How the China-Taiwan conflict could be devastating for the global economy | Business Beyond

is this the biggest threat facing the global economy China has long claimed the island of Taiwan as part of its own country U.S intelligence believes it may be soon ready to invade the leadership of Xi Jinping the current key leader of China it's really based on the idea of making China Great again and that means getting back what it regards as its historic territory a Chinese invasion of blockade would devastate Taiwan and would Shock the World assessing the potential economic damage is a frightening Prospect one major study found that in a blockade scenario which would be short of a full invasion well over two trillion dollars worth of economic activity would be disrupted instantly from a business perspective it's absolutely it's terrifying and it's terrifying because if we were to lose the Fabs in in Taiwan which I think is the worst case scenario we'd basically enter a technological Dark Age which would take us years to recover Taiwan matters to the global economy as much as almost anywhere on Earth because of these semiconductors the building blocks of the modern world if China invades or blockades Taiwan the results would be catastrophic for the world economy it'd be the largest disruption to Global manufacturing since World War II perhaps even since the Great Depression in this episode we will reveal an economic time bomb and ask if anything can be done to defuse it doesn't make sense to trigger a crisis over Taiwan that could lead to immense global economic damage a lot of that damage would be concentrated on China in particular I think that if they view an invasion to be a politically necessary task I'm not sure that economic damage would be something that would actually prevent them from evading find out what's at stake on business Beyond the story of modern Taiwan began in 1949 when the Chinese Communist Party won the Chinese Civil War in the aftermath of that defeat the defeated Republic of China government fled to Taiwan ever since Taiwan and China have been governed by distinct political systems over the last few decades Taiwan has evolved into a vibrant and modern democracy and many argue that is now the key difference between it and the People's Republic of China I think the hostility really stems from um the belief in Taiwan the belief in democracy to be quite honest and democracy is really important to us um we've had the ability to choose our own leaders to vote to express our own thoughts to have referendums on social issues that are important to us but I think there is a political difference in how we value our societies and the Democracy that we really do value and we really do hold dear and a lot of people fought for it in Taiwan and so this is something that I think is fundamentally different Taiwan however is not widely recognized as a sovereign state only 13 countries recognize its independence and many of them are among the smallest in the world what the USA is by far taiwan's most important strategic partner while Washington does not support Taiwanese Independence its official position towards the island states that it opposes any unilateral changes to the status quo from either side it also commits to the defense of the island saying it maintains its capacity to resist any resort to force or other forms of coercion that would jeopardize the security or the social or economic system of Taiwan it adds up to an incredibly delicate Balancing Act between Taiwan and the world's two most powerful countries that um in the island you know Taiwan there is a desire to remain uh independent um to have autonomy to be a democracy which they've been since 1996 I mean the huge difference is there's also pragmatic acceptance that Beijing has the force to do things that could radically and catastrophically impact on them and the region so there's a constant sort of tense balance it's very very difficult and as of today it seems to be unresolvable it just has to be left the way it is but Chinese president Xi Jinping has repeatedly made it clear that it's not something he is especially keen on cheers the resolution of the Taiwan issue is a matter for the Chinese themselves to decide we insist on striving for the prospect of peaceful reunification with the great sincerity and with the greatest effort however we are not committed to abandoning the use of force and we reserve the option of taking all necessary measures foreign military tensions are now in their worst state in decades over the past year China has carried out several military drills simulating an attack and has fired missiles close to the island U.S intelligence officials say president XI wants his country's military to be ready to attack the island by 2027. as we will see throughout this episode economics makes the relationship between the two even more complicated despite the long-term tensions between China and Taiwan their economies have become extremely intertwined in recent decades since 2005 China has been taiwan's biggest trade partner when we include Hong Kong two-fifths of taiwan's exports went to China in 2021 well ahead of the USA Singapore Japan and South Korea a similar picture for imports China together with Hong Kong accounts for 22 percent of the goods coming into Taiwan well ahead of the next four countries that has created some concern in Taiwan that the island is too economically dependent on China concern whether or not too much economic Reliance will cause detriment to Taiwan and that has always been something that the Taiwanese government is very much aware of but because of the link the lack of language barriers and the cheap labor that the Chinese market offers and a lot of times the incentives by the Chinese government to the Taiwanese investors the movement of capital and um sometimes the Investments to China seems to be something that the government is not able to actually control but the Taiwanese economy has a not so secret weapon semiconductors Taiwan is so dominant when it comes to semiconductor production that it makes it one of the most commercially important places on the planet it's semiconductor industry is sometimes referred to as its silicon Shield I've heard a lot of people say that that data is the new oil you know people people depend on data for the economy but you need semiconductors to have data and so we would really I think even more semiconductors are