The War Game That Should Be Front Page News
In December 2025, the RAND Corporation published an unclassified summary of 18 war game simulations conducted for the Pentagon exploring different scenarios of a Chinese military operation against Taiwan.
The results should concern anyone with a brokerage account: in all 18 scenarios — from blockade to full invasion — the global economic impact exceeded $2.5 trillion in the first year. In the worst cases, it hit $10 trillion.
The Scenarios
Blockade (least escalatory): China establishes a naval blockade without firing a shot. TSMC shipments halt. Global semiconductor supply drops 37% overnight. S&P 500 falls 25-30% within 60 days. Recession guaranteed.
Limited strikes: China targets Taiwan''s military infrastructure while avoiding TSMC fabs. Still disrupts shipping and insurance rates. Semiconductor supply drops 50%. S&P down 35-40%. NATO activation debates paralyze response.
Full invasion: US intervenes militarily. TSMC fabs destroyed (Taiwan''s own contingency plan to prevent Chinese capture). 92% of advanced chip production eliminated globally. Depression-level economic impact. $10T+ in global GDP losses.
Why This Matters Now
China''s military drills near Taiwan increased 340% in Q1 2026. The Iran war is stretching US military resources. If China is going to move, doing it when the US is distracted in the Middle East is the optimal timing.
I''m not predicting an invasion. The probability is low (5-10% in 2026 according to most analysts). But the impact is so catastrophic that even a 5% chance demands portfolio insurance.
How to Hedge
- Long-dated SMH puts (Jan 2027, 30% OTM): costs ~2% of notional
- Gold allocation (5-10%): benefits from any global instability
- Domestic semiconductor exposure (Intel, GlobalFoundries): benefits from supply chain diversification
- Cash position (10-15%): dry powder to buy the crash if it happens
