A $1 trillion dilemma

Russia’s war in Ukraine and President Vladimir Putin’s nuclear threats are understandably at the top of global leaders’ agenda. But concerns [View in browser]( [Bloomberg]( Follow Us [Get the newsletter]( Russia’s war in Ukraine and President Vladimir Putin’s nuclear threats are understandably at the top of global leaders’ agenda. But concerns are also rising about the world’s other major potential flashpoint. The US has stepped up contingency planning for a possible Chinese assault on Taiwan following Moscow’s invasion of Ukraine, according to people familiar with the Biden administration’s deliberations. Key reading: - [Taiwan Pledges to Keep Advanced Chips From Chinese Military]( - [Taiwanese Independence a Charging Rhino That Must Be Stopped, China Says]( - [China Lacks the Right Workers to Boost Xi’s Favored Te]([ch Jobs]( - [Wall Street Banks Prep for Grim China Scenarios Over Taiwan]( Key to the war-gaming is the strategic significance of the democratically governed island’s cutting-edge chip industry, led by Taiwan Semiconductor Manufacturing Co. China claims Taiwan as part of its territory, and President Joe Biden has been increasingly explicit in his vows to commit US forces if Beijing attacks the island. But as well as a highly sensitive geopolitical pressure point, Taiwan is pivotal due to its capacity to make the kind of advanced chips needed by the likes of Apple, Tesla and VW, as well as the US military. As [our exclusive report details](, the US National Security Council projects that a Chinese attack and the loss of TSMC could disrupt the world economy to the tune of more than $1 trillion. China denies any plans for an invasion, and blames the US for changing the status quo in the region. Still, the concern in Taipei is that Chinese President Xi Jinping may be tempted to launch an attack to divert attention from his faltering economy and high unemployment. US officials expect Xi to emerge emboldened from this month’s Communist Party Congress, and more aggressive in his territorial assertions. Beyond the claims and counter-claims, one thing is clear: Tensions are rising in a volatile region just when the world needs it least. — [Alan Crawford]( Rescue workers take part in an emergency response drill in New Taipei City. Photographer: I-Hwa Cheng/AFP/Getty Images Click [here]( for this week’s most compelling political images, and if you’re enjoying this newsletter, click [here]( to sign up for Balance of Power. Global Headlines Just in: The 2022 Nobel Peace Prize has gone to a [trio of human rights advocates]( — Ales Bialiatski from Belarus, the Russian organization Memorial, and the Ukrainian Center for Civil Liberties. No turning | As Xi marches toward his second decade in power, predictions are proliferating among investors on Wall Street that he’ll ease policies that have sealed China’s borders, battered stocks and blown up the dollar-bond market. While that optimism hinges on expectations the president will usher in a more benign investing environment after the party congress slated to start Oct. 16, there’s [little sign]( any such shift is in the works. Nuclear warning | Biden said the US worries Putin’s [threats]( to use nuclear weapons are real and could lead to “Armageddon,” adding his administration is trying to find an “off-ramp” for the Russian president over the invasion of Ukraine. “Where does he find a way out?” Biden said. “Where does he find himself in a position that he does not, not only lose face, but lose significant power in Russia?” - The Kremlin told select state media to start [admitting]( some of the failings of Russia’s war, worried its relentlessly upbeat propaganda was fueling growing public doubts. - Follow our rolling coverage of the war in Ukraine [here](. The aftermath of a Russian rocket strike on Zaporizhzhia yesterday. Photo credit: State Emergency Service of Ukraine Best of Bloomberg Opinion - [A Decade of Illusions Over Putin That Led to War: Lionel Laurent]( - [Biden Should Hit Saudi Arabia Where It Really Hurts: Bobby Ghosh]( - [UK Power Blackouts May Be Unavoidable This Winter: Javier Blas]( Federal Reserve officials are keeping up the drumbeat of support for extending their run of interest-rate hikes, stressing the need to quash [inflation that’s stubbornly hovering]( near the highest level since the 1980s. Five officials yesterday delivered a resolutely hawkish message that inflation is too high and they won’t be deterred from raising rates by volatility in financial markets. Crude surprise | The decision by Saudi Arabia and its OPEC+ allies to cut oil production left Biden administration officials [angry and concerned]( that the move will push up gasoline prices and undermine Democrats’ chances in the November midterm Congressional elections. As [Jordan Fabian]( and [Jennifer A. Dlouhy]( write, Washington is in a quandary about how to respond. - Republican Senate candidate Mehmet Oz has used a [barrage of ads]( on crime to erode rival John Fetterman’s once-commanding lead in their Pennsylvania race, imperiling Democrats’ hopes of keeping control of the chamber. - The new super political action committee set up by allies of former President Donald Trump has booked $2.1 million in ad buys, [backing]( Oz and JD Vance in Ohio. Making nice | UK Prime Minister Liz Truss is setting a markedly [friendlier tone]( toward the European Union than her predecessor Boris Johnson, in a sign the two sides may be starting to move beyond post-Brexit differences on issues such as Northern Ireland. As [Emily Ashton]( writes, she even called French President Emmanuel Macron a friend, just weeks after ducking the chance to do so. Explainers you can use - [Climate Reparations Paid by Rich Are Focus After Pakistan Flood]( - [How a Mink Cull Tipped Denmark Into Political Crisis]( - [How Legal Weed Has Changed the US for Better, Worse]( Gender gap | Women in South Korea rebuked President Yoon Suk Yeol’s plan to [eliminate]( the ministry set up to protect them, saying it would set back efforts to close one of the world’s worst gender gaps. Yoon courted young male voters opposed to gender-equality measures in this year’s election by saying his opponents were stacking the deck against them, and he said dissolving the ministry would actually help women. News to Note - The United Nations blocked a debate on China’s alleged human rights [abuses]( in Xinjiang in a narrow vote just weeks after publishing a damning report on the topic, showing Beijing’s ability to counter US influence on the world stage through alliances in the Global South. - Alberta conservatives elected a sovereignty advocate who railed against vaccine mandates to lead Canada’s biggest oil-producing province, an outcome that likely heralds a [confrontation]( with Prime Minister Justin Trudeau’s government. - The US is willing to [reconsider]( Venezuela sanctions only if President Nicolas Maduro takes “constructive steps” to restore democracy, Secretary of State Antony Blinken said, reiterating that he’s seen no such progress so far. - A Delaware judge [halted]( a court case against Elon Musk over his $44 billion purchase of Twitter, telling the parties to finish the deal by Oct. 28 or have new trial dates set in November. Pop quiz (no cheating!) Which country’s president rejected a US request to halt bidding on oil blocks in one of the world’s biggest tropical rainforests? Send your answers to balancepower@bloomberg.net. And finally ... Inflation may be stoking fears of a global recession and Europe is wrestling with an unprecedented energy crisis, but you wouldn’t know it from the flourishing [superyacht]( industry. [Gaspard Sebag]( and [Stephanie Baker]( report that last week’s Monaco Yacht Show had a near-record 117 boats on display, and industry executives talked of insatiable demand that intensified during the Covid-19 pandemic. Americans are driving the boom, more than making up for the absence of Russian billionaires amid sanctions over the war in Ukraine. Moored yachts at Port Hercules in Monaco. Photographer: Valery Hache/AFP/Getty Images Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. 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