Citizens of Taiwan will vote for a new president on Saturday, January 13, 2024. In my opinion, the whole world should be paying attention to the results of this election. Why? Because the island, which is self-governed but not recognized as a sovereign country by many other nations, has become one of the most important areas on earth for technological development.
In other words, the future of Taiwan may reflect the future of our international balance of power.
China’s complicated relationship with Taiwan is a source of conflict.
In the eyes of the Chinese government, Taiwan—officially the Republic of China—is part of the People’s Republic of China (what most of us think of when we hear “China”). Regaining control of Taiwan is referred to as “reunification” by the Chinese government and has increasingly been a focus of rhetoric by Chinese president Xi Jinping. On December 31, 2023, Xi referred to reunification as “inevitable.” Earlier in December, Xi told President Biden that China was planning on reuniting with Taiwan.
In this election, Taiwan’s relationship with China is one of the major issues at stake. Different candidates running for president have spoken about different strategies for dealing with the Chinese government, from cooperation to complete isolation.
Meanwhile, China continues to represent the largest source of central bank demand for gold, buying more than any other nation despite the fact that it’s one of the world’s largest sources of new gold. Some have suggested that this is simply an attempt to help shield China’s economy in the event of U.S. and other sanctions that may result if China attempts a takeover or invasion of Taiwan.
As you can see, the importance of this election and the eventual policies implemented by Taiwan regarding mainland China cannot be understated. Depending on who wins and what China decides to do next, nearly every facet of modern life could be affected.
Control of Taiwan could mean control of the world’s modern technology.
Taiwan is responsible for 60% of the world’s semiconductors, including 90% of the most advanced chips used in artificial intelligence (AI) applications. If you own a computer, cell phone, or any other major electronic device, chances are good that you also own computer chips made in Taiwan. But what will happen if control over their production falls into the hands of the Chinese government—or worse, if the foundries responsible for semiconductor production are destroyed or abandoned?
According to recent estimates from Bloomberg, if China were to block Taiwan from global trade, it would have almost as much of an impact on the global economy as the 2020 pandemic or the great financial crisis, reducing GDP by 5%. A war for Taiwan is estimated to have an even larger impact, knocking the global GDP down as much as 10%.
While officially taking the stance of “strategic ambiguity” regarding Taiwan’s independence, the U.S. has pledged substantial support to Taiwan and has stated it would defend the island in the event of an invasion by China. In fact, earlier this week on January 7, 2024, China sanctioned five military equipment manufacturing companies for selling American arms to Taiwan.
But if the elections turn in favor of pro-reunification candidates and policies, China could manage to take control of Taiwan without firing a shot.
Will the outcome of this election be the single defining event of this conflict? There’s no way to know for sure, but it’s very possible that this weekend’s decisions could impact the global balance of power.
As this conflict unfolds, geopolitical uncertainty may increase. One way to help protect your wealth against this kind of uncertainty is with physical gold.
A shift in control of Taiwan’s government—and thus the nation’s major technology exports—is worrying enough to generate an increased level of uncertainty on its own. But if the election outcome results in China taking military action, we may see levels of destabilization that will be hard to quantify.
No matter what happens, I’m not one to sit and wait it out. I always prefer to take action now and ensure that I and my portfolio are prepared for whatever may come. One way I do that is by keeping my eye on the headlines and speaking with policy experts. Another is by owning physical gold as part of my portfolio.
As a historically recognized hedge against uncertainty and volatility, gold is an asset that may help protect what matters most, when it matters most.