Taiwan Remains a Big Geopolitical Risk in 2022

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China’s top diplomat recently said Taiwan is a “wanderer” that will eventually “come home” to China. Such rhetoric by the Chinese Communist Party (CCP) officials as well as increased Chinese military aircraft incursions near Taiwan in recent months have spiked a new wave of fears and media speculation that a Chinese invasion of the island may not be far away.

Some media commentators believe that the tension in Taiwan Strait stands as one of the world’s biggest geopolitical risks in 2022. China claims sovereignty over Taiwan and in the past two years has stepped up threats to take control of the island.

Such a move would inflict economic pain on many countries as Taiwan is a crucial hub for the global semiconductor supply chain, according to experts. A Chinese military takeover would cause severe supply shocks across many industries that heavily rely on chips made in Taiwan.

Taiwanese companies, both large and small, account for about 65 percent of global sales of outsourced chips. Taiwan Semiconductor Manufacturing Company (TSMC), the crown jewel of the island, alone generates 56 percent of the global revenues.

“The situation is similar in some ways to the world’s past reliance on Middle Eastern oil, with any instability on the island threatening to echo across industries,” says Keith Krach, former undersecretary of state who played a crucial role in the warming of relations with Taipei under the Trump administration.

TSMC ranks as one of the world’s most valuable companies, with a market capitalization of nearly $600 billion.

“To put it in perspective GDP of Taiwan is around $750 billion. That certainly makes the China-Taiwan tensions more combustible,” Krach noted.

Apple is TSMC’s biggest customer. Other notable companies that depend on TSMC include AMD, Qualcomm, NVIDIA, and Intel.

While the world’s major chipmakers race to produce the smallest chips possible; only TSMC and Korea-based Samsung can produce the cutting-edge standard, which is five nanometers. TSMC recently announced that it would start producing the next-generation 3-nanometer chips in the second half of this year.

China, by contrast, is sitting at the lower end of the semiconductor value chain. It only holds 5 percent of the market share in global sales and relies heavily on foreign suppliers for advanced chips.

By Emel Akan

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