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How TSMC and US-China Tensions May Dictate Fate of Global Economy
- The fate of the global economy may rest on the shoulders of one company: TSMC.
- TSMC is the world’s biggest chipmaker — its chips power everything from cars to iPhones.
- But US-China tensions, and China’s standoff with Taiwan, could cost the global economy trillions.
On a tiny island off the coast of China, one company manufactures a product used across the globe for countless household products as varied as PCs and washing machines.
And as that island — Taiwan — worries about the threat of a standoff between the US and China, the world’s economy holds its breath. That’s because there could be trillions of dollars’ worth of economic activity tied to that one company: Taiwan Semiconductor Manufacturing Company, the world’s biggest chipmaker.
Industry watchers say an escalating dispute between the US and China over Taiwan could drag down the global economy, given the fact that no other company makes such advanced chips at such a high volume. If TSMC goes offline, they say, the production of everything from cars to iPhones could screech to a halt.
“If China would invade Taiwan, that would be the biggest impact we’ve seen to the global economy — possibly ever,” Glenn O’Donnell, the vice president and research director at Forrester, told Insider. “This could be bigger than 1929.”
What is TSMC?
VCG/VCG via Getty Images
While TSMC may not be a household name, you almost certainly own something that’s powered by its chips.
TSMC is in the foundry business, meaning it doesn’t design its own chips but instead produces them at fabrication plants for other companies. The company accounts for over half of the global semiconductor market, and when it comes to advanced processors that number is, by some estimates, as high as 90%. In fact, even the best chip from China’s top semiconductor manufacturer, SMIC, has been said to be about five years behind TSMC’s.
TSMC counts Apple as its biggest customer, supplying the California tech giant with the chips that power iPhones. In fact, most of the world’s roughly 1.4 billion smartphone processors are produced by TSMC, as are about 60% of the chips used by automakers, according to The Wall Street Journal.
TSMC semiconductors are also used in high-performance computing: They can quickly process reams of data and guide missiles, making the company highly valuable in the eyes of government entities.
As TSMC has grown to dominate the industry, it has automatically become an oligopoly, according to William Alan Reinsch, a senior advisor at the Center for Strategic and International Studies, a national security think tank.
“When you have a very complex, very sophisticated, and very expensive technology where barriers to entry are very high — I mean, building a fab plant is in the billions — you can’t just decide tomorrow, ‘Well, I’m going to go into that business,'” he said. “It’s not like making tea.”
How did we become so reliant on chips made in Taiwan?
Ann Wang/Reuters
The semiconductor industry has its roots in the US, as much of the research and development is done on US soil. Companies in other countries license the US-made technology.
Dylan Patel, a chief analyst at the semiconductor research and consulting firm SemiAnalysis, pointed to the Dutch company ASML as an example: ASML produces high-end chipmaking equipment, but one of the technologies for which it’s best known was invented in the US National Laboratories.
Over the past 30 years or so, manufacturers in developed countries concluded it was in their best interest to outsource the manufacturing of the chips, according to Reinsch.
“You build a big factory and you crank these things out by the thousands, and you do it in a low-wage, nonunion country that probably doesn’t have environmental requirements,” he said. “You keep all the design and IP at home and you do all your sales, marketing, and service at home, and that’s where you make the money.”
It’s this approach that has directly led to the growth of chip foundries like TSMC and reduced production on American soil, Reinsch said.
According to a 2021 report from the Semiconductor Industry Association, in 1990 the US produced 37% of the world’s chip supply. These days, the US is responsible for only 12% of global chip production.
Why is this a problem now?
Mike Blake/REUTERS
As the coronavirus pandemic and the war in Ukraine have illustrated, having too much reliance on certain countries can upend supply chains when disruptions arise. It’s for this reason that many US corporations are exploring “onshoring” — moving some of their manufacturing to the US — to make their supply chains more resilient.
The US’s access to TSMC chips, however, is especially vulnerable, because though Taiwan is self-governing, China claims the island as its own and has threatened to invade. Controlling Taiwan is central to Chinese President Xi Jinping’s goal of achieving a “great rejuvenation of the Chinese nation” by 2049, the 100th anniversary of the People’s Republic of China.
While the consequences of an invasion could be significant, many experts say it’s just a matter of time before it happens, whether it’s by 2030, 2025, or even by the end of next year. On Monday, US Secretary of State Antony Blinken predicted China would take steps to annex Taiwan on a “much faster timeline” than previously thought, signaling that it could be sooner rather than later. The US government is already playing out war-game scenarios to prepare for this, and in the event of a full invasion it would reportedly consider evacuating the skilled chipmaker engineers on which it’s become so reliant.
The spotlight has focused increasingly on Taiwan and the semiconductor industry as a whole in recent weeks following the export regulations the US government slapped on China. Those regulations limit sales of semiconductors made using US technology and are meant to curb China’s ability to develop advanced technology.
The US and China are now locked in what Patel described as “a full-scale bilateral economic cold war,” one that’s likely to have severe financial repercussions, especially given how intertwined the semiconductor supply chain is.
What would happen if China invaded Taiwan?
Alexander Vilf – Host Photo Agency via Getty Images
Taiwan hopes its semiconductor business will protect it from Chinese aggression — government leaders have called the industry a “silicon shield” against invasion.
