Berlin, Munich 9246 kilometers separate Germany and Taiwan. A great distance. And yet the conflict over the island state has also kept German companies in suspense over the past few days.
The German economy views the conflict with great concern and fears it will worsen. There is a lot at stake for companies. “In our high-tech world, a component from Taiwan is installed in almost every electronic product,” warns Dirk Jandura, President of the Federal Association of Wholesale, Foreign Trade and Services (BGA). “An escalation of the Taiwan conflict would therefore have far-reaching consequences.”
The war in Ukraine frightened many companies because the unthinkable had become reality, says Ulrich Ackermann, head of the foreign trade department at the Association of German Machine and Plant Manufacturers (VDMA). “And the same thing could happen in Taiwan one day.” But then the costs for the German economy would be many times higher.
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Taiwan’s semiconductor industry is particularly important for German companies. The Taiwanese manufacturer TSMC accounts for more than half of the revenues of the ten largest chip contract manufacturers worldwide, according to market researchers from Trendforce. For the time being, Taiwan cannot be replaced for the chip industry – and also for customers in Germany.
80 percent of the most modern semiconductors with structure sizes of seven nanometers and less come from the island. Besides Taiwan, there is only one other supplier country for these components: South Korea. Taiwan has a “crucial role in the global supply chain,” says Alicia García Herrero, chief Asia economist at investment bank Natixis.
Warning of military incidents
Beijing regards the island as part of its territory, although it has never been part of the People’s Republic and has its own democratically elected government and laws.
“China’s behavior during Pelosi’s visit showed how nervous the government is,” says Max Zenglein, chief economist at the Berlin China think tank Merics. Experts warn that military incidents can occur at any time in such an environment and the situation could quickly escalate – with devastating consequences. “The risk that the Taiwan conflict will escalate will increase exponentially in the coming years,” warns China expert Zenglein. “It is fundamentally important that the German economy adapts to this.”
This is not just about the extreme case that Beijing and Washington would face each other in a direct military conflict. That would be very likely if China were to attack Taiwan. US President Joe Biden has made it clear several times in recent months that the US would provide military support to Taiwan in this case.
“If American and Japanese companies subsequently leave China, European companies will not be able to avoid it either,” estimates Hanns Günther Hilpert, head of the Asia research group at the German Institute for International and Security Affairs (SWP).
>>Read here: “This is the test run for emergencies” – Asia experts warn of fatal chain reactions
FDP General Secretary Bijan Djir-Sarai has already made it clear in an interview with the Handelsblatt that the federal government would have to impose sanctions on China should the conflict with Taiwan intensify. “A Chinese military attack on Taiwan would be a devastating escalation of the status quo,” Djir-Sarai said. “In this case, it would be important for the West to react immediately with personal and economic sanctions against China.” He also explicitly named China’s state and party leader Xi Jinping.
China is rehearsing the naval blockade of Taiwan
It is also conceivable, according to SWP expert Hilpert, that China will expel Western companies from the country in such a case. He considers such a scenario unlikely, but not impossible.
China reacted violently to the Taiwan visit of Nancy Pelosi, Chair of the US House of Representatives.
(Photo: IMAGO/Future Image)
In the medium term, however, trade and sea blockades are likely. According to Hilpert, China has already tested this in the past few days with its military exercises around the island.
The German economy would be doubly affected by such a blockade. On the one hand, there would be supply bottlenecks for semiconductors. But the supply chains would also be massively disrupted, because chips are essential for the manufacture of many preliminary products. Hilpert warns that companies would have to prepare for such a scenario in the long and medium term and develop contingency plans for how supply chains that break can be replaced.
Other Handelsblatt articles on the Taiwan conflict:
But even for the worst case, companies have to arm themselves. The German car industry in particular makes up to 40 percent of its sales in China – if this share suddenly disappeared in the event of a conflict, the consequences would be fatal.
The economy is focusing on a broader base, away from the “risk concentration” in China. “It is important to diversify supply chains and open up new procurement markets,” says BGA President Jandura. He calls for free trade with Germany’s democratic partners to be expanded quickly. Trade agreements with Canada, the Mercosur countries of Latin America or New Zealand and Australia are crucial for this.
More: BASF, VW, Aldi – German companies invest heavily in China – and risk a lot