China does not intend to give up its claims on Taiwan
There is a global semiconductor or chip shortage, which is being felt by manufacturers of everything from smartphones and electric vehicles (EVs) to washing machines and toasters. While it’s not clear how the fate of the modest toaster can have geopolitical consequences, the chip shortage is having an impact, especially since it is tied to what is emerging as a new cold war. between the United States and China. This is partly due to the role of Taiwan, which is home to one of the world’s leading chip markers, Taiwan Semiconductor Manufacturing Company (TSMC). China considers the island to be a separatist province. For their part, most Taiwanese see themselves as a separate nation with a democratic and market-oriented development path. Beijing’s crushing of the Hong Kong democratic movement over the past two years has only reinforced that sentiment. Given the centrality of chips in the modern world economy, control of chip production has become a major geo-economic factor and increases China’s political risk. Any Chinese decision to “reunify” Taiwan with the mainland would have implications far beyond the geopolitical structure of East Asia; it also points a weapon directly into the bowels of the global economy and involves the United States.
Semiconductors or chips have become an essential component of the global economy and the key to the production of phones, tablets, computers and automobiles. Companies affected by the current chip shortage include Apple, Microsoft, Ford, General Motors and Volkswagen. With supplies lagging behind demand, delivery times for new orders have lengthened until 2020 and 2021.
While US companies like Intel, Qualcomm, and Texas Instruments are still active in chip production, the two main producers of high-end chips are South Korea’s TMSC and Samsung Electronics. If you add South Korean company SK Hynix to the mix, Asian production weighs heavily on global production. US production, once the dominant force, has seen its market share drop from 37% in 1990 to 12% today, according to Bloomberg.
The current shortage of fleas has been caused by a combination of factors. These include the coronavirus, which has led to an increase in ‘stay-at-home’ activity, which has helped boost the sale of laptops (which saw a decade of sales in 2020), webcams and systems. games. Another factor has been the rebound in auto sales: Most automakers did not anticipate how quickly consumers would return (in part due to an aversion to public transport). When automakers looked to increase orders from chipmakers, they found themselves behind the curve after being beaten by Apple and Microsoft (themselves called in to meet demand for computers and smartphones).
Another factor was natural disasters – a cold snap in February 2021 in Texas resulted in power outages that hit US chip production (around Austin); in March 2021 in Japan, a fire destroyed a factory run by Renesas Electronics (a major manufacturer of chips for the automotive industry) and a severe drought in Taiwan (in 2020, precipitation fell by 20 to 60% of the historical average ), which raised questions about its impact on manufacturing.
A final factor that has taken a heavy toll on chip supply has been the new cold war that has developed between the United States and China. When Washington restricted Huawei’s access to critical US technology (like chips) in early 2020, the company stockpiled as many supplies as possible. Other Chinese companies, looking at the same geopolitical landscape, have followed suit, putting pressure on supply.
With major chipmakers already operating at full capacity, supply is expected to remain tight. According to TMSC, the chip shortage is likely to last until 2022. The current crisis also indicates that as the global economy goes digital, demand will likely continue to outpace production. What could stop this would be another major economic disruption or a decline in consumer demand for a wide range of products, such as laptops, monitors, and electric vehicles. Given the drive to go green, digitization is expected to continue (despite high power consumption by chipmakers). In the long run, the industry could face other challenges such as overproduction, with countries choosing to build more advanced factories to achieve self-sufficiency.
Taiwan has assumed considerable geoeconomic importance due to its chip industry. The decision was taken in the 1970s to promote the island’s electronics industry, which allowed it to tap into its main resource of well-educated people and overcome a lack of natural resources. This policy was fostered by a technology transfer agreement with RCA, the American electronics company, as well as by the trend towards outsourcing in the West. In the 1980s, TSMC pioneered the foundry industry, which involved making logic chips for other companies. In the 2020s, TSM produced the most sophisticated chips, which gave the company a competitive advantage over many of its rivals. It has also made Taiwan a technological center.
During the Trump administration, policy towards China hardened considerably, with the two countries finding themselves in a painful trade war. For China, the United States is seeking to contain its rise as the world’s leading power. This was evident in the Trans-Pacific Partnership (TPP), which was a creation of the Obama administration and sought to contain Asian power. At the same time, the Obama administration’s “backbone to Asia” (and its efforts to escape the Middle East) were seen as part of the same policy mix. The arrival of the Trump administration has only worsened tensions between the United States and China.
Although President Trump refused to sign the TPP deal, he pursued an aggressive policy of decoupling the two economies and forcing a restructuring of global supply chains. At the same time, there has been pressure on China’s expansion into the South China Sea; its penetration into the economies of the developing world; and its destruction of the quasi-democratic political system distinct from Hong Kong. In this mixture, Taiwan played an important role, especially since it is a sensitive point for China, being the last territory claimed by Beijing not to have been “liberated” and united to the continent. The Trump administration’s willingness to improve relations with Taiwan, to partner with it on the diplomatic front (particularly in the Caribbean and Central America, where most of its remaining diplomatic ties exist), and to sell arms in Taiwan, angered the Xi government.
China does not intend to give up its claims on Taiwan. The election of pro-independence Tsai Ing-wen as president of Taiwan in 2016 and his re-election in 2020 only added another element of hostility from China. Indeed, Beijing has stepped up its pressure on Taiwan in 2021. The country “has dramatically increased its operations against Taiwan, which Tobias Burgers and Scott Romaniuk noted in an editorial published by The diplomat. He sent his Air Force of the People’s Liberation Army (PLAAF) beyond the long-respected center line in the Taiwan Strait and made matters worse by breaking into the identification area of Taiwan Air Defense (ADIZ) with an ever increasing number of military aircraft. . In addition, China has deployed its carrier force in the eastern waters of Taiwan to conduct exercises, while casually pointing out that such entry and encirclement operations would become the norm in its foreign relations and interactions with d ‘other, mostly neighboring states,’ according to Burgers and Romaniuk.
The new cold war is likely to deepen. Although the Biden administration seeks to avoid using the term, it largely follows the Chinese policies of the previous administration. This has resulted in the maintenance of protectionist trade policies, including tariffs and action against China in Hong Kong and with the Uyghurs in Xinjiang. President Joe Biden also highlighted the ideological differences between the United States and China. He noted that “it is a battle between the usefulness of democracies in the 21st century and autocracies”. Simply put, Biden presented the United States, defending democracy and a more market-oriented economy, as being engaged in a global struggle with the Chinese model (authoritarian politics and mercantilist economic policy).
What is Taiwan’s place in this mix of new Cold War geopolitics and chip production? A growing number of analysts believe China plans to invade Taiwan within the next decade. According to Admiral Phil Davidson, former commander of the American Indo-Pacific Command: “Taiwan is clearly one of their (China’s) ambitions before this date (2050). And I think the threat is evident in this decade, in fact the next six years.
If China succeeded in conquering Taiwan, it would gain a major advantage in chip manufacturing, which would help it to become the world’s largest economy. It would also give Beijing a major geo-economic advantage with what weapon to threaten rivals with chip shortages. It has already done this with rare earth metals. A price squeeze on chips would add inflationary pressure, as manufacturing and tech companies would most likely pass cost increases on to their customers. In this latest round of chip increases, some people have already observed that the average transaction price for new vehicles in March 2021 was estimated at $ 40,563, down from $ 38,601 a year earlier. Price increases also filter through sectors of the economy.