By U.S. Rep. Blaine Luetkemeyer
R-Missouri
You wake up on a sunny Friday and start your day like you always do. You pour yourself a cup of coffee and get ready for work, drop the kids off at school, or start your daily chores. Their everyday life is interrupted by an emergency broadcast on the radio: “China has invaded Taiwan.”
You continue to listen to the broadcasters' trade speculation, but surely that can't influence you – you're thousands of miles away, right? You shrug it off and continue to enjoy your morning.
A few minutes later, the voice of the stock market crashing can be heard on the radio. You're not a Wall Street trader, so this doesn't really concern you, right?
Then you find out that your retirement savings, the account you've been contributing to for decades, has lost 40% of its value. Within moments, your day takes a dramatic turn and you wonder how everything could have unfolded so quickly.
The disturbing truth is: If China invaded Taiwan today, it wouldn't just be your retirement account that would be affected. In fact, most Americans would be shocked at how quickly the consequences of a Chinese invasion of an island more than 7,000 miles away would damage America's main roads.
The US would immediately impose massive financial sanctions and significant trade restrictions on China. China would do the same to us. Military actions followed. The world's two largest economies, which are also each other's largest trading partners, would effectively be at war.
Obviously, the greatest tragedy of the war is the casualties on all sides. A war with China would result in the deaths of thousands of Taiwanese, Chinese and Americans. This is an outcome we must avoid at all costs.
The secondary consequences would be the economic destruction of our country. Trade between our countries would stop. We would stop buying goods and products from them, and they would stop buying our crops, cars and other products. The supply chain disruptions during the coronavirus crisis would be dwarfed by the economic paralysis we would experience.
An analysis by global financial firm GTS estimates that the stock market will plunge as much as 34% in the short term following an invasion, as uncertainty over the U.S. response could cause institutional and retail investors to quickly exit stock positions while market makers struggle To do this precisely price shares in this volatile environment. The long-term impact would be much greater.
Bloomberg speculates that military involvement in Taiwan would cost about $10 trillion and reduce global GDP by 10%. This decline would be nearly double that seen following the global financial crisis and the Covid pandemic, events that triggered a peak-to-trough decline in the S&P 500 of 57% and 35%, respectively.
This week I introduced legislation to strengthen U.S. markets from Chinese military aggression. This bill directs the Financial Stability Oversight Council (FSOC) within the Department of Treasury to establish an advisory committee to analyze, study, and report on market impacts and vulnerabilities related to China's military aggression, with the goal of maintaining open lines of communication between policymakers and the government create agencies and capital markets.
The FSOC will develop recommendations and support analyzes to identify security concerns regarding the safety and soundness of the United States financial system and any potential losses facing the United States. This is a safety measure to protect American consumers like you from reliving the 2008 stock market crash.
While FSOC may not serve as a comprehensive solution to predict or prevent Chinese military aggression, it could serve as a critical tool in curbing the Chinese Communist Party's (CCP) infiltration and influence on our economy and country. By loosening the CCP's grip on our financial institutions and economy, our government would be better able to protect citizens from possible retaliation by China.
Establishing robust oversight by the FSOC could help identify and address vulnerabilities in our economy that could be exploited by hostile foreign actors. This heightened awareness and regulatory framework would strengthen national security and economic resilience and reduce the leverage and impact of external threats. Essentially, it reduces the influence that other nations have over us while increasing our influence.
This bill cannot prevent war, but it can eliminate the notion of mutually assured economic destruction that China hopes will prevent the U.S. from asserting itself. Plan for the day when China invades Taiwan, but taking the American economy out of the equation protects our communities, your financial future, and ultimately strengthens national security.
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