Global supply chains, particularly for high-tech goods, will be disrupted if political tensions between China and Taiwan heighten any further in the coming weeks, analysts have warned.
Bureau for Economic Research economists said in their Weekly Review that China was already flexing its muscle in the region when speaker of the United States House of Representatives Nancy Pelosi arrived for her controversial visit to Taiwan last week. She is the highest-profile US politician to visit Taiwan in 25 years and did so despite fervent warning from China.
“Pelosi stated that the visit affirmed the US’s support for Taiwan. Unsurprisingly, China, which claims sovereignty over the island, did not take this stance lightly. China quickly retaliated by suspending exports of natural sand, used for construction, to Taiwan and halting imports of fruit and fish products,” the economists said.
China then announced on Friday that it was halting dialogue with the US on several fronts, including on countering cross-border crime, drug smuggling and climate change.
“Most concerning, however, China started its largest-ever military drills in the region around Taiwan. Reports stated that China’s live fire drill around the Strait appeared to simulate a blockade on the island. Should this escalate and trade across the Strait be disrupted, global supply chains, especially those tech-related, would be significantly affected,” the economists said.
According to Bloomberg, an estimated 48% of the world’s 5 400 operational container ships have passed through the Strait so far this year.
“This would of course also negatively impact China’s own supply chain and factory sector, which could make the government more hesitant to implement harsh measures. Be this as it may, with the global geopolitical landscape already so unstable, a key concern now is that we could see further polarisation, with China and Russia on one end and the west on the other,” the economists warned.
