Nancy Pelosi’s Taiwan visit becomes a cold sore for China, can trigger serious supply chain disruptions

Nancy Pelosi Taiwan visit

In a show of US’s support to Taiwan, Nancy Pelosi’s one-day visit to the island country has become a cold sore for China. Nancy Pelosi is the US House Speaker and second in line to the Oval Office after the US Vice-President. It is being said that her visit ‘cast a shadow on US’s One China policy’ by reaffirming US’s support to Taiwan, even in matters of national security and stability. The news comes just two months after US President Joseph Biden announced his commitment to militarily defend Taiwan from Chinese invasion.

Today, our delegation came to Taiwan to make unequivocally clear we will not abandon our commitment to Taiwan and we are proud of our enduring friendship. America’s solidarity with the 23 million people of Taiwan is more important today than ever, as the world faces a choice between autocracy and democracy.”

~ Nancy Pelosi, US House Speaker

Her meeting with Taiwan President Tsai Ing-wen in Taipei has jolted the already sensitive geopolitical situation and has triggered a ‘diplomatic firestorm’. Her statements are said to be a poke at China, who has time and again claimed its sovereignty over Taiwan. This is because the US acknowledges that ‘all Chinese on either side of the Taiwan Strait maintain that there is but one China, and that Taiwan is a part of China.’

Another semiconductor crisis brewing?

According to experts, Pelosi’s visit to Taiwan and China’s outrage over it, may trigger substantial supply chain crisis, hampering trade activity in one of the world’s busiest shipping zones. The shipping routes passing through the region are used to supply vital semiconductors and electronic equipment produced in East Asian factory hubs to global markets, and are a critical for transportation of natural gas.

As Taiwan is a major exporter of semiconductor chips, any charge by China towards it could prove to be catastrophic to the already persistent global semiconductor shortage. Last year’s raging effects of the shortage included a major blow to the auto industry, forcing many to even halt operations. Countries including the U.S. and Germany reached out to Taiwan to help alleviate bottlenecks in the production of chips.

The Taiwan Semiconductor Manufacturing Co (TSMC) is the world’s largest foundry with clientele including Apple, Qualcomm and Nvidia, and accounted for 54% of total foundry revenue globally last year.

Shipping may face rough seas

Nearly half the world’s container ships passed through the narrow Taiwan Strait – which separates the island from the Chinese mainland – in the first seven months of this year, according to data compiled by Bloomberg. The disruption, even if temporary, caused by China’s live fire drills in the Taiwan Strait will have a deeply negative impact on not only Taiwan but also Japan and South Korea.

The ships moving on the Taiwan Strait route carries goods from the eastern world to markets of the west and all points in between. Bloomberg also reports that ‘almost half of the global container fleet and a whopping 88% of the world’s largest ships by tonnage passed through the waterway this year.’

The global shipping industry has already been reeling under the after effects of the pandemic, with one of the world’s largest EXIM market, China, being shut for a long time. As the Russo-Ukrainian war tagged along, the struggles only became harder.

As of now, Taiwan’s Maritime and Port Bureau has warned ships in north, east and south areas to avoid the coordinates being used for the drills. But several shipping companies are waiting to see the impact of the drills before rerouting, considering the ongoing typhoon season, which makes rerouting even riskier. Gas suppliers are rerouting or reducing speed on some liquefied natural gas vessels currently en route to North Asia, according to people familiar with the matter.

Given that much of the world’s container fleet passes through that waterway, there will inevitably be disruptions to global supply chains due to the rerouting,”

James Char, Associate Research Fellow at Singapore’s S. Rajaratnam School of International Studies.

Trade curbs

As a part of their retaliation, China rolled out curbs on the import of fruit and fish from Taiwan, while halting shipments of construction sand to the island. They’ve cited excessive pesticide residue detected on products since last year and some frozen fish packages that tested positive for coronavirus in June, as a reason to impose such curbs on EXIM trade.

What needs to be watched is whether Beijing will broaden the trade bans into the manufacturing sector, particularly semiconductors/electronics going forward,” said Ma Tieying, senior economist at DBS.

So what’s happening?

In a dramatic outrage, China announced live fire military drills around Taiwan, which will supposedly come as close as 20kms of Taiwan’s shoreline and threaten its key ports and urban areas. As of now, Taiwan’s Defence Ministry is monitoring the situation.

Taiwan’s Defence Ministry said yesterday that 27 Chinese fighter jets entered its air defence zone and the Chinese fleet included six J-11 fighter jets, five J-16 fighter jets and 16 SU-30 fighter jets. “As a countermeasure, Taiwan also dispatched its own fighter jets and deployed air defence missiles,” the ministry said in a statement.

The maritime areas announced by the Chinese side as those to be used for military exercises overlaps with Japan’s exclusive economic zone. Considering the live-fire training nature of this military activity, Japan has expressed concerns to the Chinese side.”  

~ Hirokazu Matsuno, Japanese Chief Cabinet Secretary

~ Pakistan is deeply concerned over the evolving situation in the Taiwan Strait, which has serious implications for regional peace and stability.”

Pakistan Foreign Office

They also emphasised that amid the already strained political situations leading to a lack of food and energy security, the world cannot afford another ‘destabilising event’.

Pelosi, towards the end of her diplomatic visit, said that the US will continue to work together on its priorities, including collaborating to combat the climate crisis, which is an imperative for mutual security, and economic growth and to honour its responsibility to future generations.

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