The People’s Liberation Army (PLA) has been conducting a series of miliary drills around the island of Taiwan and the Beijing government has announced sanctions against Taiwan as well as the cancellation of ongoing discussions between China and US covering a range of issues from military operations to climate change.
Pelosi’s visit has been criticised and there is now the prospect that China could make it more difficult for US companies to access its markets.
Are we now seeing the decoupling of the world’s two biggest economies – a trend that began under Trump and that has continued under Biden?
The Biden administration appears to have moved from a ‘One China’ policy, where it recognised formal ties with China over Taiwan, to one in which it appears to be directly promising to intervene militarily should China threaten Taiwan – hence talk of ‘strategic confusion.’
Washington is already considering export restrictions that could halt investment in China’s semiconductor industry, which could damage already strained global chip supply chains, and the Chips Act recently passed by Congress bars any company that receives federal subsidies from investing in certain chip technology in China during the subsidy period.
The US is also said to be looking at limiting shipments of chipmaking equipment to memory chip producers in China, which would impact the likes of Samsung Electronics and SK Hynix who have both invested heavily in China and could have a massive impact on the wider supply chain.
Samsung's memory chip operation in Xian, central China, accounts for 43% of its global NAND flash memory production capacity and 15% of the overall global output capacity, according to TrendForce.
Shortages and rising prices have impacted the electronics industry over the past 2 years and the worry has to be that if US and Chinese tensions escalate then there will be a good chance that further disruption to the supply chain will be likely just as it is beginning to normalise.
Any fresh disruption is likely to cause supply uncertainty and possibly a price surge posing a real challenge for the wider economy.
But that could be nothing should tension between the US and China escalate further, and should China impose a blockade on the island – which currently supplies half the world’s semiconductors – we could end up seeing a direct military confrontation.
