How the Strait of Hormuz Could Influence China’s Taiwan Strategy

(SeaPRwire) –   Iran effectively closed the Strait of Hormuz without deploying its navy. A series of missile and drone attacks convinced insurance markets that transit through the strait carried excessive risk, leading to an immediate halt in commercial shipping. The vital chokepoint ceased operations organically, without Iran ever needing to declare a formal blockade. This incident offers a clear lesson for Beijing, providing Chinese military strategists, who have long explored economic pressure tactics against Taiwan, with a practical demonstration.

Disrupting a global trade route and compelling the United States to negotiate does not necessitate sinking ships. Instead, it merely requires generating sufficient uncertainty to bring the private sector into compliance. The article suggests the Trump Administration lacked the resolve for prolonged economic hardship and a strategy to alleviate such pain. This vulnerability leaves America susceptible to its adversaries. Washington must address this issue, or risk widespread blackmail and extortion globally.

For years, discussions in Washington regarding Taiwan have focused on a single query: could Beijing successfully invade the island? When the U.S. intelligence community recently concluded that China has no fixed timeline for such an action, many found this assessment reassuring. This reassurance was misplaced. A more accurate interpretation is that Beijing no longer views a full-scale invasion as necessary.

China possesses a more effective strategy, one that Iran is currently demonstrating in a less refined form. Consider this hypothetical scenario: Beijing declares legal jurisdiction over the waters surrounding Taiwan. It then launches missiles into designated exclusion zones and begins harassing commercial vessels that decline inspections and screening. None of these actions would constitute a blockade or an act of war. However, insurance markets would likely react precisely as they did in the Strait of Hormuz.

Standard maritime war-risk policies include a “Five Powers Clause” that voids coverage for losses arising from conflicts involving the U.S., the United Kingdom, France, Russia, or China. Shipping carriers unwilling to navigate past Iranian drones would certainly avoid confronting the People’s Liberation Army. This would lead to a shutdown of Taiwan’s trade, including its semiconductor manufacturing facilities, or “fabs,” which produce over 90% of the world’s most advanced semiconductors. Washington would then face a critical decision: accept this new reality or push back, risking a much larger confrontation.

Washington might choose to allow Taiwan to fall without a fight. However, if it opts to resist China’s tactics, the economic repercussions would be more severe than anything witnessed at Hormuz, impacting nearly every sector. Unlike oil, which has substitutes, strategic reserves, and secondary markets, and can be stockpiled without depreciation, semiconductors are fundamentally different.

While Taiwan Semiconductor Manufacturing Company’s (TSMC) facility in Arizona produces four-nanometer chips, the cutting-edge two-nanometer process is exclusively available in Taiwan. The most advanced chips typically depart Taiwan by air, not by sea. Nevertheless, Beijing could restrict air traffic similarly to maritime traffic by asserting legal authority to screen all inbound and outbound aircraft and threatening “law enforcement” action against non-compliant planes.

A disruption to the chip supply would simultaneously cripple manufacturing, automotive, telecommunications, and financial markets across every advanced economy. There is no equivalent of the International Energy Agency capable of releasing an emergency stockpile, as no such stockpile exists for semiconductors. These chips are expensive and become obsolete faster than canned goods.

The question of duration is also critical. Beijing has spent years accumulating reserves of oil, grain, rare earths, and other essential commodities, forming what analysts refer to as China’s “fortress economy.” As of 2022, China reportedly held 69% of global corn reserves, 60% of global rice reserves, and 51% of global wheat reserves. President Xi Jinping has personally prioritized strategic stockpiling, directing state oil companies to expand crude reserves and accelerate the development of alternative supply chains. This “fortress economy” was deliberately designed to outlast economic standoffs longer than allied democracies can sustain. Iran is currently employing a version of this strategy in Hormuz, and so far, it appears to be successful.

What advantages do democratic nations possess? Currently, coordinated preparation is largely absent. No joint allied framework exists to deliver critical supplies to allies in need across the Pacific. While the U.S., Japan, Australia, Canada, the U.K., and the European Union all maintain bilateral defense relationships, none have formulated concrete plans for the initial week of a Taiwan supply chain crisis. Nor do they have a strategy to prevent such a situation from escalating into a global financial crisis.

The events in Hormuz have starkly revealed the consequences when governments are forced to improvise. The Trump Administration hastily attempted to establish a government-backed insurance program through the U.S. International Development Finance Corporation (DFC), which has thus far failed to restore transit through the Strait. European and Asian allies, excluded from pre-conflict decision-making, found themselves competing for scarce energy deliveries, with some even turning to America’s adversaries for supplies.

A Taiwan crisis would unfold more rapidly and have more profound impacts than anything recently experienced, and the cost of inadequate improvisation would be significantly higher. The critical task now is not to devise punitive measures for China. It is widely understood that a genuine geopolitical crisis with China would be economically devastating for all parties involved.

The more challenging, yet essential, task is to build the kind of economic resilience that makes coercion an ineffective strategy from the outset. This involves allied stockpiling of semiconductors and other critical inputs that cannot be quickly substituted. It also requires pre-negotiated crisis logistics agreements, enabling allied militaries and merchant fleets to resupply one another without weeks of bureaucratic delays. Furthermore, it necessitates rigorous supply chain coordination—joint planning so that allied governments can identify the most vulnerable factories, shipping routes, and financial systems, and establish fallback arrangements before a crisis hits. This preparatory work must commence immediately, before we face another test.