China stands to learn a lot from the war in Iran. Red lines and deadlines imposed by the United States, even when backed by the threat of genocide, can turn out to be rather wobbly. The American military, despite its unrivaled power, has trouble swatting down swarms of cheap drones. But the most valuable lesson, at least for China’s ambitions to seize Taiwan, has more to do with the way the world’s supply chains, energy prices, and stock markets influence the U.S. willingness to fight.
It remains unclear what exactly led President Trump to step back from his ultimatum Tuesday that he would destroy Iran’s civilization without major concessions, agreeing hours later to a two-week cease-fire and settlement talks even though Iran didn’t appear to have given up significant ground. But the Iranian choke hold on the Strait of Hormuz evidently had a lot to do with it. By cutting off roughly one-fifth of the world’s oil supply over the past five weeks, Iran’s blockade of that narrow waterway caused an energy crisis and fears of a global recession that the White House could not abide for long.
China will have paid close attention to Trump’s pain threshold. Although Beijing has numerous options for conquering Taiwan, the most appealing for the Chinese military would begin with a partial blockade of the island, much like the one Iran imposed on the strait. The resulting shock to the global economy would be far worse. Factories in Taiwan produce more than a third of the world’s microchips. Without them, manufacturers would be forced to halt production of computers, cars, smartphones, home appliances, and countless other goods. Building the data centers that power artificial intelligence—the engine of American economic growth—would be impossible without the advanced chips Taiwan produces.
Taiwan’s leaders have tended to see their chip industry as a source of security. In the fall of 2021, then-President Tsai Ing-wen called the industry a “silicon shield.” Writing in Foreign Affairs, she argued that American reliance on Taiwanese chips would protect the island against any “aggressive attempts by authoritarian regimes to disrupt global supply chains.”
The war in Iran has flipped this argument on its head. As seems clear from Tuesday night’s truce, an authoritarian regime far weaker than China can use global supply chains as leverage and, in the process, force the U.S. to back away from its threats. By closing the Strait of Hormuz, Iran caused the average price of gas in the U.S. to shoot up by nearly 40 percent, piling political pressure on Trump to end the war as soon as possible. A Pew Research Center poll conducted at the end of March found that gas prices were the biggest concern among Americans when it came to the war in Iran, well above the chance of “large numbers of U.S. military casualties.”
The economic impact on American consumers would be far worse if China decided to blockade Taiwan. The total costs “would be measured in the trillions,” Chris Miller, a Tufts University historian, wrote in his 2022 book, Chip War, which envisions such a scenario. “Losing 37 percent of our production of computing power each year could well be more costly than the COVID pandemic and its economically disastrous lockdowns. It would take at least half a decade to rebuild the lost chipmaking capacity.”
This risk has pushed some industrialists to find new supply chains that avoid Taiwan. Among the most ambitious is Elon Musk, who announced a partnership with Intel on Tuesday to design and produce advanced microchips at a gigantic facility that Tesla recently purchased in Texas. The rise of such competitors poses a clear risk to Taiwan’s silicon shield. But Musk’s new chip factory will take years to begin production, meaning that, for the time being, it gives the U.S. economy no protection.
The United States in the meantime will remain reliant on Taiwanese chips, and the American military could be called upon to challenge any Chinese blockade. Mark Cancian, a retired colonel of the U.S. Marine Corps, gamed out that possibility last year. In a report for the Center for Strategic and International Studies, a Washington think tank, he and his co-authors ran a series of 26 war games, each one starting with a blockade of Taiwan. The U.S. Navy would risk catastrophe in any attempt to break through. “It would be a major battle,” Cancian told me. Even in its early stages, “you’re potentially losing hundreds of ships.”
The report concluded that any blockade would present the American president with a dilemma. “If China escalated to using military force, the United States had to accept a Taiwanese capitulation on China’s terms or become directly involved in the conflict.” Cancian and his colleagues chose not to speculate on the political outcomes of either decision. But the war in Iran has shed light on what Trump might do, and it does not bode well for Taiwan.
Apart from weighing the price in U.S.-military casualties and the toll among civilians, Trump or a future president would look at the cost to the U.S. economy and his standing in the polls. The combination of those factors seems to have made Trump blink in the war with Iran. A conflict over Taiwan could end with a similar climbdown in Washington. China now has a model for how that can be done.