3 ways Taiwan-China standoff could impact world markets

The stalemate between China and Taiwan (and the US) has raised tensions to the highest level in decades but, at least so far, economic observers have not seen a worst case scenario.

The island’s crucial semiconductor industry has avoided a direct hit and, while China currently has effectively pinned down Taiwan, it is expected to finish this weekend.

But White House officials and other observers say that doesn’t mean Taiwan’s economy and world markets are freaking out. There are three key economic ripples – from global shipping to cyberattacks to trade wars – that could be felt in world markets in the weeks and months to come, even if tensions don’t worsen.

“We will not seek, nor do we want, a crisis,” NSC strategic communications coordinator John Kirby told reporters Thursday, but it was clear that China’s actions “erode the status quo across the Strait” on issues. both economic and military.

Here are some of the immediate economic effects that could be felt even if China stops before the full-scale economic (or actual) war after House Speaker Nancy Pelosi’s trip to the island.

FILE - In this photo released by the Taiwan presidential office, US House Speaker Nancy Pelosi, left, and Taiwanese President Tsai Ing-wen make a gesture during a meeting in Taipei, Taiwan on Wednesday, August 3. 2022. China staged live-fire military drills in six self-declared zones surrounding Taiwan in response to a visit by US House Speaker Nancy Pelosi to the island that Beijing claims as its territory.  (Taiwan presidential office via AP, file)
FILE – In this photo released by the Taiwan presidential office, US House Speaker Nancy Pelosi, left, and Taiwanese President Tsai Ing-wen make a gesture during a meeting in Taipei, Taiwan on Wednesday, August 3. 2022. China staged live-fire military drills in six self-declared zones surrounding Taiwan in response to a visit by US House Speaker Nancy Pelosi to the island that Beijing claims as its territory. (Taiwan presidential office via AP, file)

The actual blockade of the island by China

Pelosi was the highest-ranking American politician to visit Taiwan in 25 years, and according to the White House, China has launched about 11 ballistic missiles into Taiwan in response to a dramatic display of military strength. The exercises took place all along the coast of the island and had the effect of establishing an effective economic blockade.

But even with military tensions at the highest level in decades, there could be limited economic implications if the fleet of Chinese ships were to eventually return to their home ports as planned this weekend.

The video screenshot shows a missile launched by the Chinese People's Liberation Army PLA Eastern Theater Command missile force, targeting designated sea areas east of Taiwan Island on August 4, 2022. Eastern Theater Command Thursday. conducted joint combat exercises and training around the island of Taiwan on an unprecedented scale.  (Photo by Xinhua via Getty Images)

The video screenshot taken by Chinese state media shows a missile launched against designated sea areas east of Taiwan on August 4. (Xinhua via Getty Images)

Meanwhile, airlines are adjusting with the total cancellation of some flights to Taipei, while others appear set to move forward avoiding a disputed airspace in the waters around Taiwan.

Ships in and out of Taiwan, however, are largely at a standstill, although they are expected to be back on the move soon. Even if they did, a long-term economic consequence could be that shippers are less likely to wade in the waters around Taiwan, especially if China continues to make its dissatisfaction known to passing ships.

Herbert Lin, a senior research fellow at Stanford’s Center for International Security and Cooperation, told Yahoo Finance on Friday that: “You could easily imagine if shipping lines in and out of Taiwan were threatened in any way. [then insurance rates could go up] and this is a BFD.

Another area closely monitored is any changes in China’s ongoing cyberwarfare campaign against Taiwan during the trip, noting as he told Taiwanese “our CHIPS and Science Act will go a long way in strengthening both of our economies, as well as having expressed our support for a 21st century business framework ”.

TAIPEI, TAIWAN - AUGUST 03: (---- FOR EDITORIAL USE ONLY - CREDIT MANDATORY -

House Speaker Nancy Pelosi and her Congressional delegation depart from Taipei Songshan Airport following their visit to Taipei on August 3. (Taiwanese Foreign Ministry / Pantry / Anadolu Agency via Getty Images)

Chinese cyberattacks

Another area closely monitored is any changes in China’s ongoing cyberwarfare campaign against Taiwan.

China and its allies are suspected of being behind cyber attacks to disrupt Taiwan’s society and economy for years. Only in the last few days, it seems, has he hacked into everything from 7-Eleven stores to the Taiwan presidential office to show his displeasure with the visit.

The question is whether China will increase the ferocity of the attacks in the coming days and whether the United States could be drawn into that conflict.

On Thursday, Kirby was asked about the cyber attacks and declined to consider any specific measures, but made it clear that the US was closely monitoring the situation. “For many good reasons, we are not talking about steps we take either unilaterally or bilaterally in cyberspace”, but we immediately added “we are committed, as we have been for decades, in Taiwan’s self-defense. [and] I leave it like this “.

Professor Lin notes that the rise in cyber attacks could continue for a long time.

“It is really expensive to continue conducting large-scale military operations as they are doing,” he said of China, noting that missile launches may slow down, but cyber warfare is “a simple and inexpensive way to express dissatisfaction.”

Experts have also often pointed out that if the conflict continues, Americans will never be safe from direct cyberattacks. The vulnerabilities of American business in the cyber arena by Chinese and Russian governments, as well as unofficial actors, have been demonstrated repeatedly in recent years.

Economic coercion

Economic coercion efforts are another ongoing risk.

Kirby led such efforts from the White House podium on Thursday and Beijing announced that it will indefinitely block select imports such as citrus, fish and other foods from Taiwan, even after the effective blockade ends.

However, China specifically said it will continue to allow imports of semiconductors from Taiwan. Taiwan Semiconductor Manufacturing Company (TSM) is the largest semiconductor company in the world, with its products powering countless electronic components in China and around the world.

Experts noted that Beijing’s split response to suggest that economic coercion efforts may not have as profound an effect as some may fear.

Taiwan Semiconductor Manufacturing Company (TSMC) Fab 15B, one of the company's four giga semiconductor fabrication plants, is pictured in Taichung, Taiwan on September 2, 2021. REUTERS / Yimou Lee T

One of Taiwan Semiconductor Manufacturing Company’s semiconductor manufacturing facilities is pictured in Taichung, Taiwan (REUTERS / Yimou Lee)

In the past, China has banned Taiwanese imports of things like sugar and wax, apples and pineapples, but actions are often limited to more symbolic products, as opposed to exports that would severely harm either economy.

This week’s action was another example of this trend.

As for semiconductors, for example, Beijing is unlikely to institute a ban anytime soon. Sarah Kreps, professor and director of the Cornell Tech Policy Lab, recently told Yahoo Finance that “chips have become almost a third binary,” which China does not want to touch.

Ben Werschkul is a Washington correspondent for Yahoo Finance.

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