Military maneuvers endanger global supply chains

Just one day after the visit of the US Speaker of Parliament Nancy Pelosi, China began, as threatened, with unprecedented military maneuvers and, among other things, fired rockets. Shells fell in the waters north, south and east of Taiwan.

The decades-long conflict over the status of the democratically governed island has not run so hot for more than a quarter of a century – and military exercises in the Taiwan Straits, which are also heavily used by civilian ships, have never been so large-scale, according to the Chinese state broadcaster CCTV. Overall, the maneuvers on water and in the air should last until Sunday.

In addition to concerns about a possible military escalation of the conflict, the military exercises on the Taiwan Strait also raise economic concerns – after all, it is considered a globally important trade route for gas, electrical equipment and semiconductors, in the production and sale of which Taiwan plays a central role of the global value chain.

Taiwan’s chip industry globally unchallenged

The island state has a global market share of 60 percent in the contract manufacturing of chips, explains WU economics professor Harald Oberhofer in the APA interview. The Taiwanese industry giant TSMC alone accounts for more than 50 percent. The production of high-performance chips for smartphones and computers at TSMC is so complex that hardly any other company in the world can master it, writes the “Süddeutsche Zeitung” (“SZ”). According to market researchers from TrendForce, around two-thirds of all chips worldwide are manufactured in Taiwan.

TSMC Headquarters in Taiwan

AP/Chiang Ying-Ying

TSMC is the world’s largest chip manufacturer and is based in Taiwan

A production stoppage in Taiwan would have a huge impact on the global economy, where the semiconductors are used in almost every area of ​​technology, from mobile phones and computers to electric cars. So far, however, no additional delivery difficulties have been noticed due to the Chinese maneuvers, said Hermann Ortner, delegate of the Austrian Chamber of Commerce (WKÖ), in the Taiwanese capital Taipei.

Expert: Supply chain disruption inevitable

However, China expert James Char from the S. Rajaratnam Institute for International Relations in Singapore considers it “inevitable” that international supply chains will be further disrupted by the military maneuvers. Trade expert Nick Marro from the research company Economist Intelligence Unit warns that a disruption to shipping routes around Taiwan would not only affect the island nation, but also export nations South Korea and Japan.

The Taiwan Taiex Shipping and Transportation Index — which combines Taiwan’s largest shipping and aviation companies — is already down 4.6 percent since the start of the week. After the start of the military maneuvers on Thursday, it fell by 1.05 percent.

Port of Taiwan

Reuters/Ann Wang

Numerous freighters with important global deliveries are leaving the port of Taiwan’s capital, Taipei

“The Taiwan Strait is one of the busiest straits in the world. Should it be closed, it would of course have a dramatic impact on shipping capacity,” Soren Skou, CEO of AP Moller-Maersk, quoted the Wall Street Journal (“WSJ”) as saying. At the same time, however, it must be mentioned that a closure is currently not foreseeable.

In addition to military maneuvers, typhoons are also risk factors

Taiwan’s maritime authority has already warned freighters in the waters north, east and south of the island not to pass through the areas where China is holding the manoeuvres. However, when asked by AFP, several shipping companies said they would first wait for the effects of the maneuvers before changing the routes of their ships.

Taiwan Strait graphic

Graphics: APA/

Some pointed out that sending ships through the Philippine Sea is currently risky due to the typhoon season. Others said they saw no reason to change routes. “We currently see no impact and we are not planning any route changes,” said Maersk China spokeswoman Bonnie Huang.

Flight routes are definitely disrupted. Over the past two days, more than 400 flights have been canceled in the Chinese province of Fujian, across from Taiwan – an indication that the airspace could be used by the military. The Taiwan government said the maneuvers would upset 18 international flight routes in Taiwan’s so-called flight information area.

Economic dependency as a shield

The state-run Chinese newspaper Global Times wrote on Wednesday that Beijing wanted to show that its military could blockade the entire island. Asia specialist Bonnie Glaser from the US think tank German Marshall Fund said China wanted to show determination with the maneuver.

However, in view of the current major economic problems in the People’s Republic, Beijing will probably be content with threatening gestures, believes James Char. “Blocking shipping across the Taiwan Strait for any length of time would also hurt the Chinese economy.” Australia’s Lowy Institute’s Natasha Kassam also said it was not in Beijing’s interests to halt travel and trade in the region .

Person in Beijing watches news on giant screen

Reuters/Thomas Peter

In Beijing, screens show locations around Taiwan where training activities and target practice are being conducted

Although China and the West are already spending billions to boost their own chip production, the dependence on Taiwan is still enormous – and as long as China is dependent on Taiwanese chip production, it would think twice about an invasion, according to the ” SZ”. “Taiwan and Ukraine are fundamentally different in terms of geopolitics, geography and importance for international supply chains,” said Taiwanese President Tsai Ing-wen immediately after the Russian invasion.

China’s intentions remain uncertain

But even analysts are not sure how far China will go. “China very likely has the military capability to enforce a sea and air blockade against Taiwan,” says Thomas Shugart of the US think tank Center for a New American Security. “But whether China will also attempt such a blockade – that depends above all on what political and economic risks the leaders of the Communist Party are willing to take.”

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