Resilience and recovery in networked economic systems: An ex-ante analysis of susceptibility to aspects of a potential China–Taiwan conflict

Abstract

The global economy's interconnectedness and the potential for supply chain disruptions were highlighted recently during Russia's war of aggression against Ukraine and the COVID-19 pandemic. Similarly, a possible future conflict between China and Taiwan could lead to substantial disruptions in the availability of high-tech components and other goods produced by Taiwan that are widely used in manufacturing worldwide. It is necessary to understand and proactively address such potential supply chain vulnerabilities for critical goods and services. This paper applies a dynamic nonequilibrium model to identify the forward and backward dependencies of individual industrial, manufacturing, service, and energy sectors in a multi-regional context. The model tracks the macroeconomic variables of economies from their initial equilibrium state into a nonequilibrium stationary state, and quantifies their susceptibility, resilience, and recovery to shocks in the networked economic system. Through this analysis, the paper examines the impact of excluding Taiwan from global economic networks, revealing substantial impacts on major economies and sectors essential to the operating of the global economy. The approach presented and empirically tested enables policymakers and stakeholders to proactively use data-driven insights to anticipate future outcomes and reduce disruption risks.