Conflict over Taiwan of global significance

Since Nancy Pelosi, then speaker of the US House of Representatives, visited Taiwan last summer, the issue of Taiwan's status has once again come into focus. The visit of Taiwanese President Tsai to the US in early April of this year caused the conflict between the two great powers, the US and China, to escalate further. As an immediate reaction, China held a military maneuver in the Taiwan Strait lasting several days. In return, the US decided to supply Taiwan with weapons worth approx. USD 600mn and topped this up with weapons from its own stocks by a further USD 300mn. In addition, in view of the confrontation with China, the US decided on both a series of measures to boost sensitive chip production in the US (CHIPS Act) and export bans on critical technology and technology expertise to China. European countries are also increasingly trying to promote chip production in Europe through subsidies against the backdrop of the simmering conflict, as demonstrated recently by TSMC's new production facility in Saxony.

If one reads the reports and concept papers on which the US, EU Commission and Germany rely, two aspects take a prominent place in the scenario analysis, namely the chip industry and the Taiwan Strait.

In a blockade and/or invasion scenario, it is highly likely that Taiwanese chip production would come to a standstill. According to a report by the Rhodium Group (an American think tank), such a scenario would lead to a loss of USD 1.6trillion in sales per year for companies that are directly or indirectly dependent on Taiwanese chips. The Council for Foreign Relations even assumes annual losses of USD 2.5trillion. In addition to the loss of sales, supplies in the areas of telecommunications, transport and health would also be acutely endangered.

Less attention in public discussions is paid to the impact on global trade. The Taiwan Strait is an international trade route that runs between mainland China and Taiwan. This sea lane is used by about half of all container ships, with as many as 88% of the current largest container ships traveling this route. It is part of the primary trade route between China and Japan on one side and China and Europe on the other. This sea route is also central to shipments from China to North America and vice versa. Chinese ports in Guangzhou, Hong Kong, Shanghai and Shenzhen - among other Chinese ports - depend on an open Taiwan Strait. In addition, Australian iron ore exports and exports from South Korea also depend on this sea route. A possible blockade and/or invasion scenario would lead to a standstill of cargo traffic via this sea route and would subsequently have a massive impact on global trade and thus the economic consequences would be severe. Due to Taiwan's global importance for both global semiconductor production and global trade, markets are watching the flashpoint of conflict very closely. An escalation would certainly trigger a strong reaction. 

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