What would happen in the case of an escalated Taiwan crisis? Would the West impose sanctions on China just like it did on Russia after the invasion of Ukraine? And how would such a development affect global supply chains and rail?

Weeks before the Russian invasion of Ukraine, the scenario of a full-scale war and its consequences, including sanctions and the disruption and reconfiguration of global supply chains, was deemed unrealistic by many. However, the reality proved even the most dedicated sceptics wrong. It seems that the West has learned some lessons from this and is now examining its options in the case of another major crisis, this time involving China.

RailFreight.com discussed with Frans-Paul van der Putten, researcher and expert on geopolitics and China, using the opportunity of a recently published report by the Atlantic Council and Rhodium Group analysing the sanctioning scenarios and entailed risks in the case of a Taiwan crisis.

Sanctions scenarios

According to the Atlantic Council and Rhodium Group report, the possibility of the G7 and their partners sanctioning China is not far from reality. It is a realistic scenario that would have multifaceted consequences for the sanctioning and sanctioned parties.

The report underlines that sanctions would differ depending on how far a crisis in Taiwan escalates. They could be limited or full-scale, targeting China’s financial sector, individuals and entities associated with the Chinese political and military leadership, and industrial sectors linked to the military. In a full-scale sanctions scenario, trade with China would experience immediate and extensive interruptions.

However, the West, especially Europe, would have to think twice before proceeding with such actions considering the deep economic and trade integration with China. Take Germany, for example, which the Atlantic Council and Rhodium Group report uses as an instance of a European country that would try to avert trade restrictions on China considering its dependence on sectors like the chemical industry.

A risky situation

Van der Putten explained that in the case of a Taiwan crisis, the EU is highly likely to impose sanctions on China. Because of the degree of economic integration between the two, the EU has a high chance of harming the Chinese economy via sanctions. However, it should also expect to harm its own economy because of its dependency on China. The sanctions on Russia indicate what would happen if the EU sanctions China. Not too long ago, the EU struggled to secure energy resources and balance the economic effects that sanctions had on its markets and economy. Inflation and high energy costs are just a simple example.

Would there be an alternative if the EU and China distance themselves from each other? “The EU can decrease its dependence on economic ties with China by diversifying its trade and investment relations from China towards other countries. However, this can be done only to a limited extent. For European companies, China remains an important market and a source of supplies, and the same is true for the broader Asian region, which is increasingly integrated with the Chinese economy”, underlined Van der Putten.

A loss or win for rail?

As mentioned before, the Atlantic Council and Rhodium Group report notes that trade between the West and China would experience significant disruptions in the case of a full-scale sanctioning scenario. Such a scenario would entail blocking China’s four largest banks, its Ministry of Finance and the People’s Bank of China. That is the approach that the West has used on Russia. Another scenario would be sanctioning less significant Chinese banks with ties with China’s military sector. However, in this scenario, the impact on the Chinese economy would be minimal, making its imposition unlikely.

Van der Putten agrees that the combination of a China-Taiwan crisis and Western-Chinese sanctions/countersanctions would probably have a significant impact on China-EU trade and possibly also on international shipping between China and the EU. “China-EU rail freight might be affected depending on which goods are targeted. On the other hand, maritime shipping disruptions could benefit rail transport between China and the EU”, he adds.

Another effect would include Central Asia, which is becoming increasingly important as an EU trading partner. However, Central Asian countries are also highly dependent on Russia and China, also through the BRI making their position in a crisis scenario quite complex and delicate. “The ability of the EU to effectively compete with China for influence in Central Asia is limited. The most influential great powers in Central are China and Russia,” concludes Van der Putten.

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