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Global economy to bear brunt of Sino-Taiwan crisis

Published : Thursday, 11 August, 2022 at 12:00 AM  Count : 1010
Mahadee Al Mobin

Global economy to bear brunt of Sino-Taiwan crisis

Global economy to bear brunt of Sino-Taiwan crisis

In the world of globalization where the world has been transformed into a global village by the boon of rapid advancements in science and technologies, localized war somewhere can have prolonged, global impacts. The bitter essence embedded in this statement has been perceived across the globe by the socio-economic implications of the Russia-Ukraine war.

Countries across the globe are facing increased inflation, debt crisis, food crisis, and energy shortage which lead them to stagnant economic growth and in the worst-case scenario total economic collapse for countries with weak economic factors like Sri Lanka. Amidst this gloomy economic state throughout the globe, the China-Taiwan crisis can accelerate the global economic plight more and may even lead to a global recession.

The recent visit of Nancy Pelosi, the speaker of the United States House of Representatives to Taiwan, ignoring all the threats, warnings, and ultimatums of China, has mounted the geo-political tension and fears across the globe. China has declared to initiate its preparation to invade Taiwan owing to this. This unrest is not based on this one isolated visit; rather this is rooted in a history of dispute older than a century.

Taiwan, formerly known as Formosa, came under Japanese rule after the 2nd Sino-Japanese War in 1945. After a half-century of rule, the Japanese empire lost Taiwan after WWII. During Taiwan's takeover, Mao Zedong's Communists and Chiang Kai-shek's nationalist group, KMTwasat war in China.

The civil war concluded in 1949 with the communist triumph and the founding of "The People's Republic of China (PRC)" on mainland China by Mao Zedong and "The Republic of China (ROC)" on Taiwan by KMT. These events have resulted in two Chinas that deny each other's existence and a rivalry that will persist for years.

Over the last century, the wind of geopolitical dynamics has blown in favour of the PRC leaving the modern-day PRC as a geopolitical superpower and a force to be reckoned with whereas there are only a handful of countries in the entire globe that has acknowledged Taiwan as a sovereign state. But Taiwan has a strategic relationship with countries of G7 predominantly with the USA which makes Taiwan a tough island to takeover even for a superpower like China.

The power struggle has been recently stirred by the short yet impactful visit of Nancy Pelosi to Taiwan as she is the highest ranking official to visit Taiwan in the last 25 years which exalts the economic and geopolitical investment of the USA in Taiwan to uphold its dominance in the pacific region.

Taiwan is important to PRC not only for its historic value but has significant geopolitical advantages over its competitors. The access to Taiwan will establish a foothold for China in the first island chain which will give the PRC an upper hand in the expansion of trade and dominance in the pacific region over its counterparts.

Aside from geopolitical importance, the economic aspect of the PRC and Taiwan is quite delicate and interlinked. China is the biggest exporter of Taiwan hence any sort of sanctions imposed on trade can result in trade-offs for both the stakeholders. But the main economic advantage of Taiwan is its irreplaceable status in the global semiconductor market.

Stability in Taiwan is important for the global supply chain as Taiwan holds 20 percent of the global computer chip manufacturing capacity as it's the leader while the likes of China, the USA, and Europe lag far behind. In subject to the most powerful sub-10 nm chips, Taiwan is by far the most dominant.

Economist and financial experts all over the world have predicted a global economic slowdown due to surging inflation and this recent development on the China and Taiwan issue have just deteriorated the case. Decoupling of the world's two largest economies can leave the global market in a state of shock.

Taiwan is the central hub for the production and development of computer chips and is a crucial element in the technological advancement of almost any modern electronic product from mobile phones to nuclear warheads. Any political or military intervention that disrupts Taiwan will harm the global supply chain of semiconductors.

The semiconductor market has been disrupted due to silicone shortage during the covid-19 period, making coping with the rapid digitalization of socioeconomic interactions difficult to cope with. The situation has been developing since the last quarter, but this situation goes south anytime soon.

Any sort of restriction on the import/export of silicon will lead to a global supply chain bottleneck which will drive the global economy to high inflation and a low growth rate state. This will pressure the USA to impose sanctions on China, which will eventually prove detrimental to the global economy.

China is one of the top holders of US treasury bonds and its possession equates to $1 trillion. Aggressive selling of these can have an upward pressure on the long-term interest rate of USD. If this happens in the present scenario where federal reserves are selling US treasuries, then this can have an upwind effect on the long-term interest rate which will decelerate the US economy and will have a direct effect on the global economy.

This power struggle is a Pandora 's Box and is better left untouched. The diffusion of a situation like this requires well-navigated negotiation and peaceful resolution which looks much further than ever. The entire globe is moving to a "China+1" policy which essentially refers to alternatives for china in the production of various commodities to avoid the mass-scale supply chain crisis if things go south. This opens up a huge trade market to booming economies around the globe like Bangladesh.

Implementing proper policies, strategic investments procured from both home and abroad in respective industries, especially in machinery, RMG, and semiconductors can help to make us a forerunner in this tide of change.
The writer is a research
associate, Bangladesh Institute of Governance and Management










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