But if China did invade, disrupting the world’s access to chips, “the entire global economy comes to a screeching halt,” O’Donnell from Forrester said. “Semiconductors have become almost like the oxygen of the global economy,” he said. “Without the chips, you can’t breathe.”
The effects of such a halt would be “economically devastating,” says Martijn Rasser, a former senior intelligence officer at the CIA who is now a security and technology expert at the Center for a New American Security, a left-leaning think tank.
“You’d be looking at trillions of dollars in economic losses,” he told Insider.
The US National Security Council agrees, and in July the US commerce secretary said the US would face a “deep and immediate recession” if American businesses no longer had access to these chips.
Some experts have speculated that, in the event of an invasion, the chip-manufacturing facilities would be intentionally destroyed so China couldn’t access them. In a US Army journal article published in December, the academic Jared McKinney described this strategy as the “broken nest” — another way to put it is mutually assured destruction.
The destruction of those facilities, or an inability to access their chips, could have major national security implications, Rasser said.
“Every military system that we rely on has a ton of semiconductors in them,” he said. “It would start impacting our ability to maintain existing weapon systems, upgrade ones, build new ones.”
Considering that the US has committed to defending Taiwan in the event of a Chinese invasion, these hits to the US’s defense capabilities could be especially significant.
But while a Chinese invasion of Taiwan would produce the most serious disruption, Rasser says it wouldn’t necessarily take an invasion for the world’s chip access to be blocked. As well as making investments in Taiwanese firms and poaching their workers, China could institute a blockade on the island that could cut off the world from semiconductor supplies.
What’s the solution?
SAUL LOEB/AFP via Getty Images
The US is taking some steps to make itself less reliant on Taiwan. In July, for instance, Congress passed the CHIPS Act, which includes nearly $53 billion in subsidies and tax breaks in an effort to bolster chip manufacturing in the US.
Some companies have already begun adding US facilities: Intel is building two $20 billion factories in Ohio, Micron has pledged to spend up to $100 billion on a massive chip factory in upstate New York, Samsung is building a $17 billion factory in Texas, and TSMC is constructing a $12 billion plant in Arizona.
TSMC is also building a new facility in Japan, one that will produce the less advanced chips needed in the auto industry. The Wall Street Journal reported that Japanese officials had signaled they’d like TSMC to expand its presence there by adding capacity for advanced chips as well, another sign global powers are growing wary of the geopolitical risk to Taiwan.
But O’Donnell warned it would be premature to celebrate an end to the chip shortage or to the US’s reliance on Taiwanese chips. The factories themselves require equipment that’s in short supply because of — ironically enough — the chip shortage. And besides, those plants take years to build and get online.
“Once you stick a shovel in the ground, you’re not going to get chips for at least three years,” he said.
Plus, there remain obstacles to substantially decreasing the country’s reliance on TSMC. While the subsidies and tax breaks will help, Taiwan may continue to remain the cheaper option for businesses. And, for the time being at least, TSMC’s chips are likely to be higher quality as well. Given that TSMC is “really at the cutting edge,” Rasser said, the chips produced in the US by Intel, for instance, “wouldn’t be as sophisticated” as those made in Taiwan.
While producing even these lower-quality chips would go some way to reduce the US’s reliance on Taiwan, the US has a shortfall of the skilled workforce needed to ramp up production, a problem companies in this industry are facing across the globe. Rasser says enhanced training and education will be necessary to fill this gap.
It’s for these reasons that it could be “years and potentially decades” before the US will be able to declare independence on the chipmaking front.
“The CHIPS Act, it’s a good step in the right direction, but it’s just a little more than scratching the surface,” Rasser said.
In the meantime, the US may have to cross its fingers that an economy-shaking disruption doesn’t come to pass.
How TSMC and US-China Tensions May Dictate Fate of Global Economy
- The fate of the global economy may rest on the shoulders of one company: TSMC.
- TSMC is the world’s biggest chipmaker — its chips power everything from cars to iPhones.
- But US-China tensions, and China’s standoff with Taiwan, could cost the global economy trillions.
On a tiny island off the coast of China, one company manufactures a product used across the globe for countless household products as varied as PCs and washing machines.
And as that island — Taiwan — worries about the threat of a standoff between the US and China, the world’s economy holds its breath. That’s because there could be trillions of dollars’ worth of economic activity tied to that one company: Taiwan Semiconductor Manufacturing Company, the world’s biggest chipmaker.
Industry watchers say an escalating dispute between the US and China over Taiwan could drag down the global economy, given the fact that no other company makes such advanced chips at such a high volume. If TSMC goes offline, they say, the production of everything from cars to iPhones could screech to a halt.
“If China would invade Taiwan, that would be the biggest impact we’ve seen to the global economy — possibly ever,” Glenn O’Donnell, the vice president and research director at Forrester, told Insider. “This could be bigger than 1929.”
What is TSMC?
VCG/VCG via Getty Images
While TSMC may not be a household name, you almost certainly own something that’s powered by its chips.
TSMC is in the foundry business, meaning it doesn’t design its own chips but instead produces them at fabrication plants for other companies. The company accounts for over half of the global semiconductor market, and when it comes to advanced processors that number is, by some estimates, as high as 90%. In fact, even the best chip from China’s top semiconductor manufacturer, SMIC, has been said to be about five years behind TSMC’s.
