I'm not sure why it's so controversial that USAF would be willing to overfly Indonesia/Malaysia to strike these targets. That should be a given. It is also a given that China would do the same. I don't quite understand why people keep bringing up using tactic nukes, but think that it would outrageous for 2 superpowers to try to use any conventional advantage they might have.
Yes, US bombers could violate Indonesia territory and use Indonesian airspace to launch attacks. But this has a cost.
There are 273 million people in Indonesia. Indonesia can rally another 394 million in the rest of ASEAN.
And don't forget Indonesia is a Muslim country. If the US and Indonesia get into a conflict, the rest of the Muslim Ummah will be sympathetic at a minimum. That is another 1600 million people.
If Indonesia was powerless, then yes, the US could violate Indonesian airspace without consequences.
But we can see how Western sanctions against Russia are failing because the rest of the world (7 of 8 billion people including China/India) aren't joining in.
And Indonesia would definitely receive Chinese support against US bombers violating Indonesian airspace.
Plus would Australia allow US bombers to do this? It would poison Australia-Indonesia relations, and Indonesia does have leverage against a smaller Australia.
So I don't see the benefits of US bombers using Indonesian airspace outweighing the costs.
On the economic question, I think a war would be terrible for the world economy. It would not only destroy Chinese and American economy but also every country around the world. The current Ukraine war would be a cakewalk compared to what might happen in a China/US war. There would be hyperinflation, currency collapses around the world.
As such, I would hope that such a conflict never happen. Best case scenario (from the perspective of mainland China) is if China gets so strong that American elites simply realize that Taiwan is not defendable and a KMT gov't negotiates for a de facto unification where Taiwan gets a lot of autonomy.
Yes, a war would be a terrible thing.
But my best guess is that inflation in China would be comparatively muted because so much production capacity will be idled. We would see some domestic Chinese factories being redirected towards war production. Exports and imports will drop in China, but they would still run a large trade surplus. That would support a strong currency like we see with Russia today (NB. it's ridiculous how the EU ripped up the long-term low-cost gas contracts it had with Russia, so now they pay more money to Russia for the same gas on expensive spot markets)
And yes, China can allow Taiwan a lot of autonomy in any political settlement.