While the world is focused on the Russia-Ukraine conflict, it appears that North Korea and China are brewing trouble farther east.
My attention started turning to this when @HypnoDoge mentioned unusual flows in EWT (Taiwanese ETF) puts.
Below are a couple of comments that I stuck in the Ukraine thread. Let’s keep the threads separate for clean organization.
[size=4]Big Puts or Hedges[/size]
I set the filter to 100K+ and it is clear to see that whales have started loading up on EWT puts since February 23. April 60p looks popular. Note that this is OTM.
Something could be brewing here in the east with North Korea and China stirring the pot. Let’s try to stay on top of this, and again, figure out what tickers to play in response.
EWT puts could be the play, but I don’t understand geopolitics enough to know why North Korea would have a hand in it as a “new situation”.
April, eh? That’s not far off. Have there been any reports of forces building near the coasts of China/North Korea like we saw with Russia before they invaded Ukraine? Warships gathering?
They’d have to stage their forces there to be ready to get on ships if they plan to invade.
Or maybe their tactic would be to bombard by sea and air until Taiwan submits… I wonder if there’s anything Maxar data could tell us @anon59732070
According to that blog post that I linked, no. Not yet, anyway.
That doesn’t mean a Chinese attack on Taiwan is imminent. It is impossible to predict with certainty what Xi may be thinking about Taiwan in the aftermath of Putin’s Ukraine war. Unlike Putin when it comes to Ukraine, though, Xi isn’t amassing an invasion force on the strait separating Taiwan from the Chinese mainland. Also, Xi is many bad things, but foolhardy is not one of them. In his perception, China’s ascent is inevitable; time is on its side. He has no need to follow Putin on the path to war.
China cannot afford a war with Taiwan, and neither can we. Also I would bet 1 Shiba coin that it never happens.
What we are seeing right now in Ukraine is much different from a potential conflict with Taiwan.
The reasons for invasion of Taiwan are actually similar to the reasons for the invasion of Ukraine. Both Ukraine and Taiwan use to be apart of their enemy nations and are hoping to remain independent from those countries, they are both democratic and backed by NATO in spirit but not in guarantees. China deeply deeply wants to end Taiwan independence, it is a symbol that stands against what mainland China is.
But here is how they are actually very different circumstances for the invader.
This is Russia’s leading trade partners, as you can see China leads the way and it has allies in Kazakhstan and Belarus trading with it. It hurts getting sanctioned but it is not impossible for them to find other sources.
This is China. You have to go down to 12 to find a trading partner that wouldn’t be hostile about a Taiwan invasion. There is a gap between exports and imports on the US and EU but this doesn’t mean much as there would be no other option to sell exports to, it can’t be the Russians they have no money now. China has no military allies that are of use to it economically. If China invaded Taiwan it would have to do so under the assumption that the west would stand back and watch without even applying sanctions, which as we’ve seen with Russia the west is very willing to do. We keep saying Russia will be fine it has China, but who does China have? The answer is nobody. Point is, Russia doesn’t need the west, China very much does.
This is US, we do need China but if you count the EU as one entity they actually exceed China in trade and it is realistic to assume we could with time phase China out of our economy.
On the military side of things it’s all about Navy
The Chinese navy actually outnumbers the American, however this is not what it seems. Most of the Chinese fleet is outdated subs and destroyers. The US fleet is several sets of super carrier task forces, nuclear subs, and modernized larger frigates. The US has a 2-1 lead in tonnage and a 10-1 lead in carrier based air power.
When it comes to military capabilities it’s not comparable. This is not even mentioning how inexperienced China is as it hasn’t fought a war in decades.
This does all come with the assumption that America intervenes militarily, if it does not then Taiwan is outnumbered and would likely fall after a costly and bloody fight for both sides. The taiwanese would certainly fight to the last man as the alternative is becoming an occupied territory of China (doesn’t sound fun does it).
