China hits Taiwan with trade restrictions after Pelosi’s visit


Hong Kong
CNN business

China has suspended some trade with Taiwan in apparent punishment for a visit by US House Speaker Nancy Pelosi to the self-governing island.

The curbs include the suspension of some fruit and fish imports from Taiwan and exports of natural sand to the island.

China is Taiwan’s largest trading partner, with bilateral trade worth $ 273 billion last year, accounting for 33% of the island’s total trade with the rest of the world, according to the Taiwanese government.

Experts are also concerned about the impact rising tensions between Taipei and Beijing could have on Taiwan’s semiconductor industry.

US House Speaker Nancy Pelosi, center left, speaks with Taiwanese President Tsai Ing-wen, center right, after arriving at the President's office on August 03, 2022 in Taipei, Taiwan.

The self-governing democratic island of 24 million people is a world leader in the supply of semiconductor chips, which are a vital component of almost all modern electronics, from cars to refrigerators to cell phones.

Taiwan’s Chinese Affairs Bureau said Wednesday that it will suspend imports of grapefruit, lemons, oranges and other citrus fruits, as well as chilled white-striped hair tail and frozen horse mackerel from Taiwan.

In a separate statement, Chinese customs officials said the suspension of citrus imports was the result of “pest control” and “excessive pesticide residues” and cited “Covid prevention” for suspending imports of seafood products.

China’s Ministry of Commerce, meanwhile, has suspended exports of natural sand to Taiwan, a key component for semiconductor chip manufacturing.

“Nancy Pelosi’s visit to Taiwan sparked the anticipated anger of the Chinese authorities,” ING Group analysts said Wednesday.

In response, Taiwanese officials said China has suspended sand exports it would have a “limited” effect and that Chinese sand represents “less than one percent” of its total demand.

China previously banned imports of some Taiwanese products due to mounting tensions. Last year, China banned imports of pineapples from the island, followed by some types of apples later in the year, citing “pest control”. Earlier this year, it also banned Taiwanese grouper fish, a high-value seafood product from Taiwan, citing the detection of certain banned drugs.

Recent Beijing announcements coincide with Pelosi’s trip to Taiwan, the first visit by a seated speaker in 25 years, and after Beijing issued stern warnings that it would take retaliatory countermeasures.

The country’s army said after Pelosi’s visit that it was launching a series of “targeted military operations to counter the situation”.

In a press conference on Wednesday, a spokesman for the Chinese Foreign Ministry said that “the separatist forces of the United States and Taiwan must take responsibility and pay the price for the mistakes they have made.” Her comments came after she was asked if the latest export suspension intends to punish Taiwan for Pelosi’s visit, to which she refused to respond directly, saying “please ask the relevant department in charge.”

Pelosi’s visit comes at a time of tension for China.

The Communist Party will undergo a leadership reshuffle at its 20th party congress this fall. President Xi Jinping is expected to seek a historic third term in power during the meeting.

Internal tensions are high as the country’s economy has slipped to lowest growth in more than two years amid tight Covid lockdowns and a struggling real estate market. Youth unemployment has risen to the highest level on record. Social protests are on the rise due to a nationwide mortgage crisis and a series of rural banking scandals.

Traders and analysts are concerned about escalating China-Taiwan tensions and their impact on the global supply chain and inflation outlook.

Global markets tumbled Tuesday, with major equity indices closing in the red and safe haven currencies rising. Asian markets rebounded slightly on Wednesday morning, but risk sentiment remains weak.

“China’s response to Pelosi’s trip to Taiwan could impact supply chains and demand, which could keep inflationary pressures strong,” Edward Moya, Oanda’s senior market strategist, said Wednesday.

Global supply chains have already been disrupted by the pandemic and the war in Ukraine. The World Bank recently said that many countries are experiencing double-digit inflation.

Any conflict in Taiwan, which is critical to supplying semiconductors to the world, could exacerbate the global chip shortage that has already strained the global auto industry. The Taiwan Strait is also an important shipping route for ships carrying goods between Asia and the West.

Taiwan Semiconductor Manufacturing Company is the largest contract chip manufacturer in the world and plays a vital role in powering products designed by technology companies such as Apple, Qualcomm and Nvidia.

In an interview with CNN this week, TSMC chairman Mark Liu said a war between China and Taiwan would cause everyone to lose. “If you take a military force or an invasion, you will make the TSMC factory inoperative,” he said.

TSMC is one of the most valuable Asian companies and represents 90% of the world’s super advanced chips.

Eurasia Group analysts, meanwhile, expected Beijing to conduct an “unprecedented” show of military force in the Taiwan Strait, along with cyber attacks, economic sanctions and diplomatic protests.

“The immediate effect on customers will be a moderate but likely temporary disruption of the supply chains that cross the waters around Taiwan, as planes and ships divert to avoid [People’s Liberation Army] exercises, ”they said in a report Wednesday.

“The lasting impact” will depend on the duration and intensity of the episode, although at least it will require further planning and contingencies on supply chain disruptions, including for semiconductors, by companies and policy makers, they added.

“The potential for crisis may not diminish soon,” they said, adding that China could unveil further responses in the coming days, weeks and even months as the party’s 20th congress approaches.

Simone McCarthy, Akanksha Sharma and Wayne Chang of CNN in Hong Kong contributed to this report.

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