On January 13, 2024, William Lai, from the Democratic Progressive Party (DPP) became the new President of Taiwan after defeating Hou Yu-ih from the Kuomintang (KMT) Party and Ko Wen-je from Taiwan’s People Party (TPP).[1] Aggressive statements were issued post elections by the Chinese Foreign Ministry Spokesperson Ms Mao Ning in her regular press conference on January 15, 2024, regarding the Taiwanese Presidential Elections. Statements from Beijing mentioned that “reunification” of Taiwan is still “inevitable”.[2] She also warned foreign officials of all countries against congratulating Taiwan on their elections.[3] Since the majority of Taiwanese favour the status quo rather than reunification, therefore, political agenda of all the political parties in Taiwan revolved around maintaining deterrence and the status quo against China. DPP says deterrence and status quo can be maintained if Taiwan aligns with the US and strengthens its military power without diplomatic dialogues with China. Whereas, the KMT Party says, deterrence and status quo can be maintained through diplomatic talks with China. This is why, the rhetoric of global media portrays KMT as a pro-China party and DPP as anti-China.[4] The implications for the Global Semiconductor industry after the Taiwan Presidential Elections could be as follows:
- Continued Military Drills by China near Taiwan
The DPP’s alignment with the US for security has irked China, leading to increased naval drills in the Taiwan Strait, airspace violations, and missile firings over Taiwan whenever senior US officials visit or vice versa.[5] These actions create uncertainty among businesses due to Taiwan being the largest manufacturer of semiconductor chips and the strategic importance of the Taiwan Strait for Sea Lines of Communication (SLOCs). Military escalations in the Taiwan Strait directly disrupt one of the world’s busiest shipping zones, impacting the global supply chain of semiconductor chips.[6] Engagement and visits between the US and DPP would likely continue, prompting Xi Jinping to persist in military drills near Taiwan to appease its domestic audiences. Such military activity would continue to disrupt the global semiconductor chip supply chain.
- Risk of invasion of Taiwan by China
Since there is no diplomatic engagement between China and the DPP, any accidental flare-up between Taiwan and China may lead to a naval blockade which could have been avoided if KMT had come into power. Xi Jinping said that China is willing to use the force for reunification.[7] Any error by Taiwan could give a reason to China to invade Taiwan. Various strategic thinkers and politicians have illustrated that if China imposes a longer naval blockade, the semiconductor supply chain would be impacted greatly.[8] The likelihood of blockade increases due to no diplomatic talks between DPP and China.
- Damage in Submarine Cable that can disrupt Semiconductor Manufacturing
There have been various cases when Chinese vessels have intentionally damaged/cut the submarine cables connecting Taiwan. For example, on Feb 2, 2023, and Feb 8, 2023, the National Communications Commission of Taiwan accused China of cutting its submarine cables.[9] Disruption in submarine cables can potentially disrupt semiconductor manufacturing as submarine cables hold 99% of global internet traffic.[10] Damage in the submarine cable can disrupt semiconductor manufacturing in the following ways:
- Submarine cables carry a significant portion of the world’s internet traffic. Damage to a critical cable could lead to internet outages in Hsinchu City, disrupting communication and data transfer.
- Semiconductor manufacturing relies heavily on real-time data exchange, communication with suppliers and customers, and access to online resources for design and process control. An internet outage caused by a submarine cable disruption could hinder these activities, potentially leading to delays in production, shipment, and communication.
- Semiconductor manufacturing often involves a complex global network of suppliers, manufacturers, and customers. Disruption to the Internet caused by submarine cable damage could negatively impact communication and coordination, leading to delays in shipments, component shortages, and ultimately, disruptions in production.
China may continue damaging and cutting the Taiwanese submarine cables, which could potentially impact the supply of semiconductor chips globally.
Conclusion
Overall, DPP’s coming into power in Taiwan can have a negative impact on the global supply chain of semiconductor chips as China has increased its aggressive statements and military actions towards Taiwan in the past DPP’s tenure. The pause of diplomatic talks between China and DPP further increases the uncertainty of military conflict between the two nations. Disruption of semiconductor chips would negatively impact technology, electronics, manufacturing, telecommunications, medical, aerospace, defence and consumers. At large, it could have an impact at the global level.
Endnotes
[1] “DPP’s William Lai wins Taiwan presidential election but party loses control of legislature,” SCMP, Jan 13, 2024, https://www.scmp.com/news/china/politics/article/3248276/it-happens-world-waits-taiwans-voters-make-their-mark-high-stakes-presidential-and-legislative
[2] Ibid.
[3] “Foreign Ministry Spokesperson Mao Ning’s Regular Press Conference on January 15, 2024,” Ministry of Foreign Affairs, the People’s Republic of China, Jan 15, 2024,https://www.mfa.gov.cn/eng/xwfw_665399/s2510_665401/202401/t20240115_11224311.html#:~:text=Mao%20Ning%3A%20The%20elections%20in,way%20or%20under%20any%20pretext
[4] CHRISTOPHER BODEEN “US delegation praises Taiwan’s democracy after pro-independence presidential candidate wins election” AP News, Jan 15, 2024, https://apnews.com/article/taiwan-us-politics-china-diplomacy-7c122011da09b9f6838922539f30517e
[5] Casey Hall and Ben Blanchard “China launches drills around Taiwan in angry response to VP’s US trip,” Reuters, August 20, 2023 https://www.reuters.com/world/asia-pacific/china-says-military-held-naval-air-combat-readiness-patrol-around-taiwan-2023-08-19/
[6] “China Military Drills Around Taiwan Threaten Global Supply Chain Disruption”, NDTV, August 04, 2022, https://www.ndtv.com/world-news/china-military-drills-around-taiwan-threaten-global-supply-chain-disruption-3223258
[7] “Xi warns China will not renounce use of force to unify Taiwan; vows to strengthen military,” Economic Times, Oct 17, 2022, https://economictimes.indiatimes.com/news/international/world-news/xi-warns-china-will-not-renounce-use-of-force-to-unify-taiwan-vows-to-strengthen-military/articleshow/94899493.cms?from=mdr
[8] “The microchip industry would implode if China invaded Taiwan, and it would affect everyone,” Economic Times, June 11, 2023, https://telecom.economictimes.indiatimes.com/news/devices/the-microchip-industry-would-implode-if-china-invaded-taiwan-and-it-would-affect-everyone/100917478
[9] HUIZHONG WU AND JOHNSON LAI, “Taiwan suspects Chinese ships cut islands’ internet cables,” AP News, April 18, 2023, https://apnews.com/article/matsu-taiwan-internet-cables-cut-china-65f10f5f73a346fa788436366d7a7c70
[10] Alex Gray, “This map shows how undersea cables move internet traffic around the world,” World Economic Forum, Nov 2016 https://www.weforum.org/agenda/2016/11/this-map-shows-how-undersea-cables-move-internet-traffic-around-the-world/
Author: Manav Saini, Research Assistant, CS3, USI