the driving force behind everything that we have today chips are in everything from the LED light bulbs that are in your house to the the computers that we're talking on right now to Automobiles and smartphones if there was a World Cup for producing semiconductors Taiwan would win it every year Taiwan completely dominates the global production of semiconductor chips in 2021 the island accounted for almost two-thirds of all those made on the planet [Music] and when it comes to the most advanced semiconductors so-called logic chips measuring 10 nanometers or less taiwan's Supremacy is almost total the country makes a mass of 92 percent of these with the remaining eight percent made in South Korea and it's all down to this one company the Taiwan semiconductor Manufacturing Company widely known as tsmc 90 of the world's most advanced processor chips the type of chips that go in your phone your PC or in data center or Telecom infrastructure ninety percent of those ships are produced by one company in Taiwan the Taiwan semiconductor manufacturing company which is the world's largest chip maker and also the most advanced chip maker put simply the world's entire Computing infrastructure from phones to PCS to Data Centers can't function without chips from this one company tsmc does not design chips that means it does not compete with the tech Farms who do and can effectively make chips for anyone it focuses exclusively on contract manufacturing and has become the Undisputed world leader in a process that has become intimidatingly complex and so each of the transistors themselves is absolutely tiny not just microscopic but far far smaller than anyone can see and so today in a new smartphone each of the 15 billion or so transistors will be the size of a progress which means that manufacturing them is the hardest most complex most precise manufacturing processes that humans have ever undertaken both China and the USA have been dramatically trying to scale up their own production of semiconductors to reduce dependence on Taiwan but as chips become smaller more powerful and more complex Taiwan is retaining its Edge and that above all else is why Taiwan mattered so much to the global economy we have this incredible technology that all of us use every day in terms of semiconductors that's in almost everything we touch all the time that comes from this little Island in the Pacific that China claims is theirs and the West is is terrified of having fall to China so we're we're dependent from a business perspective on the semiconductor supply chain continuing to run and these little pieces of silicon getting etched and produced and manufactured and fabricated in Taiwan talk of invasions or blockades remains highly speculative at this point both multiple scenarios have already been gamed out by policy makers around the world so let's take a closer look at how the worst code unfold Taiwan is located around 130 kilometers from the People's Republic of China across the Taiwan Strait the capital Taipei is located in the north of the island most of taiwan's ports population and Industry are located on the west coast closest to China taiwan's geography makes it vulnerable to an invasion but even more vulnerable to a blockade a blockade scenario could see Chinese ships and submarines block off Taiwanese ports a move that would cause global economic chaos many experts believe a blockade is much more likely than a full-scale invasion in December 2022 the economic research group rhodium released a study analyzing the global economic effects of a blockade we drew the line at a blockade scenario um and so think about trade flows investment flows being paralyzed to and from Taiwan um and showing what a conservative estimate would be uh in disruption to global economic activity and the the figure that emerged there was uh well over 2 trillion in in global economic activity would be at risk um and that's before you consider sanctions responses um at that stage of Crisis second order effects along different value chains and actual military conflict escalation from there a blockade would immediately threaten the most basic necessities of life in Taiwan so a blockade first would not necessarily be a precursor to an invasion in fact that might be the more obvious play that Beijing could use which is that you know Taiwan is heavily reliant on Imports for pretty much all of its Fuel and a good chunk of its food they have something like 10 days of fuel reserves uh without trade Taiwan is definitely not going to be self-sufficient but a full blockade on Taiwanese exports would very quickly plunge the global economy into a crisis of historic proportions a huge chunk of global semiconductor production would suddenly go dark if we're to lose Taiwan um and and there are various amounts that we could lose it it would be catastrophic for the global economy and it would be catastrophic because we'd start to lose the products that we need if there were a crisis that caused us to lose access to chips made in Taiwan we Face Great Depression levels of manufacturing disruption and it wouldn't only be smartphones although we'd struggle to make a smartphone almost anywhere in the world uh without access to taiwan's ships but everything else that Horizon ships too from dishwashers to microwaves to cars which today have a thousand ships inside the typical new car all of this would be at risk of severe disruption in case of a loss of access to taiwan's shipment and many experts believe that if Beijing thinks it could simply take over tsmc and restore its production capacity after an invasion it is grossly mistaken there's only a very narrow set of scenarios where there was four full reunification with Taiwan and tsmc remains both intact fully staffed and able to produce uh I my operating assumption is if there's a conflict and unless it's very quick with minimal or no Taiwanese resistance I think tsmc is basically cooked the covid-19 pandemic led to huge disruption in the global semiconductor industry but much of that was temporary conflict in Taiwan would change the industry permanently while China and the USA have been trying to drastically ramp up their own semiconductor production experts say they are nowhere near ready to replace tsmc and Global Supply chains especially at a time when ships are in Greater demand than ever before across multiple sectors the impact of this risk is massive and and even if we were to lose