TSMC counts Apple as its biggest customer, supplying the California tech giant with the chips that power iPhones. In fact, most of the world’s roughly 1.4 billion smartphone processors are produced by TSMC, as are about 60% of the chips used by automakers, according to The Wall Street Journal.
TSMC semiconductors are also used in high-performance computing: They can quickly process reams of data and guide missiles, making the company highly valuable in the eyes of government entities.
As TSMC has grown to dominate the industry, it has automatically become an oligopoly, according to William Alan Reinsch, a senior advisor at the Center for Strategic and International Studies, a national security think tank.
“When you have a very complex, very sophisticated, and very expensive technology where barriers to entry are very high — I mean, building a fab plant is in the billions — you can’t just decide tomorrow, ‘Well, I’m going to go into that business,'” he said. “It’s not like making tea.”
How did we become so reliant on chips made in Taiwan?
Ann Wang/Reuters
The semiconductor industry has its roots in the US, as much of the research and development is done on US soil. Companies in other countries license the US-made technology.
Dylan Patel, a chief analyst at the semiconductor research and consulting firm SemiAnalysis, pointed to the Dutch company ASML as an example: ASML produces high-end chipmaking equipment, but one of the technologies for which it’s best known was invented in the US National Laboratories.
Over the past 30 years or so, manufacturers in developed countries concluded it was in their best interest to outsource the manufacturing of the chips, according to Reinsch.
“You build a big factory and you crank these things out by the thousands, and you do it in a low-wage, nonunion country that probably doesn’t have environmental requirements,” he said. “You keep all the design and IP at home and you do all your sales, marketing, and service at home, and that’s where you make the money.”
It’s this approach that has directly led to the growth of chip foundries like TSMC and reduced production on American soil, Reinsch said.
According to a 2021 report from the Semiconductor Industry Association, in 1990 the US produced 37% of the world’s chip supply. These days, the US is responsible for only 12% of global chip production.
Why is this a problem now?
Mike Blake/REUTERS
As the coronavirus pandemic and the war in Ukraine have illustrated, having too much reliance on certain countries can upend supply chains when disruptions arise. It’s for this reason that many US corporations are exploring “onshoring” — moving some of their manufacturing to the US — to make their supply chains more resilient.
The US’s access to TSMC chips, however, is especially vulnerable, because though Taiwan is self-governing, China claims the island as its own and has threatened to invade. Controlling Taiwan is central to Chinese President Xi Jinping’s goal of achieving a “great rejuvenation of the Chinese nation” by 2049, the 100th anniversary of the People’s Republic of China.
While the consequences of an invasion could be significant, many experts say it’s just a matter of time before it happens, whether it’s by 2030, 2025, or even by the end of next year. On Monday, US Secretary of State Antony Blinken predicted China would take steps to annex Taiwan on a “much faster timeline” than previously thought, signaling that it could be sooner rather than later. The US government is already playing out war-game scenarios to prepare for this, and in the event of a full invasion it would reportedly consider evacuating the skilled chipmaker engineers on which it’s become so reliant.
The spotlight has focused increasingly on Taiwan and the semiconductor industry as a whole in recent weeks following the export regulations the US government slapped on China. Those regulations limit sales of semiconductors made using US technology and are meant to curb China’s ability to develop advanced technology.
The US and China are now locked in what Patel described as “a full-scale bilateral economic cold war,” one that’s likely to have severe financial repercussions, especially given how intertwined the semiconductor supply chain is.
What would happen if China invaded Taiwan?
Alexander Vilf – Host Photo Agency via Getty Images
Taiwan hopes its semiconductor business will protect it from Chinese aggression — government leaders have called the industry a “silicon shield” against invasion.
But if China did invade, disrupting the world’s access to chips, “the entire global economy comes to a screeching halt,” O’Donnell from Forrester said. “Semiconductors have become almost like the oxygen of the global economy,” he said. “Without the chips, you can’t breathe.”
The effects of such a halt would be “economically devastating,” says Martijn Rasser, a former senior intelligence officer at the CIA who is now a security and technology expert at the Center for a New American Security, a left-leaning think tank.
“You’d be looking at trillions of dollars in economic losses,” he told Insider.
The US National Security Council agrees, and in July the US commerce secretary said the US would face a “deep and immediate recession” if American businesses no longer had access to these chips.
Some experts have speculated that, in the event of an invasion, the chip-manufacturing facilities would be intentionally destroyed so China couldn’t access them. In a US Army journal article published in December, the academic Jared McKinney described this strategy as the “broken nest” — another way to put it is mutually assured destruction.
The destruction of those facilities, or an inability to access their chips, could have major national security implications, Rasser said.
“Every military system that we rely on has a ton of semiconductors in them,” he said. “It would start impacting our ability to maintain existing weapon systems, upgrade ones, build new ones.”
Considering that the US has committed to defending Taiwan in the event of a Chinese invasion, these hits to the US’s defense capabilities could be especially significant.
But while a Chinese invasion of Taiwan would produce the most serious disruption, Rasser says it wouldn’t necessarily take an invasion for the world’s chip access to be blocked. As well as making investments in Taiwanese firms and poaching their workers, China could institute a blockade on the island that could cut off the world from semiconductor supplies.
