Taiwan’s tanks and armored vehicles are deployed during a two-day live-fire exercise in September, amid growing threats from China. Taipei has received more arms and weapons sales from the United States, and fostered relationships with countries such as Japan, Britain, Canada and India, as Beijing vowed to unify Taiwan without does not rule out the use of force. (Photo by Ceng Shou Yi/NurPhoto via Getty Images)
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Japan, South Korea and the Philippines would be hardest hit in the event of a conflict between Taiwan and China. Economist Intelligence Unit report.
The EIU defines a conflict as a “comprehensive conflict scenario, involving direct military involvement of China, Taiwan, and the United States” and is based on the assumption of Chinese escalation.
Apparently, the EIU assesses the risk of a direct Chinese military attack on Taiwan as “very unlikely.” But if that were to happen, the three economies would be “most vulnerable” because of their proximity to the Taiwan Strait and close trade ties with China, but more importantly, because these three countries are allies. treaty alliance of the United States.
China considers self-ruled Taiwan to be a breakaway province that needs to be reunited with the mainland. Chinese President Xi Jinping previously said China will “try to achieve the prospect of peaceful reunification”, but “will never promise to renounce the use of force”.
Taiwan considers itself a sovereign and separate country from China, which has ruled itself since the Nationalist government fled the mainland in 1949 after a protracted civil war. Tensions between the Taiwanese and Chinese governments have increased over the years, and visits by senior US politicians to Taiwan have angered Beijing.
The report indicates that Japan, South Korea and the Philippines have American bases, which highlights their vulnerability to a pre-emptive Chinese attack, should China choose to go to war.
“We hope that the involvement of the United States will activate that country’s regional security alliances, directly benefiting
impact on Australia, Japan, New Zealand, the Philippines and South Korea (as well as other countries with US bases, such as Thailand and Singapore).”
Spokespersons for the Chinese Embassy in Singapore and the Taipei Representative Office in Singapore were not immediately available when contacted by CNBC.
The United States has no mutual defense treaty with Taiwan and is under no obligation to defend the island. However, the Taiwan Relations Act of 1979 stated that the United States “will provide Taiwan with defense equipment and defense services” if necessary to “allow Taiwan to maintain adequate self-defence.”
‘Serious exposure’
The EIU also named several “severely affected markets”: Australia, Malaysia, Thailand and Vietnam, as well as Hong Kong.
As for Hong Kong, the EIU stressed that it is less at risk from physical devastation than from the consequences of possible economic, investment and financial bans on China.
Hong Kong, a former British colony, was returned to Chinese rule in 1997. This Asian financial hub is governed by the “one country, two systems” principle, which gives it much autonomy than other mainland Chinese cities.
The report said that in the event of a conflict and if sanctions were to be imposed on both China (and Hong Kong by extension), this would lead to an exodus of a significant portion of the population. the population and capital of the city, as well as a severe decline. in capital inflows.
For Australia, Malaysia, Thailand and Vietnam, the EIU assesses that the risks they face are mainly due to their extensive trading relationship with China; their reliance on semiconductors from Taiwan; and the importance of global trade flows to their local economies.
In addition, both Malaysia and Vietnam will face a potential conflict with China if cross-strait hostilities spread and spark a conflict in the South China Sea. Malaysia and Vietnam both have competing claims with China in the disputed waters.
In addition, the EIU assessed that Australia would be severely impacted if conflict broke out, as it is becoming more actively involved in regional security issues, which suggests it could play a more direct role in the region. further in any cross-strait conflict.
Moreover, the country’s participation in the AUKUS treaty and the deployment of warships to the South China Sea shows “strong interest in preventing (and punishing) violations of the Asian security status quo”.
AUKUS is a security alliance involving Australia, the United Kingdom and the United States, aimed at enhancing intelligence cooperation and cooperation on advanced capabilities between these countries.
At home, Australia also has “official and widespread perception of China, which could create enough domestic political momentum for the country to react strongly in the event of war with Taiwan. “
Australia and China trade tension since Canberra supported calls for an international investigation into Beijing’s handling of the coronavirus pandemic.
Taiwan and the global chip industry
Taiwan, the economy at the center of it all, will suffer the most severe consequences in the event of a cross-strait conflict, causing shocks that will affect the global semiconductor industry. .
The Economist in March estimated that Taiwan alone produces 60% of the world’s semiconductor chips and 90% of the most advanced chips.
The EIU said a conflict would sever Taiwan’s foundries, and preferably air and maritime links would be disrupted. At worst, Taiwan’s chip production facilities will be completely destroyed.
In either case, the impact will be felt both upstream and downstream.
Manufacturers of advanced chip manufacturing equipment will not be able to get their goods into Taiwan’s foundries, and finished chips from Taiwan will not be able to be exported, affecting customers who depend on those foundry. this finished chip for their products, like smartphones and cars.
Other markets will also be affected by the Taiwan conflict.
The EIU report rates “exposure to imported Taiwanese chips” as a risk for economies in Asia and finds that Japan leads the region, with 47.6% of total chip imports. import from Taiwan. Singapore and Malaysia made the top three, dependent on Taiwanese chips for 40.5% and 27.2% of their total chip imports, respectively.
The EIU acknowledges that China itself is a major exporter of semiconductors, but says that in the event of a cross-strait conflict, sourcing from the Chinese market will be difficult due to logistics disruptions. and potentially embargoed by the US and other countries.
While efforts have been made to diversify semiconductor production into other parts of Asia and the United States, the EIU says these efforts are likely to “take many years” and require a large sum of money. huge capital investment.
This means that businesses or policymakers have limited immediate recourse in the event that any Taiwanese manufacturing is lost.
The importance of Taiwan in the global trade landscape is unlikely to change anytime soon, the EIU said, and given its competitiveness in manufacturing, logistics and transportation networks, the current level of diversification will only provide companies with “limited isolation” should a conflict arise.
As a result, “strategies on how to prepare for a conflict in the Taiwan Strait will likely need to focus on risk reduction, rather than risk avoidance,” the EIU said.
