In the 1980s and 1990s, Made in Taiwan was synonymous with affordable toys for many Western households. But this perception has long been wrong: the Asian country with its almost 23 million inhabitants is currently an irreplaceable technological enclave, because it is the world’s largest producer of chips used to operate cars, electrical appliances, cameras, mobile phones, etc. computers, satellites , drones, missiles and a variety of items for civil and military use.
China, offended by the visit to the island by the President of the US House of Representatives, Nancy Pelosi, is not ignoring this trick: Its military maneuvers, which are tantamount to a “sea and air blockade” in Taipei, threaten further inflation in the West with further shots. The conflict is straining exhausted supply chains that are struggling to recover from the pandemic crisis, in what could become a dress rehearsal for future retaliation against economic suffocation.
Such is its dependency on the island that in February EU Commissioner Thierry Breton put forward a disturbing hypothesis: “If Taiwan could no longer export, almost all the factories in the world would be shut down in three weeks.” The expression may seem an exaggeration, but on in any case, he points out that if the conflict with Russia has accelerated the quest 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: the Installation of new factories on their own land to reduce the purchase of Asian microprocessors.
The problem with this production approach is twofold. It’s not cheap – a factory costs anywhere from $5 billion to $20 billion to set up, depending on how advanced its technology is, not including maintenance. Not even quickly: it can take at least two years from conception to taking effect. Think tank Eurointelligence warns: “The West has the capacity to make high-end versions of semiconductors, but they are not the ones powering the cheap electronic devices or durable electronic goods that we mainly buy in stores.”
Although the results are not immediately available, the race is started. The US Congress last week passed legislation allowing the allocation of $52,700 million in subsidies to the semiconductor industry to compete with China, which has its own plan called Made in China to grow in the segment. Meanwhile, Brussels expects to mobilize 43,000 million in public and private investment. Spain plans to allocate 12,000 million to this sector, taking advantage of European recovery funds.
The current shortages mean any disruption to trade could impact the many companies that import semiconductors. According to TrendForce, Taiwan produces 64% of the world’s chips, the vast majority of which come from a single company: TSMC. The power of this company, which brought in $18.6 billion in just the second quarter of this year, is as colossal as it is unknown to the general public. That’s why Pelosi met on her controversial trip with, among others, Mark Liu, the president of the company that counts Apple among its preferred customers.
In an interview with CNN this week, the executive anticipated what would happen to their manufacturing facilities in the face of a far more dire possibility: that of a possible invasion. “No one can control TSMC by force. An invasion would prevent our factories from operating,” he warned. The manager argues that without a real-time connection to Europe, Japan and the US, plants as sophisticated as his would not function and he could not continue if supplies of spare parts, chemical products and engineering software were cut off.
Bringing TSMC under Chinese rule is a yearning of some of this country’s elite. On May 30, Wenling Chen, chief economist at the China Center for International Economic Exchanges, spoke on an online forum. “We need to seize companies like TSMC that rightfully belong to China, especially when we talk about manufacturing and supply chains.”
The technological battle is fought over tiny devices, explains Sonia Contera, professor of physics at Oxford University 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 factories in Japan and the USA for five-nanometer chips. Making these sophisticated chips requires skill and knowledge that cannot be improvised, as learned by China’s SMIC, which has tried unsuccessfully for years to make them. Alarm bells went off a few weeks ago when evidence surfaced that SMIC had managed to make seven-nanometer chips, suggesting China is starting to find its way to independence.”
Though the Asian giant still relies on imports, the chip industry is growing at the fastest pace: According to Bloomberg, 19 of the industry’s 20 fastest-growing companies on average over the past year are Chinese.
US House Speaker Nancy Pelosi with Taiwan President Tsai Ing-wen during visit to the country DPA via Europa Press
insecurity at sea
The other possible route of economic contagion from the crisis is through the sea, through which the bulk of global goods circulate. The Taiwan Strait is heavily used by large container ships and ships with larger tonnage. Taiwan’s Ministry of Transport warned Thursday that ships arriving or leaving Taiwan must avoid the areas where the Chinese army is conducting its practices, a situation that, if sustained over a long period of time, will have repercussions due to delays and route changes could .
Consulted by this newspaper, the German shipping company Hapag-Lloyd and the Danish Maersk, which are among the five largest container shipping companies in the world, assure that there will be no major changes. “All ports in mainland China and Taiwan are operating normally, including terminal operations, ship docking and departure services,” sources at the Nordic company said. These companies have benefited from the post-pandemic rise in container prices due to slumps in ports given the sharp recovery in demand (particularly in the US) and the shortage of workers to unload and truck drivers to transport due to the contagion. , more fuel for the fire of inflation.
However, there are certain incidents in the area. According to information from Lloyd’s List Intelligence, few ships circled the areas where the military exercises are taking place this Friday, compared to an average of 240 ships per day that passed through these waters last week. The number is still small compared to the tens of thousands of ships shipping Asian goods to the West and others going the other way to transport fuel or raw materials.
The escalation comes at an already turbulent time for economic activity as it coincides with fears that a Russian gas lockdown could trigger a recession in Europe this winter. Goldman Sachs analysts agree. “Possible direct or indirect sanctions against China due to geopolitical conflicts would have a significantly larger impact on the global economy than in the case of Russia,” says a report by the US investment bank.
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