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In this QuickHit episode, we're joined by Mike Green to talk about what will happen if China invades Taiwan? This is hosted by Complete Intelligence: [ Ссылка ]
We're not saying that China is going to invade Taiwan, but what if it is to happen? What will be the impact to markets?
Mike Green is the chief strategist and portfolio manager for an ETF firm called Simplify Asset Management. They specialize in derivative overlays and derivative structures that modify the traditional market exposures. Their flagship products are things like US equities with downside protection.
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Show Notes
TN: So today we hear or any day, pick a day. We hear that China is invading Taiwan. What are the first things that come to your mind as the news crosses the wires?
MG: Well, I think there’s a couple of things that are really important about the question of is China invading Taiwan, right. And so what we have seen very clearly, and this is fact, not speculation, is a dramatic escalation of China’s incursion on what would traditionally be thought of as Taiwan sovereignty or independence. Right.
We’ve seen a dramatic increase in boats transitioning across the international marine borders. We have seen a dramatic increase in incursion of both fighter jets and bombers into Taiwanese airspace. And in general, the strategy that you see China engaged in is what is typically thought of as a precursor to an invasion. They’re effectively forcing Taiwan to maintain alertness and readiness, which slowly degrades the quality of defenses.
If you have to constantly scramble jets, there’s only so many hours that you can actually have them in the air. There’s only so many hours you can have pilots operating before their capability deteriorates. That is very clearly what is in play here.
Now, it’s an unknown question whether they go to the next step, whether they take what is currently a largely psychological and relative resource advantage to degrade Taiwan’s capabilities, whether they turn that kinetic as compared to hoping for a psychological collapse where Taiwan effectively decides to sue for the best possible deal they can get is unclear.
And I think that’s really what we’re all debating. I mean, China has come out very clearly. Others have made this observation, and it’s not dissimilar to my former employer, Peter Thiel’s observation about Donald Trump, right. That everyone takes him literally, but not seriously. I would flip that on its head. And everyone say everyone takes Xi seriously, but not literally when he says we will reunify with Taiwan in one form or another within the next five years.
And that’s the core of the question. Are they going to do this in a peaceful fashion? Are they going to do it in a kinetic military fashion? What are the ramifications of each of those two strategies and what’s the state of gameplay that is in place right now, as each side including the allies of Taiwan in the form of Japan, the United States, et cetera, evaluates how they want to respond to it.
TN: Right. What is that? What are those initial responses that you think happen, setting aside battle plans, of course. Honestly, I don’t believe that Min Def or DoD know 100% of whether this will happen or not. I think everything is a potential.
What do you think those reactions are initially in terms of, say, markets, investments, even things like trade? Those are like, what do you think happens right away?
MG: Well, I think there’s a couple of things that are worth hitting on. Right. So the first is why does China want Taiwan or why does it matter? Right. So one component is just the psychological final victory over the Republic, the Taiwanese Republic, what is known as the Republic of China outside of the area.
When you think about that dynamic, this is a final victory that would allow Xi to place himself permanently on par with the founders of the Chinese Communist state. Right. The Mao’s, et cetera, of the world. So this is a huge accomplishment.
I think there’s a huge misunderstanding that the objective is to obtain the semiconductor resources, right. To me that feels, one, extremely unlikely to expect that they could do that successfully, and two, I’m not sure it’s actually entirely relevant. Right. But that does then speak to the indications that the game is being taken much more seriously.