What’s the solution?
SAUL LOEB/AFP via Getty Images
The US is taking some steps to make itself less reliant on Taiwan. In July, for instance, Congress passed the CHIPS Act, which includes nearly $53 billion in subsidies and tax breaks in an effort to bolster chip manufacturing in the US.
Some companies have already begun adding US facilities: Intel is building two $20 billion factories in Ohio, Micron has pledged to spend up to $100 billion on a massive chip factory in upstate New York, Samsung is building a $17 billion factory in Texas, and TSMC is constructing a $12 billion plant in Arizona.
TSMC is also building a new facility in Japan, one that will produce the less advanced chips needed in the auto industry. The Wall Street Journal reported that Japanese officials had signaled they’d like TSMC to expand its presence there by adding capacity for advanced chips as well, another sign global powers are growing wary of the geopolitical risk to Taiwan.
But O’Donnell warned it would be premature to celebrate an end to the chip shortage or to the US’s reliance on Taiwanese chips. The factories themselves require equipment that’s in short supply because of — ironically enough — the chip shortage. And besides, those plants take years to build and get online.
“Once you stick a shovel in the ground, you’re not going to get chips for at least three years,” he said.
Plus, there remain obstacles to substantially decreasing the country’s reliance on TSMC. While the subsidies and tax breaks will help, Taiwan may continue to remain the cheaper option for businesses. And, for the time being at least, TSMC’s chips are likely to be higher quality as well. Given that TSMC is “really at the cutting edge,” Rasser said, the chips produced in the US by Intel, for instance, “wouldn’t be as sophisticated” as those made in Taiwan.
While producing even these lower-quality chips would go some way to reduce the US’s reliance on Taiwan, the US has a shortfall of the skilled workforce needed to ramp up production, a problem companies in this industry are facing across the globe. Rasser says enhanced training and education will be necessary to fill this gap.
It’s for these reasons that it could be “years and potentially decades” before the US will be able to declare independence on the chipmaking front.
“The CHIPS Act, it’s a good step in the right direction, but it’s just a little more than scratching the surface,” Rasser said.
In the meantime, the US may have to cross its fingers that an economy-shaking disruption doesn’t come to pass.
What to watch next in the U.S.-China ADR audit dispute
The U.S. and China have taken a significant first step toward keeping U.S.-listed Chinese stocks like Alibaba from being forced off U.S. stock exchanges.
Holger Gogolin | iStock | Getty Images
BEIJING — The U.S. and China recently took a significant first step toward keeping U.S.-listed Chinese stocks like Alibaba from being forced off U.S. stock exchanges.
What needs to happen next is a smooth on-ground inspection in China by the U.S. with adequate support from Chinese authorities, analysts said.
“Many implementation details probably can only be figured out by the auditing firms and the [Ministry of Finance] — together with [the China Securities Regulatory Commission] — through real-case auditing trials under this unprecedented agreement,” said Winston Ma, adjunct professor of law at New York University.
The U.S. Public Company Accounting Oversight Board said its inspectors are set to arrive in Hong Kong in mid-September, shortly after which “all audit work papers requested by the PCAOB must be made available to them.”
Audit work papers differ from the actual information on companies gathered by accounting firms.
The work papers record the audit procedure, tests, gathered information and conclusions about the review, according to the PCAOB website. It is not clear what level of highly sensitive information, if any, would be included in the work papers.
The ability of the U.S. to inspect those work papers for Chinese companies listed in the U.S. has been a years-long dispute. U.S. political and legal developments in the last two years have sped up the threat that the Chinese companies might need to delist from U.S. stock exchanges.
A turning point came in late August when the PCAOB and China Securities Regulatory Commission signed a cooperation agreement that laid the regulatory basis for allowing U.S. inspections of audit firms within China’s borders.
That’s according to statements from both government entities, which also said China’s Ministry of Finance signed the deal.
“I see this as a big ‘progress,’ meaning that both sides were willing to take steps to move this forward,” said Stephanie Tang, head of private equity for Greater China and partner at Hogan Lovells.
“The subject or the audience of this PCAOB investigation would be the audit firms,” she said, emphasizing she is not an accountant.
Need for more implementation clarity
China’s registered accounting firms are overseen by the the Ministry of Finance, making it the leader on the Chinese side of next steps, said Ming Liao, founding partner of Beijing-based Prospect Avenue Capital.
However, there’s uncertainty around implementation of the agreement as it only established a framework, analysts said.
“Our accounting firms still don’t know how to proceed,” said Peter Tsui, president of the Hong Kong-based Association of Chinese Internal Auditors. That’s according to a CNBC translation of his Mandarin-language remarks Thursday.
He said questions remain over what information the firms should share in order to remain compliant with Chinese regulation.
“Give [us] some guidelines,” Tsui said.
Tsui said the inspections should go smoothly if it’s just a matter of accountants on both sides, and there is no political interference on the U.S. side. He said the big four accounting firms — KPMG, PwC, Deloitte and EY — are members of the association.
China’s Ministry of Finance has yet to release a public statement on the audit cooperation agreement. The ministry did not immediately respond to a CNBC request for comment.
