By Chun Han Wong in Hong Kong and Yang Jie in Tokyo
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., 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.
Where else could the world get its chips?
Western powers had already been trying to hedge their reliance on Taiwan's semiconductors, after the global chip shortage and pandemic-era supply-chain disruption highlighted the island's dominance of the industry. Both the U.S. and European Union have pledged tens of billions of dollars to eventually increase domestic chip manufacturing and competitiveness with Asia.
TSMC, a beneficiary of the funding from a U.S. chip-industry bill that President Biden signed last week, is currently building a $12 billion plant in Arizona. It also is building a $7 billion plant in Japan.
What other big industries would be affected by a blockade of Taiwan?
A closure of the Taiwan Strait, one of the world's busiest routes, would have a severe impact on shipping capacity, said Soren Skou, chief executive of Danish shipping giant A.P. Moller-Maersk A/S. "Everybody would have to divert around Taiwan and add to the length of voyages," he told analysts earlier this month.
Analysts say shipping companies may spend more on fuel and crew because of longer transit times -- costs that would likely be passed on to businesses and consumers.
Insurers have recently said they are reluctant to sell insurance to cover the possibility of losses stemming from a Taiwan-related conflict until tensions there calm down. Short-term rates for sending freight on maritime routes between Taiwan and mainland China had risen by 11% in early August from July following Mrs. Pelosi's Taipei trip, because of heightened risks to shipping in the area, said Peter Sand, chief analyst at Xeneta, which analyzes ocean and airfreight rates.
What would a Chinese blockade of Taiwan look like?
A blockade, which is an act of war under international law, could range from a full-scale effort to prevent all people and material from entering and leaving Taiwan, to less-ambitious operations attempting to block certain types of traffic or goods. China's military could employ aerial and naval patrols, lay sea mines or even destroy airports and harbors, analysts say. Even the act of declaring a blockade could prompt airlines and shipping companies to reroute traffic out of caution.
In a 2021 report, Taiwan's Defense Ministry said China's military was able to cut the island's "air and sea lines of communication and impact the flow of our military supplies and logistic resources." Taiwan could suffer from shortages in commodities, including liquefied natural gas, which the island imports for much of its power.
Even so, it is unclear whether China's military has the assets to sustain a blockade, and any attempt to cut off Taiwan would likely prompt the U.S., Japan and other countries to intervene, said Drew Thompson, a visiting senior research fellow at the Lee Kuan Yew School of Public Policy in Singapore.
What is deterring Beijing from attempting a blockade?
Besides the military and geopolitical costs of an attempted blockade, analysts say there is one major deterrent for Beijing: China itself relies on Taiwan for trade and jobs.
China depends on TSMC for chips needed for cutting-edge computing and industrial applications. Taiwanese companies such as Foxconn Technology Group, the biggest iPhone assembler, are major providers of private-sector jobs in mainland China. And Taiwan serves as a strategic shipping gateway to the Pacific Ocean for China.
"If there ever is a military conflict, that would disrupt the whole supply chain and even China's own ambitious strategies," said Jui-Lin Yang, a consulting director at Taiwan's Industrial Technology Research Institute, a public research organization.
In other words, Beijing couldn't disrupt Taiwan's economy without throwing off its own.
Write to Chun Han Wong at chunhan.wong@wsj.com and Yang Jie at jie.yang@wsj.com
$(END)$ Dow Jones Newswires
August 15, 2022 09:40 ET (13:40 GMT)
Copyright (c) 2022 Dow Jones & Company, Inc.
Comments