The Banking Executive Magazine - September Issue 2022

Us-China Tension Over Taiwan calating tensions involving the island are causing concern for the already strained global supply chain. Almost half the world’s container ships and 88 per cent of the world’s largest ships by tonnage have passed through the narrow Taiwan Strait in 2022, according to data from Bloomberg. Container xChange, a technology marketplace and operating platform for container logistics companies, said it was difficult to forecast the de- gree of impact to global trade but it expects trade disruptions across Tai- wan, China, South Korea and Japan if military action persists. The global supply chain is intercon- nected and all the major stretches like Taiwan Strait are nerve centres of these value chains, if any one stretch is blocked, the undercurrents are felt across the system. CHINA AND TAIWAN ROLE IN GLOBAL SUPPLY CHAIN According to the Diplomat and Gart- ner research, China accounts for 12 percent of global trade, with many of its exports representing key links in global supply chains. In terms of China’s role in global sup- ply chains, its processing of materials into finished goods accounted for 32 percent of its exports in 2018. That means that other countries continue to rely on China to assemble inputs into final products. In addition, China produces inputs for produc- tion, including raw materials and in- termediate goods, which comprised 18 percent of its exports in 2019. This means that about half of China’s exports represent important parts of global supply chains. China-Taiwan conflict could bring chaos to the semiconductor industry. Taiwan Semiconductor Manufactur- ing Co. produced 63 percent of global semiconductors in 2020, and almost all of the world’s advanced chips in 2019. The auto industry suf- fered greatly due to shortages of the chips in the past couple of years, and disruption in the industry would have major effects on sales of ad- vanced electronic products. In addi- tion, half of Taiwan’s exports are comprised of electrical machinery and equipment, which would bring more pain to this industry. The costs to global supply chains would be quite large from the ten- sion between Taiwan and China. The biggest concern for the global supply chain is disruption to the manufacturing of integrated circuit (microchips), which would have huge consequences to many, if not all, industries. Taiwan Semiconductor Manufactur- ing Co is the world’s largest contract manufacturer of the chips, which are used to power everyday items in- cluding phones, laptops, cars, watches and refrigerators across the world. There is a supply problem worldwide with microchips already, with delays of 12 months for ordering a new car mainly because of microchips. If things escalate between China and Taiwan or between China and the US over Taiwan, any disruption to the world’s supply of microchips would have huge implications. If the supply of microchips was interrupted, this will have a massive impact on the world. IMPACT ONVARIOUS BUSINESSES AND ECONOMIC SECTORS Based on Beroe Inc analysis, the ten- sion between US and China over Tai- wan will have an impact on various businesses and economic sectors in- cluding semiconductors, agro-com- ISSUE 165 SEPTEMBER 2022 the BANKING EXECUTIVE 41 Figure 4. The Taiwan Strait - one of the world’s busiest shipping lanes (Source: iStock, www.news.com.au) China’s President Xi Jinping revealing that one of the major supply chain concerns if conflict escalates is the risk to microchip manufacturing in Taiwan. (Source: Anthony Wallace/AFP)