One development Prospect Avenue Capital’s Liao is watching is whether U.S. President Joe Biden and Chinese President Xi Jinping meet in-person this fall for the first time under the Biden administration. That could speed up a final agreement on the audit dispute, he said.
“In the end, resolving the audit work paper problem relies on political interaction between China and the U.S.,” Liao said in Chinese, according to a CNBC translation. “With trust, this problem can very easily be resolved.”
A decision by the year’s end
The PCAOB said it will make a determination in December on whether China was still obstructing access to audit information.
U.S. regulators will likely “start to know in October or November” what determination the PCAOB will make on whether U.S.-listed Chinese companies might be headed for delisting, Gary Gensler, chair of the U.S. Securities and Exchange Commission, told CNBC’s David Faber in late August.
Alibaba and many other U.S.-listed Chinese companies have started in the last few years to issue shares in Hong Kong — partly seen as a way to hedge against a potential delisting from U.S. stock exchanges. Since Chinese ride-hailing company Didi’s U.S. IPO in the summer of 2021, Beijing has also increased its scrutiny of Chinese companies wanting to list overseas.
The combined political uncertainty has slowed the flow of Chinese IPOs in the U.S., especially of larger companies.
Since July 1, 2021, 16 Chinese companies have listed in the U.S., excluding special-purpose acquisition companies, according to Renaissance Capital. Back in 2020, 30 China-based companies had listed in the U.S., the firm said then.
By value, the five largest U.S. institutional holdings of U.S.-listed Chinese stocks are: Alibaba, JD.com, Pinduoduo, NetEase and Baidu. That’s according to Morgan Stanley research dated Aug. 26.
US-China ties on a precipice after Pelosi visit to Taiwan
WASHINGTON (AP) — U.S.-China relations are teetering on a precipice after House Speaker Nancy Pelosi’s visit to Taiwan.
Pelosi received a rapturous welcome in Taipei and was applauded with strong bipartisan support in Washington, despite the Biden administration’s misgivings. But her trip has enraged Beijing and Chinese nationalists and will complicate already strained ties even after her departure.
Already, China is preparing new shows of force in the Taiwan Strait to make clear that its claims are non-negotiable on the island it regards as a renegade province. And, as the U.S. presses ahead with demonstrations of support for Taiwan, arms sales and diplomatic lobbying, the escalating tensions have raised the risks of military confrontation, intentional or not.
And the trip could further muddle Washington’s already complicated relationship with Beijing as the two sides wrest with differences over trade, the war in Ukraine, human rights and more.
Wary of the reaction from China, the Biden administration discouraged but did not prevent Pelosi from visiting Taiwan. It has taken pains to stress to Beijing that the House speaker is not a member of the executive branch and her visit represents no change in the U.S. “one-China” policy.
That was little comfort for Beijing. Pelosi, who is second in line to the U.S. presidency, was no ordinary visitor and was greeted almost like a head of state. Taiwan’s skyline lit up with a message of welcome, and she met with the biggest names on the island, including its president, senior legislators and prominent rights activists.
Chinese officials were enraged.
“What Pelosi has done is definitely not a defense and maintenance of democracy, but a provocation and violation of China’s sovereignty and territorial integrity,” Foreign Ministry spokesperson Hua Chunying said after her departure.
“Pelosi’s dangerous provocation is purely for personal political capital, which is an absolute ugly political farce,” Hua said. “China-US relations and regional peace and stability is suffering.”
The timing of the visit may have added to the tensions. It came ahead of this year’s Chinese Communist Party’s Congress at which President Xi Jinping will try to further cement his power, using a hard line on Taiwan to blunt domestic criticism on COVID-19, the economy and other issues.
Summoned to the Foreign Ministry to hear China’s complaints, U.S. Ambassador Nicholas Burns insisted that the visit was nothing but routine. “The United States will not escalate and stands ready to work with China to prevent escalation altogether,” Burns said, according to the State Department.
The White House also said that Pelosi’s visit “doesn’t change anything” about the U.S. posture toward China and Taiwan. Press secretary Karine Jean-Pierre said the U.S. had expected the harsh reaction from China, even as she called it unwarranted.
“We are going to monitor, and we will manage what Beijing chooses to do,” she added.
Alarmed by the possibility of a new geo-strategic conflict at the same time the West sides with Ukraine in its resistance to Russia’s invasion, the U.S. has rallied allies to its side.
The foreign ministers of the Group of 7 industrialized democracies released a statement Wednesday essentially telling China — by the initials of its formal name, the People’s Republic of China — to calm down.
“It is normal and routine for legislators from our countries to travel internationally,” the G-7 ministers said. “The PRC’s escalatory response risks increasing tensions and destabilizing the region. We call on the PRC not to unilaterally change the status quo by force in the region, and to resolve cross-Strait differences by peaceful means.”
Still, that status quo — long identified as “strategic ambiguity” for the U.S. and quiet but determined Chinese opposition to any figment of Taiwanese independence — appears to be no longer tenable for either side.
“It’s getting harder and harder to agree on Taiwan for both Beijing and Washington,” said Jean-Pierre Cabestan, an emeritus professor at Hong Kong Baptist University.