I will add I personally think the US would intervene because I believe China would be willing to stay non nuclear and fight the war as long as it stays off it’s shores. Also the US is very dependent on Taiwan, however if the US does nothing not even sanctions it probably can still get that trade once china occupies Taiwan.
Biden speaking to CNN, this is not something that would ever have been said to Ukraine.
So, what does this all mean when it comes to trading?
It means that if China were to invade Taiwan and the US intervenes even with just sanctions then it would be puts on everything. The American, European, and Chinese economies are so intertwined that they cannot function in their current form without each other. We need their trade and they need ours. For us it would take years if not decades to adjust to an economy that doesn’t rely on imports for China and for them it would take forever because there are no partners outside of the US and its allies.
We would certainly see Chinese companies dump (BABA, CAN, XPEV) and American companies that have business in China dump (TSLA, AAPL, LVS) but this would be a market wide affect. Right now we are focusing on OZON, RSX, XOM, and LMT but in a war or sanctions fight with China nothing would be safe except short ETFs and defense stocks.
We haven’t seen any mobilization from China to take Taiwan which would be a very difficult mission that would need months or years of planning and preparation so no war is coming soon.
Everything I know about China tells me a war with Taiwan is not the way China does things. Russia projects power and uses force because it wants to be viewed as a strong militaristic state. China wants to be the worlds salesman, they would rather buy the earth than conquer it.
Anyways, this was my ramblings about why Taiwan will not be invaded yet many years into the future maybe if China can get into a better position but that is decades away. For now they will stay looking at Taiwan hungrily wanting to take it out.
Any and all typos and grammar mistakes are swoles fault
Here are some links to why I think what I do:
(Secret part: The United States is a perfectly positioned modern empire that has undisputable economic and military hegemony over the world and China is never going to be able to change that. Seriously i could write a novel on this stuff.)
I entered TSM calls because of above. I think China won’t invade especially after how Rus-Ukraine invasion is transpiring. It pulled down to 110 from it’s forever support of 120 but I think the fear is unfounded.
You are missing a very big part of the story here, which is how Taiwan’s politics will impact China’s decision on what to do about Taiwan.
The democratic progressive party in Taiwan went from the long time minority party to the majority party for a long time already, and they fiercely want Taiwan to declare as an independent country. The nationalist party that supports “one China” are the ones that originally went to Taiwan after the war, but they are losing support as new generations take over.
It is a complicated situation, but having spent the majority of my early years there, I’ve seen both sides of the political movements in Taiwan. I have no doubt that a takeover will eventually happen, whether or not it happens now or years into the future I could not say.
The world is increasingly becoming more and more dependent on China. There was a need for Taiwan for what it can produce for the world, but that that ‘need’ becomes lesser every day as the rest of the world advances. When the ‘need’ becomes negligible then who would come to Taiwan’s aid when the takeover happens? no one.
I agree that they will go for it eventually but not now. Once they’ve made enough distancing from the west they might be able to pull it off without economic struggle but that’s not the case right now they need us as much as we need them. Taiwan’s semiconductors definitely keeps it protected for now, if that industry shifts somewhere else that can lower the interest that the US has in keeping it independent.
The strategic importance of Taiwan also has to be mentioned, China is surrounded by US allies and American ports and airfields to it’s east. It gives China more reason to take it and the US more reason to defend it.
Economically I actually think it would be an improvement for Taiwan if China takes over. There will be more resources and opportunities for Taiwanese people which currently really lack opportunities and is working in a very stale economy. The wages in Taiwan are terribly low and has remained low. Lots of highly skilled people leave to work for Chinese companies and US companies. There hasn’t been any significant industries other than high tech but those people are seeking higher paying jobs elsewhere.
However, Taiwanese people are universally very anti-communism. If an invasion happens, even though there isn’t any rational person that would say Taiwan can defend itself against China, the people there will still try and many will sacrifice their lives doing so. It will definitely be a lot more bloody than Hong Kong.
