Despite its small size, Taiwan was America’s ninth largest trading partner in 2020, with total U.S./Taiwan trade reaching $105.9 billion that year. The little country’s heavy reliance on trade has made it the world’s fifth-largest holder of foreign exchange reserves at $483 billion, and the thirteenth largest holder of gold reserves with 423.6 metric tons. So what happens if such an important part of the world’s trade is blockaded by aggressive neighbors? The Wall Street Journal’s Chun Han Wong and Yang Jie try to answer that question, writing:
Beijing considers Taiwan, a democratically ruled island near mainland China, as part of its territory. When U.S. House Speaker Nancy Pelosi visited Taiwan this month to support its government, Beijing condemned the trip and conducted military drills with warplanes, ships and missiles to demonstrate its ability to blockade the island.
On Monday, China’s military responded to the surprise arrival in Taiwan of a new delegation of U.S. lawmakers by announcing a resumption of its drills. The delegation, led by Sen. Ed Markey (D., Mass.), met with Taiwanese President Tsai Ing-wen.
Here are some questions and answers about the tensions across the Taiwan Strait and the possible fallout on global business should China attempt to blockade the island.
How would a blockade affect global business?
A Chinese blockade of Taiwan would cripple global supply chains and raise freight prices in Asia and potentially beyond, because of the outsize role that the island of roughly 23 million people plays in global business.
Taiwan accounts for roughly 70% of the world’s microchip supply. It serves as an important part of the production chain for goods including smartphones, computers and cars. And it sits next to Pacific shipping lanes that channel trillions of dollars worth of trade flowing in and out of East Asia.
“Taiwan matters far more to the world economy than its 1% share of global GDP would indicate,” Gareth Leather, an economist with research firm Capital Economics, wrote last week. Cutting off Taiwan’s exports would result in chip shortages for cars and electronics and drive up inflationary pressures, he said.
How important is Taiwan to the chip industry?
Very. Taiwan is home to the world’s largest contract chip maker, Taiwan Semiconductor Manufacturing Co., TSM which produces semiconductors for companies including Apple Inc. and Qualcomm Inc. Globally, TSMC held more than half of the share of the $100 billion semiconductor fabrication market last year, research firm Gartner said.
A yearlong disruption to Taiwan’s chip supply chain could cost global electronics companies some $490 billion in losses, according to a 2021 report by the Boston Consulting Group and the Semiconductor Industry Association. Should Taiwanese chip output be disrupted permanently, it would take at least three years and $350 billion to build production capacity elsewhere to make up for it, the report said.
In an undated interview broadcast by CNN in late July, TSMC Chairman Mark Liu said use of military force or invasion of Taiwan would render TSMC factories nonoperable. Its manufacturing facilities “depend on real-time connection with the outside world, with Europe, with Japan, with the U.S.,” he said. TSMC didn’t respond to a request for further comment.
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