Why China and Taiwan Conflict Could Destroy Global Economy

And why we need to be careful

Trade War History Between the United States and China

The United States has always played a role in the feud between Taiwan and China. Perhaps this trade war did not directly affect Taiwan and China relations, but it is still important.

Tariffs and the start of the war

In 2018 and 2019, China and the United States began raising tariffs on $450 billion in bilateral trade. Continuing a decades-long drive to remove global trade barriers. These tariff hikes decreased business between the United States and China. But few people know how these trade tariffs affected the rest of the world.

World Went to Taiwan

The top semiconductor chip producers include Taiwan, China, South Korea, Malaysia, Singapore, and the US. Europe and the US are providing the missing semiconductor chips from China and Taiwan. The tariffs on Chinese semiconductor trades put a toll on the trades from there to the US.

Taiwan’s Semiconductor Chip Industry

Whenever it concerns semiconductors, China needs Taiwan more than Taiwan needs China. It is so massive that even though China does everything to Taiwan, they can’t touch semiconductors. Some time ago, after the trade wars between China and the US were over and Joe Biden took over, there was a visit. House Speaker Nancy Pelosi traveled to Taiwan. Before this trip, Beijing banned some trade with the island in response to this controversial trip.

Why is China and Taiwan Important?

Taiwan manufactures 65% of the world’s semiconductors and nearly 90% of complex chips. According to industry analysts, China produces little more than 5%, while the United States produces roughly 10%. Other countries that produce these chips include South Korea, Japan, and the Netherlands. Although China manufactures some semiconductors, it relies mainly on Taiwan for advanced chips. Taiwan’s TSMC manufactures the majority of the world’s advanced semiconductors. These companies include Advanced Micro Devices (AMD), Apple, and Nvidia.

What Could Be The Implications to the Global Economy of Bad China and Taiwan Relations?

Two superpowers are now heavily reliant on the tiny little island at the heart of increasingly violent competition. Letting China capture TSMC’s manufacturing facilities in a fight would jeopardize US military and technological primacy.

Critical Effects of China and Taiwan conflict

The chip shortage will not only affect the items we buy as individuals. It is not just the inflation problem or mobile or automobile shortage we face. From the military to the medical equipment are all using chips. You need chips to create and maintain all those equipment. If a chip shortage persists, critical services such as:

What are Europe and United States Doing?

What are the greatest powers in the world doing to prevent this from happening? This is a massive question mark for everyone. As the semiconductor industry is limited and hard to create, it is not easy to solve. The United States and Europe have been putting tens of billions of dollars into increasing the semiconductor chip output.

Europe

The European Commission (EC) has suggested a European Chips Act under the pretext of digital sovereignty. To foster the development of a vibrant semiconductor sector. This development is from research to manufacture and a robust supply chain. The EC intends to mobilize more than €43 billion in public and private investments. This will implement steps to prevent, prepare for, anticipate, and respond to any supply chain interruption.

  • The first act is Chips for Europe. It aims to add resources from any EU-involved country. European Union, member states, foreign nations, and businesses involved in existing EU programs. The European Commission announced intentions to invest €11 billion in research, development, and innovation.
  • The second section of the European Chips Act addresses investments and manufacturing capacity. The capacity and investments to ensure semiconductor supply. The EC has also established a Chips Fund. This fund will help companies gain access to capital and improve their technologies to attract investors.
  • The Act’s final section addresses what the European Commission refers to as a “coordination mechanism. This mechanism supports member states and the Commission in monitoring supplies.

The United States

The Senate enacted the CHIPS Act. A $52 billion package focuses on increasing semiconductor manufacturing in the United States. The CHIPS Act is primarily comprised of a $39 billion fund. Aimed at assisting enterprises that expand or establish new semiconductor manufacturing facilities in the United States. The Commerce Department will choose which companies will receive the funding. They will distribute the funding over five years. More than $10 billion is set aside for semiconductor research. There is also some funding for workforce development and international engagement. The law also offers a massive investment tax credit worth an extra $24 billion.

Can Taiwan Get Out of This Situation?

Taiwan is in an extremely delicate situation. They are very important to every big player in the world. There is also a country right beside that’s basically ruling them. That country can’t invade because of the semiconductor shortage and fears. Other two big powers — the United States and Europe — have been investing billions of dollars to no avail. So they are stuck with Taiwan. This means they have to protect Taiwan from China. This increases the tension, especially now with the Ukraine war.

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A writer who is passionate about startups and business that focuses on informing people about these subjects. Also publishes on decentfinancelife.com

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Atahan Aslan

A writer who is passionate about startups and business that focuses on informing people about these subjects. Also publishes on decentfinancelife.com