The new research analyzes China sanctions scenarios and costs to the global economy

Washington, D.C.—June 22, 2023 — The Atlantic Council’s GeoEconomics Center and Rhodium Group launched major new research today on sanctioning China during a Taiwan crisis, showing how over $3 trillion in trade and financial flows could be disrupted if G7 nations choose a severe sanctions regime.

The new report examines the range of plausible sanctions options on the table for G7 leaders in the event of an escalation in the Taiwan Strait, the likelihood of the various options being used, and the respective economic impact on the US, European, and Chinese economies.

The findings build on eight months of extensive in-person consultations and roundtables with policymakers and the private sector in Berlin, Brussels, London, and Washington and a new analysis of relevant trade and investment data.

“In the wake of the coordinated G7 response to Russia’s invasion of Ukraine and rising tensions in the Taiwan Strait, policymakers are asking questions about whether similar actions would be plausible or effective against China in a potential Taiwan crisis,” said Josh Lipsky, senior director of the GeoEconomics Center. “This report is one of the first serious efforts to try to answer that question and better understand the risks involved.”

The new report finds that G7 countries have a wide set of economic countermeasures available to them in responding to possible Chinese aggression against Taiwan. It concludes that the tools most likely to be used include sanctions on China’s financial sector, government officials and elites, and key industries.

In a maximalist sanctions scenario targeting China’s financial sector, an estimated $3 trillion in trade and financial flows could be disrupted, the analysis shows. This is roughly equivalent to the GDP of the United Kingdom in 2022. However, economic countermeasures against China in a major escalation in the Taiwan Strait short of war are likely to be more targeted, focusing on areas where China is asymmetrically dependent on G7 goods and technologies.

The study demonstrates that economic countermeasures aimed at China’s aerospace industry, for example, could directly affect at least $2.2 billion in G7 exports to China, and disrupt the supply of inputs to the G7’s own aerospace industries. Should China impose retaliatory measures, approximately $33 billion in G7 exports of aircrafts and parts could be impacted.

The report concludes that deterrence through economic statecraft cannot do the job alone. Economic countermeasures are complementary to, rather than a replacement for, military and diplomatic tools to maintain peace and stability in the Taiwan Strait. 

The report will be launch at a special event at 9:15am today, featuring Agatha Kratz, director at Rhodium Group; Adam Szubin, distinguished practitioner-in-residence at Johns Hopkins University, School of Advanced International Studies and former Acting Under Secretary of the US Treasury; Daleep Singh, former US deputy national security advisor; Charlie Vest, associate director at Rhodium Group; and Joerg Wuttke, president emeritus at the EU Chamber of Commerce in China.

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About the GeoEconomics Center and Rhodium Group

The Atlantic Council GeoEconomics Center was launched in December 2020 with an event featuring European Central Bank President Christine Lagarde. At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future. Rhodium Group is a leading independent research provider. Rhodium has one of the largest independent China research teams in the private sector with a consistent track record of producing insightful and path-breaking data and analysis.