Cold War 2.0 and defence readiness

In the context of simultaneous rise of external threats through CRINK and the reprioritisation of transatlantic ally’s global posture, we study how a protracted low intensity conflict with CRINK would affect European allies’ preparedness to protect the security of the citizens and the integrity of the territory. As a worst case, we investigate the trade channel of geo-economic fragmentation in a Cold War 2.0 implying a complete cessation of trade with CRINK and a full blockade of Taiwan in an international multi-sectoral macroeconomic model featuring the defence sector and interlinking countries via global supply chains. Even this less kinetic conflict will create challenges for Europe’s security—challenges that will only grow more acute as the crisis worsens. By quantifying the cost of unpreparedness, we provide an evidence-based rationale for European allies to embark on a gradual de-risking of trade trajectory rather than waiting for a much more costly “abrupt shock” trigger dictated by strategic challengers.