half of the semiconductor production or or a third or ten percent of the semiconductor capacity that's in Taiwan we don't really have a backup for that and as we're shifting Technologies things like electric vehicles EVS use four to ten times as many semiconductors as traditional automobiles so we're we're looking at more advanced more chip hungry production than we've had in the past with a risk of less chips available in the future as you can see assessing the economic damage from an invasion or blockade of Taiwan is a gargantuan task there are very few areas of global economic life which would not be instantly affected the hit to global trade would be felt in every port in the world but the two economies most severely and instantly hit would be China's and taiwans and both are absolutely pivotal when it comes to global trade China is the world's biggest exporter it accounts for almost 15 percent of all the goods sent around the world but even though Taiwan is much much smaller it has a hugely important role in global trade and is actually the 15th largest exporter if China were to invade or blockade Taiwan its own economy would be facing an existential crisis for starters it would face a range of severe sanctions from some of its main economic partners think about blocking sanctions on on banks on state-owned Enterprises um uh Banning Swift access to designated entities these are the things that would really freeze up um trade with China and remember the Chinese economy is highly dependent on dollar financing that was made readily apparent in the wake of Russia's invasion of Ukraine where there was a question of whether China would comply with us and G7 LED sanctions and there's a reason um why why China have to be very cautious not only is it extremely dependent on U.S origin technology but it cannot easily Escape that dollar dependency either then there's an even bigger problem as well as being the world's biggest export or China is the world's biggest manufacturer it accounts for around a fifth of global GDP and suddenly it would have of its own volition knocked out the main supplier of one of the most important manufacturing components so there are a lot of things that will be disrupted if there was a full blockade or if there was an economic embargo against China um we wouldn't have toys to buy our kids at Christmas all the paper goods all the all the less expensive products that we rely on right now um availability of TVs availability of of just general products wouldn't be there there's so much that we take for granted that comes out of China if if you look at tags and clothing if you look at what's put it on boxes there's so much that we buy today that is made in China and China is the world's Factory and and losing it would be absolutely catastrophic that brings us to a pivotal question From beijing's perspective could the prospect of catastrophic economic damage prevent the Chinese Communist Party from pressing the red button on Taiwan to get an answer to that it's important to consider just how important the Taiwan question is to Xi Jinping and the party [Music] for the Communists the mission is to create a unified strong China and Taiwan is at the heart of that and as they have become stronger economically militarily it's more an expectation by Chinese people that there will be something that will make Taiwan part of the Great you know unified Chinese Nation again um so for Xi Jinping and his colleagues this is not something that they can ignore I mean they've they've always got to have it on their minds in major speeches and policy documents in all sorts of forum they talk about this issue as something that must be resolved does that mean the political importance of Taiwan will always outweigh its economic importance as far as Beijing is concerned definitely economic um damage to Taiwan would have consequences to the China economy and to the well-being of of China but I think um I think in truth um the Chinese political aspirations and their political thinkings have always been more important I think in rather than their economic um considerations so I think that if they view an invasion to be a politically necessary task I'm not sure that economic damage would be something that would would actually prevent them from evading well I I hope that the Chinese leadership realizes the costs of a blockade or attack would be immense and therefore is deterred from attacking but I'm not sure how confident we should be the reality is that all of the disastrous Wars in history were started by people who underestimated the amount of disaster that would be caused in some respects to view the Taiwan question purely from an economic perspective is to miss the point this may well become the defining political military and economic issue the world has dealt with for many years and so is there a solution to avert economic catastrophe and a potential military showdown of the world's two most powerful countries I'd hope that yeah I mean biding time just letting this issue sleep is is to me the only viable option I mean there's no resolution at the moment there hasn't been for the last in 70 years so I think that that's all that can happen whether this can continue forever well that's the problem but I mean at the moment I think beijing's tactic is yeah just wait wait let them get bigger and stronger maybe one day in the resolution will come but at the moment there isn't a resolution that I see on the horizon and for the last word we go to Taiwan itself because while we can all speculate about the economic impact of the crisis from thousands of miles away millions of people in Taiwan live with a very different reality a lot of things on a personal level that you can do to make it not happen or happen and so um learning to know how to live with with uncertainty is something that um that I think we or we try to do that's all from this episode of business Beyond if you're interested in seeing more from us check out our playlist and don't forget to hit subscribe and I'd also like to alert you to an upcoming video where we will go into much more detail on something that we discussed already here the global semiconductor industry thanks a lot for watching and until the next time take care

Channel: DW News

Views: 422,551

Keywords: DW News, global economy, china, taiwan, semiconductors, economy

Id: jVsBKkcCGDs

Length: 21min 35sec (1295 seconds)

Published: Fri May 26 2023