I agree with Kryptek here. If i remember correctly, USA is not obligated to defend Taiwan with military troops and force according to the Taiwan Relation Act and are quite ambiguous with their stance on Taiwan, despite what Biden said recently. Taiwan Relation Act just states US will “make available to Taiwan such defense articles and defense services in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capacity”
Xi himself said peaceful reunification is the goal but as support for independence grows in Taiwan, this becomes more and more unlikely. If Taiwan formally declares independence, “reunification through force” is guaranteed.
Just from personal experience, my parents were from mainland China and have a better understanding of the complex politics there. They both think an invasion with Taiwan will happen in their lifetime and soon.
Trying to think this through. If China does invade Taiwan, TSM becomes unstable, semiconductor supply drops, and demand increases. Are we thinking about leaps on NVDA or other US based semiconductor companies? Currently NVDA is resting on its support around 230.
Taking this with a grain of salt, but Trump is talking casually to John Daly, saying “Taiwan is next”, and going after computer chips is Xi’s intention.
It’s a longer read. Here are some of what I thought were more interesting texts.
American military officials and security analysts are concerned China’s nuclear acceleration could mean it would be willing to make a surprise nuclear strike. The people close to the Chinese leadership said Beijing is committed to not using nuclear weapons first.
“Ukraine lost its nuclear deterrence in the past and that’s why it got into a situation like this,” said a retired Chinese military officer with ties to the country’s nuclear program.
Rising tension between the U.S. and China over nuclear weapons could throw the world back into a Cold War-style nuclear standoff similar to that seen in the decades following World War II between the U.S. and Soviet Union. The risk of miscalculations this time could be higher, however, because while the U.S. and Soviet Union communicated about their nuclear weapons during arms control talks from the late 1980s, the Chinese program and Beijing’s thinking on the role of nuclear weapons has been shrouded in secrecy. China has declined to engage in nuclear arms control talks with the U.S., saying Washington should first reduce its nuclear inventory.
U.S. government and private sector estimates put China’s nuclear arsenal in the low hundreds of warheads, far below the roughly 4,000 warheads held by both Russia and the U.S. The Pentagon says it now expects China to have 1,000 warheads by the end of this decade.
In public, China has played down its nuclear pursuits. “On the assertions made by U.S. officials that China is expanding dramatically its nuclear capabilities, first, let me say that this is untrue,” Fu Cong, director general of the Foreign Ministry’s arms control department, said earlier this year. He said that China is working to ensure its nuclear deterrent meets the minimum level necessary for national defense.
Chinese leaders had seen nuclear weapons as being of limited value because they don’t offer realistic options for fighting most wars. A major shift occurred in early 2020, according to the people familiar with the leadership’s thinking, as the U.S. government hardened its stance toward Beijing in the early stages of the Covid-19 pandemic.
At the same time, increased support from the U.S. for Taiwan, a democratically self-ruled island that Beijing views as a part of China and has vowed to put under its control, prompted Chinese leaders to debate the prospect that the U.S. might be willing to use nuclear weapons in a conflict over the island, according to the people close to the leadership.
There are no indications that a war over Taiwan is imminent, but leaders in both the U.S. and China believe the island is the flashpoint most likely to spark military confrontation. The U.S. maintains a policy of not saying whether it would intervene to support Taiwan, an approach intended to deter conflict. If the U.S. did intervene in a war, American bases in Japan, Guam and elsewhere in the western Pacific could become targets for the Chinese military.
Under a review of nuclear policy conducted by the Trump administration in 2018, the U.S. said it might use nuclear weapons to respond to significant nonnuclear attacks on the U.S. or its allies. President Biden is set to stick to that approach, according to U.S. officials. Beijing believes Washington would consider attacking mainland China with nuclear weapons because the U.S. military faces challenges in defending Taiwan against the People’s Liberation Army using conventional weapons, the people said.
China is also developing more advanced weapons that could potentially carry nuclear warheads, including hypersonic missiles, which the U.S. has no proven defenses against.
