Most schoolchildren learn that the circumference of the Earth is about 40,000km. They do not learn that the global economy depends on just 160 of those kilometers.
Blocking two narrow waterways — the Strait of Hormuz and the Taiwan Strait — could send the economy back in time, if not to the Stone Age that US President Donald Trump has been threatening to bomb Iran back to, then at least to the mid-20th century, before the Rolling Stones first hit the airwaves.
Over the past month and a half, Iran has turned the Strait of Hormuz, which is about 39km wide at its narrowest point, into a floating shooting gallery. Shipping traffic has plunged, with tankers loitering nervously while Iranian speedboats and drones play pirate. The standstill has throttled the world economy, as a large share of the world’s oil and liquefied natural gas transits through the strait.
Illustration: Mountain People
This is not just a Middle East quagmire. It is a live-fire dress rehearsal for conflict in East Asia, offering China a battle plan for Taiwan. The Taiwan Strait, which is 126km wide at its narrowest point, is like the Persian choke point, but for semiconductors. Taiwan Semiconductor Manufacturing Co fabricates more than 90 percent of the world’s most advanced chips — the “brains” of artificial intelligence data centers, fighter jets and smartphones.
The US, alarmed at the national security vulnerabilities posed by foreign chips, passed the 2022 CHIPS and Science Act to lure producers to build factories stateside. Despite plans for new fabrication facilities in Texas, Ohio and New York, the US still depends heavily on chip imports — as do most other countries.
Thus, a Chinese blockade or invasion of Taiwan would starve the 21st century’s technological nervous system. Global losses could hit US$10 trillion. That is not a recession; it is a supply-chain cardiac arrest.
Chinese President Xi Jinping (習近平) does not want to be remembered in China’s 4,000-year history as the guy who built better car batteries than Elon Musk. Tesla knockoffs are mere trinkets. Xi wants to achieve what Mao Zedong (毛澤東) promised: one China, no asterisks, no “renegade island” thumbing its nose at the communist leadership. He wants to break a 75-year stalemate by dragging Chiang Kai-shek’s (蔣介石) heirs back into the fold.
Deterrence evaporates if Xi believes that the US might hesitate, muddle through or bargain following an attack on Taiwan. If the world’s mightiest navy cannot reliably escort tankers past a battered regional power, whose own fleet has been reduced to cigarette boats you would rent on a summer holiday in Nantucket, why would Xi conclude that the US would risk aircraft carriers, submarines and thousands of American lives to break a Chinese blockade of Taiwan?
In such a case, Taiwan suddenly looks less like a fortress and more like a question mark. Game theorists call it a question of “credible commitment” — your opponent must believe that you will follow through, or the payoff matrix collapses.
History is a harsh tutor to the hesitant. When Benito Mussolini tested the League of Nations over Ethiopia and found it toothless, Adolph Hitler took note. After then-Egyptian president Gamal Abdel Nasser seized the Suez Canal in 1956, the UK and France folded when then-US president Dwight Eisenhower arched a skeptical brow. Russian President Vladimir Putin goose-stepped into Crimea after then-US president Barack blinked when then-Syrian president Bashar al-Assad used chemical weapons — allegedly a red line.
Credibility, once squandered, cannot be easily restocked at the corner market.
The remedy is straightforward, painful and overdue. The US must reopen the Strait of Hormuz decisively and visibly: escorts, minesweepers, strikes on launch sites, and seizure or annihilation of Iran’s tollbooth islands, Abu Musa and the Greater and Lesser Tunbs. Once the strait is secure, the US should send in the tall ships that grace New York Harbor every Fourth of July. Nothing says “open for business” like 18th-century sailboats cruising through the shipping lane past smoldering Iranian artillery nests.
In the longer term, the US must accelerate shipbuilding, replenish precision munitions, and support more pipelines in Saudi Arabia, the United Arab Emirates and beyond.
In 2020, Greece, Egypt, the Palestinian National Authority, and Israel — governments that rarely agree on anything — established the East Mediterranean Gas Forum with other regional powers to exploit newly discovered gas fields. Unfortunately, then-US president Joe Biden’s administration withdrew US support for the proposed pipeline from Israel to Europe, but that is precisely the type of project that could reduce dependence on the Strait of Hormuz.
The choice is stark: Reopen the Strait by force or watch Xi pencil in a Taiwan invasion date, all while European diplomats issue strongly worded epistles. By rebuffing Trump’s calls for backup, Europe has revealed itself as a free rider, loath to defend the global economy. This despite the US long serving as the world’s marine-traffic cop, keeping sea lanes open so that European and Asian countries — including China — could gorge on cheap energy and hawk their wares on any continent.
The good news is that the US still has the world’s most lethal navy and the economic muscle to outlast any rival. Iran handed the Trump administration the equivalent of a practice test. Taiwan is the final exam. Xi and his leadership team have been studying Trump’s steps before the Iran war and throughout. With the stakes so high, Trump’s mercurial mind and unpredictable moves might be less a flaw than a strategic asset.
Todd G. Buchholz, a former White House director of economic policy under former US president George H.W. Bush and managing director of the Tiger hedge fund, is the recipient of Harvard University Department of Economics’ Allyn Young Teaching Prize. He is the author of New Ideas from Dead Economists, The Price of Prosperity and coauthor of the musical Glory Ride.
Copyright: Project Syndicate
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