In Taipei and the U.S. Congress, moves are afoot to clarify the ambiguity that has defined U.S. relations with Taiwan since the 1970s. The Senate Foreign Relations Committee will soon consider a bill that would strengthen relations, require the executive branch to do more to bring Taiwan into the international system and take more determined steps to help the island defend itself.
Writing in The New York Times, committee Chairman Robert Menendez, D-N.J., lambasted China’s response to Pelosi’s visit.
“The result of Beijing’s bluster should be to stiffen resolve in Taipei, in Washington and across the region,” he said. “There are many strategies to continue standing up to Chinese aggression. There is clear bipartisan congressional agreement on the importance of acting now to provide the people of Taiwan with the type of support they desperately need.”
But China appears to be pressing ahead with steps that could prove to be escalatory, including live-fire military exercises planned for this week and a steady uptick in flights of fighter jets in and near Taiwan’s self-declared air defense zone.
“They are going to test the Taiwanese and the Americans,” said Cabestan, the professor in Hong Kong. He said the actions of the U.S. military in the area, including a naval force led by the aircraft carrier USS Ronald Reagan, will be critical.
China had ratcheted up potential confrontation weeks ago by declaring that the Taiwan Strait that separates the island from the mainland is not international waters. The U.S. rejected this and responded to by sending more vessels through it. Cabestan said that showed that “something had to be done on the U.S. side to draw red lines to prevent the Chinese from going too far.”
Meanwhile, Taiwan is on edge, air raid shelters have been prepared and the government is increasing training for recruits serving their four months of required military service —- generally considered inadequate — along with annual two-week annual refresher courses for reservists.
“The Chinese feel that if they don’t act, that the United States is going to continue to slice the salami to take incremental actions toward supporting Taiwan independence,” said Bonnie Glaser, a China expert at the Asia Program at the German Marshall Fund.
She said that domestic U.S. support for Taiwan actually gives China added incentive to take a strong stance: “China does feel under pressure to do more to signal that this is an issue in which China cannot compromise.”
Despite the immediate concerns about escalation and potential miscalculation, there are others who don’t believe the damage to U.S.-China ties will be more long-lasting than that caused by other, non-Taiwan-related issues.
China is “going to raise a huge fuss and there will be military exercises and there will be embargoes on importing Taiwan goods. And after the shouting is over, you will see a gradual easing,” said June Teufel Dreyer, a Chinese politics specialist at the University of Miami.
“The situation never goes back to completely normal, whatever normal is, but it will definitely die down,” she said.
___
AP writers Zeke Miller in Washington, Joe McDonald in Beijing and David Rising in Phnom Penh, Cambodia, contributed to this report.
Nancy Pelosi visits Taiwan amid US-China tensions: Live Updates
US House Speaker Nancy Pelosi’s visit to Taiwan reflects Washington’s desire to prove its “impunity and display their lawlessness,” Russian Foreign Minister Sergey Lavrov said Wednesday during a news conference with Myanmar’s Foreign Minister Wunna Maung Lwin, according to Russian state news agency TASS.
Lavrov connected Pelosi’s visit with the US response to Russia’s invasion of Ukraine, saying: “I cannot tell what was their [the Americans’] motivation but there are no doubts that it reflects the very same policy we are talking about with regards to the Ukrainian situation.”
“This is a desire to prove to absolutely everyone [their] impunity and display their lawlessness.”
Lavrov said he did not see any other “reason to create such an irritant literally out of nowhere, fully aware what it means for the People’s Republic of China.”
On Tuesday, the Russian Foreign Ministry said in a statement that Russia considered Pelosi’s visit “a clear provocation in the spirit of the United States’ aggressive policy of an all-out effort to contain the PRC [People’s Republic of China].”
The ministry also called on Washington “to refrain from actions that undermine regional stability and international security and to recognize the new geopolitical reality in which there is no longer any place for American hegemony.”
Some context: China’s refusal to condemn Russia’s war on Ukraine has fueled speculation over its intentions with Taiwan, raising questions about how the world might react should it launch an attack.
Elsewhere on Wednesday, Ukrainian President Volodymyr Zelensky called on China “to join the united world” and oppose Russia, in a virtual address to the Australian National University.
The President discussed China when answering questions from students. He said China’s “neutrality” toward Russia’s invasion “is better” than if China were to announce its outright support for Russia. But he said he believed “the nation, the people of China will do the prudent choice.” He went on to say it is “important that China wouldn’t help Russia.”
Biz optimism on U.S.-China back to Trump era, AmCham survey says
BEIJING — American businesses in China no longer expect relations between the two countries to improve from the tensions of the Trump administration, according to a business association survey.
After President Joe Biden was elected in late 2020, there was a spike in optimism among businesses, with 45% of respondents expecting better U.S.-China relations, the American Chamber of Commerce in China’s annual survey of members found.
That level of optimism has dropped to 27% of respondents in the latest survey — conducted in fall 2021 — the same as when Donald Trump was president and enacted tougher policies on China. Rising U.S.-China tension has ranked among the top five challenges for doing business in China since 2019, the survey said.
“There was a level of perhaps hope and optimism once Biden entered office that the relationship would improve,” Alan Beebe, president of AmCham China, said Tuesday in a call with reporters.
“But I think what we’ve seen over the course of the last year is that there’s a new reality that has set in, where largely speaking many of the policies and sentiment of the Trump administration remain in place with the Biden administration,” he said.
