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The tension in Taiwan threatens the global supply chain

2022-08-06T04:13:08.508Z

China's sea and air blockade of the island puts the distribution of chios at risk. The crisis worries a West that is very vulnerable to new inflationary spikes



During the 1980s and 1990s,

made in Taiwan

was synonymous with affordable toys for many Western households.

But that perception has been wrong for a long time: the Asian country, with its scarce 23 million inhabitants, is an irreplaceable technological enclave right now for being the world's great producer of chips, essential for the operation of cars, electrical appliances, cameras, mobiles, etc. computers, satellites, drones, missiles and a host of articles for both civil and military use.

China, aggrieved by the visit to the island of the president of the US House of Representatives, Nancy Pelosi, does not ignore this trick: its military maneuvers, which Taipei assures are equivalent to a "sea and air blockade", threaten to shoot further inflation in the West.

The conflict is adding strain to exhausted supply chains, barely recovering from the pandemic crisis, in what could become a dress rehearsal for future retaliation of economic suffocation.

The dependence on the island is so great that in February the European Commissioner Thierry Breton launched a disturbing hypothesis: "If Taiwan could not export more, almost all the factories in the world would stop in three weeks."

The phrase may seem exaggerated, but in any case it is indicative that if the clash with Russia has accelerated the search for energy independence in Europe, the conflict in Taiwan will fuel a process already underway both in the Old Continent and in the United States: that of installing new factories on its own land to reduce purchases of Asian microprocessors.

The problem with this production approach is twofold.

It's not cheap — setting up a factory costs between $5 billion and $20 billion, depending on how advanced its technology is, not counting maintenance.

Not even fast: from the time it is conceived until it becomes active, at least two years can pass.

The Eurointelligence think tank warns: “The West has the capacity to produce high-end versions of semiconductors, but they are not the ones that power the cheap electronic devices or durable electronic goods that we mainly buy in stores.”

Although the results will not be immediate, the race is launched.

The US Congress approved last week the law that allows allocating 52,700 million dollars in subsidies to the semiconductor industry to compete with China, which has its own plan, called

Made in China

, to grow in that segment.

Meanwhile, Brussels calculates that it will mobilize 43,000 million in public and private investment.

Spain plans to dedicate 12,000 million to this industry taking advantage of European recovery funds.

The current shortages mean that any interruption in trade could affect the many companies that import semiconductors.

According to TrendForce, Taiwan produces 64% of global chips, the vast majority of which come from a single company: TSMC.

The power of this firm, which only entered 18.6 billion dollars in the second quarter of this year, is as colossal as it is unknown to the general public.

For this reason, in his controversial trip, Pelosi met, among others, with Mark Liu, president of the company, which has Apple among his preferred clients.

The executive anticipated this week in an interview with CNN

what would happen to its production plants in the face of a much more terrifying possibility: that of an eventual invasion.

“No one can control TSMC by force.

An invasion would prevent our factories from operating,” he warned.

The manager argues that facilities as sophisticated as his would not work without a real-time connection to Europe, Japan and the US, and he would not be able to continue if the supply of spare parts, chemical products and engineering software were cut off.

Putting TSMC under Chinese rule is a yearning for part of the elites of that country.

On May 30, Wenling Chen, chief economist at the China Center for International Economic Exchanges, spoke in an

online

forum .

"We must seize corporations that rightfully belong to China, like TSMC, especially when we talk about production and supply chains."

The technological battle is waged around tiny devices, as explained by Sonia Contera, Professor of Physics at the University of Oxford and author of the book

Nano comes to life

.

“The alliance of technological democracies in Asia (Japan, South Korea and Taiwan) to protect production is strong.

TSMC is already setting up plants in Japan and the US for five-nanometer chips.

The manufacture of these highly advanced chips requires skill and knowledge that cannot be improvised, as the Chinese SMIC has learned, which has spent years trying to manufacture them without success.

The alarm bells went off a couple of weeks ago, when evidence appeared that SMIC had managed to manufacture seven-nanometer chips, indicating that China is beginning to find its way to independence.”

Although the Asian giant is still dependent on imports, the chip industry is growing faster than anywhere else: according to Bloomberg

,

19 of the 20 companies in the sector that have grown the most on average in the last year are Chinese.

The Speaker of the US House of Representatives, Nancy Pelosi, together with the President of Taiwan, Tsai Ing-wen, during the visit to the country. DPA via Europa Press (DPA via Europa Press)

uncertainty at sea

The other possible route of economic contagion from the crisis is the sea, through which the majority of global goods circulate.

The Taiwan Strait is heavily trafficked by large container ships and larger tonnage vessels.

The Taiwanese Ministry of Transportation warned on Thursday that ships arriving or leaving Taiwan will have to avoid the areas where the Chinese Army is carrying out its practices, a situation that, if prolonged over time, could have an impact due to delays. and route changes.

Consulted by this newspaper, the German shipping company Hapag-Lloyd and the Danish Maersk, among the five largest container shipping companies in the world, assure that there are no major changes.

"All ports in mainland China and Taiwan are operating normally, including terminal operation, ship docking and departure service," sources at the Nordic firm indicate.

These companies have benefited after the pandemic from the rise in the price of containers due to collapses in ports in the face of the strong recovery in demand (especially in the US) and the lack of workers to unload and truckers to transport due to contagion. , more fuel for the fire of inflation.

However, there are certain incidents in the area.

According to information compiled by Lloyd's List Intelligence, just a couple of ships were circulating this Friday around the areas where the military exercises are taking place, compared to the average of 240 ships a day that sailed through those waters last week.

The figure is still small in relation to the tens of thousands of ships that deliver Asian merchandise to the West and others that make the opposite journey to carry fuel or raw materials.

The escalation comes at an already turbulent time for activity, as it coexists with fears that a Russian gas cut could cause a recession in Europe this winter.

Goldman Sachs analysts are clear.

"Any possible direct or indirect sanctions on China due to geopolitical conflicts would have considerably greater repercussions for the global economy than in the case of Russia," says a report by the US investment bank.

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Source: elparis

All business articles on 2022-08-06

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