve. 0:18:53.680 --> 0:18:57.440 And if I'm Beijing watching that, how difficult their land 0:18:57.520 --> 0:19:02.080 invasion of a much smaller power has been with the 0:19:02.240 --> 0:19:05.399 largest land army in Europe. And I'm thinking towards an 0:19:05.440 --> 0:19:08.680 amphibious invasion, which is one of the most difficult military 0:19:08.720 --> 0:19:12.800 operations for any military to undertake, but especially against an 0:19:12.880 --> 0:19:16.560 environment as challenging as Taiwan with its rocky cliffs and 0:19:16.640 --> 0:19:21.679 its really dense environment, That's a pretty high challenge and 0:19:21.720 --> 0:19:26.000 I'd probably be thinking more closely about whether my military 0:19:26.080 --> 0:19:28.479 is ready for that. In sort of learning the lessons 0:19:28.560 --> 0:19:32.800 learned from Russia, I think where it starts to maybe 0:19:32.840 --> 0:19:37.240 become less concerning of a warning sign or warning story 0:19:37.359 --> 0:19:40.560 for Beijing would be sort of the impact of the 0:19:40.600 --> 0:19:44.959 international reaction. Right the West came out pretty quickly and 0:19:45.040 --> 0:19:49.280 scercely with international sanctions on Russia, but Russia has demonstrated 0:19:49.280 --> 0:19:52.000 the ability to weather those at least well enough for 0:19:52.080 --> 0:19:55.159 Putin's sake. And then the second piece of it is 0:19:55.640 --> 0:19:58.199 recent science that we've been seeing that Western support for 0:19:58.320 --> 0:20:01.199 Ukraine might be slightly wavering or might be starting to 0:20:01.280 --> 0:20:03.840 hit a point in which there's a timeline attached to it. 0:20:04.280 --> 0:20:07.280 And again, if I'm Beijing watching that, I might think, Okay, 0:20:07.359 --> 0:20:11.400 I'm expecting some degree of international probrium if I take 0:20:11.480 --> 0:20:15.440 this step, which let's just be clear, Beijing right now 0:20:15.800 --> 0:20:19.480 does not signal any interest in taking Taiwan by force. 0:20:19.600 --> 0:20:23.200 It continues to prefer a peaceful solution to the issue, 0:20:23.480 --> 0:20:25.080 and I think has a lot of other things on 0:20:25.119 --> 0:20:25.600 its plate. 0:20:26.800 --> 0:20:31.240 China's domestic issues are well document to. The property crisis 0:20:31.280 --> 0:20:34.000 has been dragging down much of the economy. Growth is 0:20:34.040 --> 0:20:38.080 the slowest in decades. You've got a consumer segment fearful 0:20:38.160 --> 0:20:41.440 of spending or at least conservative. There's a lack of demand, 0:20:41.640 --> 0:20:45.359 concerns about salary cuts, job losses. How much do you 0:20:45.400 --> 0:20:50.440 think these conditions, these challenges in mainland China are shaping 0:20:50.600 --> 0:20:55.160 China's reaction and shaping Taiwan's outlook. 0:20:56.320 --> 0:20:58.240 I think on the first part of your question about 0:20:58.240 --> 0:21:01.240 how they shape Beijing's outlook and speaking more broadly than 0:21:01.320 --> 0:21:03.960 just Taiwan, but I think in general, we're seeing Beijing 0:21:04.040 --> 0:21:07.200 really emphasize that it wants to maintain a stable external 0:21:07.280 --> 0:21:10.560 operating environment, and by which I mean, I don't think 0:21:10.600 --> 0:21:13.520 Beijing's likely to pick a fight to distract attention from 0:21:13.560 --> 0:21:16.720 their internal challenges. Instead, what we tend to see Beijing 0:21:16.760 --> 0:21:18.800 do is it prefers not to take on too many 0:21:18.880 --> 0:21:23.280 challenges at once, internal or external. That being said, I 0:21:23.320 --> 0:21:25.800 also think Beijing is not going to be one to 0:21:25.800 --> 0:21:27.680 shy away from a fight if it feels like it's 0:21:27.720 --> 0:21:29.959 being forced into it. And what I mean by that 0:21:30.200 --> 0:21:33.159 is if it feels its challenge or it feels that 0:21:33.480 --> 0:21:37.560 another power, whether it be Taiwan, the Philippines, in the South, Chinesee, 0:21:38.119 --> 0:21:41.680 or anyone else is sort of taking for granted Beijing's resolve, 0:21:41.840 --> 0:21:44.680 then it might feel even more pressure to come out 0:21:44.720 --> 0:21:48.399 strong and demonstrate that it is not distracted and that 0:21:48.440 --> 0:21:51.600 it is not incapable of responding swiftly to it. I 0:21:51.640 --> 0:21:54.120 think in terms of the economic relationship, you know, it's 0:21:54.240 --> 0:21:57.919 been really interesting to observe is even as Taiwan is 0:21:57.960 --> 0:22:02.040 developing this sort of separate identity and has a very 0:22:02.080 --> 0:22:06.120 tense political relationship with Beijing, the economic ties are still 0:22:06.200 --> 0:22:09.320 quite robust even after eight years of tensions. In eight 0:22:09.440 --> 0:22:12.840 years of the current administration in Taiwan working to diversify 0:22:12.840 --> 0:22:17.439 Taiwan's economic ties. Taiwan exports are still finding a major 0:22:17.480 --> 0:22:19.560