Since Biden took office in early 2021, Trump-era tariffs have remained in place, while the U.S. has added more Chinese companies to blacklists that prevent them from buying from American suppliers.
Trump used sanctions and tariffs in an attempt to pressure China to address longstanding complaints of intellectual property theft, unequal market access and forced transfer of critical technology.
While the Chinese central government has announced policies to address many of these concerns, AmCham said local implementation remains uneven.
The last year of regulatory crackdown and new laws on data privacy have added to American businesses’ challenges to operating in China and caution on future investments, the survey found.
Economists said last month that the worst of the crackdown was likely over as Beijing focuses more on growth, but they noted that does not mean the end or reversal of regulation.
China’s economic slowdown is also affecting business operations in the country, while Covid-19 travel restrictions discourage new, overseas talent from joining local teams.
The share of companies anticipating a year-on-year increase in profits ticked up to 59% in 2021 from 54% in 2020, but well below the 73% seen in 2017 before the pandemic and U.S.-China trade war, AmCham said.
Beebe said a reason for the continued pressure on profits is that companies have not been able to pass on rising production costs while remaining competitive locally.
Political pressure rises
U.S. businesses in China increasingly feel less welcome and face growing political pressure from Beijing, Washington and media in both countries, the survey found.
More than 40% of respondents said they received pressure to make or avoid making statements about politically sensitive issues, particularly among consumer businesses, the report said.
Geopolitical tensions have become business risks at a local level for many international companies.
Foreign brands like Nike and H&M faced backlash on Chinese social media last year over comments about reports of forced labor in Xinjiang in western China. More recently, U.S. and European businesses have cut ties with Russia after the Ukraine war began, while Chinese tech companies doing business in Russia have remained silent.
For American businesses in China, it’s too early to tell what the impact might be of U.S. sanctions on Russia, other than for businesses that export to Russia, Beebe said.
Investment plans hold steady
The share of respondents planning to increase business investment in China held steady from last year at around two-thirds, the survey found. The share of respondents not considering a relocation of manufacturing or sourcing also held steady at 83%, the same level since 2019.
AmCham survey respondents remained optimistic about the Chinese market opportunities, not just for the consumer market but also for resources and industrials.
Aerospace, oil and gas and energy were industries where well over two-thirds of respondents said the quality of China’s investment environment was improving.
But a greater portion of businesses planned investments at a smaller scale this year, while 18% said U.S.-China tensions could delay or cancel China investment decisions. Significantly fewer companies were confident in Beijing’s commitment to open the local market further to foreign investment in the next three years.
Foreign companies overall increased their investment into China last year, up by 14.9% from a year earlier to 1.1 trillion yuan ($171.88 billion), according to China’s Ministry of Commerce.
Investors from Singapore and Germany increased their investment by 29.7% and 16.4%, respectively, the ministry said in January, without disclosing figures for other countries.
U.S. investment in China accounted for nearly 20% of foreign direct investment in the country in the years leading up to the pandemic, according to National Bureau of Statistics data accessed through Wind.
Global stocks wobble as Didi delisting revives U.S.-China worries
Passersby wearing protective face masks walk past an electronic board displaying world stock indexes, amid the coronavirus disease (COVID-19) pandemic, in Tokyo, Japan November 1, 2021. REUTERS/Issei Kato
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SYDNEY, Dec 3 (Reuters) – Stocks fell on Friday after Chinese ride-hailing giant Didi said it would delist in New York, renewing concern about U.S.-China tensions and tech regulation, while oil headed for a sixth consecutive weekly drop on Omicron and rate hike worries.
S&P 500 futures fell about 0.5%. Hong Kong’s Hang Seng (.HSI) dropped 1.3%, dragged by big tech names. MSCI’s index of Asia shares outside Japan (.MIAPJ0000PUS) fell 0.7%.
The risk-sensitive Australian dollar fell 0.3% and at just below 71 cents is close to a one-year low.
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Didi (DIDI.N) ran afoul of Chinese regulators by pushing ahead with its $4.4 billion U.S. IPO in July and said on Weibo it was looking to move its listing to Hong Kong. read more
“Delistings starting to happen gives some jitters over the uncertainty as to how this impacts on the broader U.S.-China picture,” said Bank of Singapore analyst Moh Siong Sim.
The news about Didi comes a day after Singapore-based ride-hailing and delivery firm Grab (GRAB.O) slid more than 20% on its Nasdaq debut. The listing is the biggest on Wall Street by a Southeast Asian firm. read more
More broadly markets have lurched around on little hard news about Omicron this week, driving the CBOE volatility index (.VIX) toward its biggest one-week leap since the pandemic chaos of February 2020. Short-term yields have also jumped as investors bet on higher rates, even with the Omicron uncertainty.
Traders will need to wait at least another week or so for an early read on the variant’s virulence or vaccine resistance. U.S. labour data due later on Friday is also in focus as a guide to rates.
Benchmark brent crude futures finished higher overnight at $69.67 a barrel, but have dropped more than 3% this week and are down more than 18% from October’s three-year high.
So far, in the absence of Omicron details some governments have scrambled to shut borders anyway. But other policymakers – most notably the Federal Reserve – are cautiously proceeding apace with plans to move away from crisis-mode responses.
