There is a chance of a Chinese invasion of Taiwan in the next few years, which could seriously disrupt the global chip supply chain. China also has the potential to retaliate in other ways, such as encroaching on Taiwan’s borders and dictating what goods flow in and out. This could significantly disrupt the supply of high-end chips from Taiwan and cause panic buying and stockpiling.
With Taiwan’s global strategic dominance in semiconductor fabrication, it is a key node in the semiconductor industry. It supports both Chinese and American firms. Until recently, it supplied Huawei, but that relationship is now at risk due to new restrictions imposed by the U.S. Department of Commerce. The recent tensions with the Chinese government have made the Biden administration worried that the Taiwanese government might interfere with the semiconductor industry.
China’s General Administration of Customs suspended some fish and fruit imports over fears of pesticide residue. It also banned natural sand exports from Taiwan, although it did not give details. Historically, Beijing has targeted Taiwan’s agricultural industry. Taiwan’s fruit-producing regions are often bastions of support for President Tsai Ing-wen’s Democratic Progressive Party (DPP), which advocates Taiwan’s independence.
China’s retaliatory options are limited, but it’s possible that the two sides may move closer to formal integration. The two sides could also resolve trade tensions, which could be very beneficial to both countries. For example, China has already been buying Taiwan’s semiconductors and is likely to increase its purchases of them in the coming years. But that is unlikely to happen if the two sides do not resolve the dispute in a timely fashion.
Pelosi’s trip to Taiwan is a fresh source of pressure for investors. After all, Beijing is already dealing with the prospect of a U.S. recession, rising rates around the world, and surging inflation. With escalating tension, traders are already hedging against a possible conflict between the world’s two largest economies. As a result, a potential Chinese invasion of Taiwan would have a dramatic impact on Western financial flows.
Meanwhile, Treasury yields climbed on Thursday. The U.S. Speaker of the House visited Taiwan for the first time in 25 years, and Federal Reserve officials hinted that interest rates could rise further. In addition, the S&P 500 has lost nearly 1% this week, following a rally in July. However, it’s important to remember that the S&P 500 has struggled this year because of rising interest rates and inflation.
A recent report published by MIT Technology Review found that Taiwan is the largest source of semiconductor manufacturing in the world. In the last three years, China has made significant progress in the semiconductor industry, and it continues to make progress. While some Chinese companies have recently entered the field, the majority of these manufacturing jobs are still made in the U.S. The American government’s ban on advanced semiconductor exports has a direct and negative impact on the industry. In the long run, this is likely to cost the U.S. Federal budget as well as corporate earnings.