Fed Chair Jerome Powell said central bankers will talk about a faster pullback to bond buying at this month’s meeting and stop describing inflation as transitory. Oil cartel OPEC is going ahead with planned production increases. read more
“The Fed is not ignoring the threat from Omicron, but are choosing not to let it delay policy responses that suggest a more business as usual outlook,” said Commonwealth Bank of Australia strategist Tobin Gorey.
“OPEC+ has done a similar thing,” he added. “Neither has iced their planned policy changes…and both are perhaps examples that suggest lockdown responses to epidemic surges are becoming less likely.”
The bond market’s response to Powell’s hawkish shift has been to jack up short term rates and push down long ones, reckoning that sooner hikes will end up curbing future inflation and growth, and sharply flattening the U.S. yield curve.
Two-year Treasury yields were steady in early Asia trade for a weekly gain of nearly 10 basis points.
Benchmark 10-year Treasury yields , on the other hand, have dropped nearly 6 bps to 1.4291% this week and 30-year yields are down 7.3 bps to 1.7545%.
“It’s inflation, not growth, which is making the Fed accelerate tightening plans,” said Kit Juckes, a strategist at Societe Generale in London.
“For the first time in ages, the risk to this U.S. economic cycle is that it comes to an end sooner than consensus forecasts expect,” he said, forecasting that the U.S. dollar’s upward momentum could slow into a peak around the middle of next year.
Investors sold riskier currencies on Friday. The risk-sensitive Australian and New Zealand dollars lost about 0.3% each. The euro was steady at $1.1298 and the yen firm at 113.08 per dollar.
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Reporting by Tom Westbrook; Editing by Sam Holmes
Our Standards: The Thomson Reuters Trust Principles.
Oil selloff intensifies on Covid fears and risk of US-China intervention
US crude tumbled to a fresh seven-week low on Friday, settling at $76.10 a barrel. The slide is good news for American drivers hurt by the seven-year high in gasoline prices — a crunch that has soured consumers’ views on the US economy.
“We will definitely see some pricing relief on gasoline at the pump,” Tom Kloza, president of the Oil Price Information Service, told CNN on Friday, adding that the relief will be “feather-like as opposed to plunges.”
After a relentless rise, the national average gas price has finally leveled off at $3.41 a gallon, according to AAA. That’s roughly flat from a week ago.
“It looks for now as though the 2021 peaks have been established,” Kloza said.
Lockdown jitters
Unfortunately, one of the catalysts for Friday’s tumble in the market is another ominous development on the Covid front: Austria announced plans Friday to impose a national lockdown, the first in Europe this fall, in a bid to reverse a spike in Covid-19 cases.
The lockdown is raising fears in the oil market of tough new health restrictions elsewhere that will slow the economic comeback and eat into energy demand.
“The demand signals today are overwhelmingly bearish,” Louise Dickson, senior oil markets analyst at Rystad Energy, wrote in a note on Friday. “The risk is real in Europe, especially if Austria’s move to lockdown has a domino effect across the continent. If Germany follows suit, sub-$80 price levels may be here to stay.”
Will China and America team up?
Beyond the lockdown fears, oil markets remain jittery over the specter of the United States and China teaming up to intervene in the previously red-hot energy markets.
Since crashing to negative-$40 a barrel in April 2020, US crude has climbed as much as $125 a barrel because supply simply hasn’t kept up with demand. OPEC and its allies, known as OPEC+, have only gradually increased production. US oil companies haven’t been in a rush to add supply either.
A coordinated release from two of the world’s biggest energy consumers would have a bigger impact than if the Biden administration acted alone to tap the Strategic Petroleum Reserve.
Officials in China put out a statement on Friday suggesting that a release of barrels from the country’s emergency reserve is on the table.
“The bureau is pushing forward with crude oil release-related work at the moment,” authorities that oversee China’s strategic oil reserves said in a statement to CNN.
According to a readout published by the White House, US President Joe Biden and Chinese President Xi Jinping discussed during their virtual summit this week the “importance of taking measures to address global energy supplies.”
A coordinated release by the United States and China could also be used as a bargaining tool to get OPEC+ to open up the taps, after months of refusing to do so.
“There is firepower with a concerted effort,” said Robert Yawger, director of energy futures at Mizuho Securities.
‘Short-term fix’
Still, this is not a long-term solution, as releasing barrels from emergency reserves doesn’t solve the underlying supply-demand mismatch. And these emergency reserves hold a finite amount of oil — crude that is typically reserved for supply shocks, not surging demand amid an economic recovery.
Releasing barrels today leaves the reserves with less of buffer for the next crisis, whether it’s a hurricane, a conflict in the Middle East or another supply shock.
Goldman Sachs reiterated in a new report to clients on Thursday that a coordinated release would “only provide a short-term fix to a structural deficit.”
The Wall Street bank argued this coordinated release is now “fully priced in,” meaning the impact to markets has already happened.
“In fact, if such a release is confirmed and manages to keep oil prices depressed in the context of low trading activity into year-end, it would create clear upside risks to our 2022 price forecast,” Goldman Sachs strategists wrote.
In other words, at least some on Wall Street are already looking past this emergency intervention — before it even happens — and predicting higher prices ahead.