China Bans Trade with Taiwan Amid Tensions Over Pelosi's Visit

Following US House of Representatives Speaker Nancy Pelosi’s visit to Taiwan, China has resorted to the old playbook of trade restrictions.

Chinese authorities stopped importing citrus fruits, and seafood from Taiwan as well as exporting sand when Pelosi visited the democratically run island despite threats from Beijing.

Although Chinese officials claimed biosecurity and other trade-related reasons, the trade actions have been widely perceived as political pressure tactics on Taiwan, which Beijing deems a renegade province that should be “reunified”—by force if necessary.

However, Taiwan’s most valuable export of all—semiconductors—was noticeably ignored in Beijing’s most recent apparent attempt at economic pressure.

That is most likely due to the fact that China depends almost as much as the island itself on Taiwan’s exports of crucial components.

Why Taiwan's Semiconductor Industry Is So Important?

Taiwan dominates the production of semiconductors worldwide. Semiconductors are essential components found in everything from your smartphones and medical equipment to cars and fighter jets.

According to TrendForce, Taiwan generates 64% of the revenue from semiconductor production, with industry leader Taiwan Semiconductor Manufacturing Co (TSMC) alone accounting for more than half of the total.

On the other hand, the second largest manufacturer, South Korea, only controls less than one-fifth of the market.

Moreover, according to Boston Consulting research, Taiwan produces 92% of the most advanced semiconductors.

Following years of growing demand, semiconductors now account for roughly 40% of exports and approximately 15% of gross domestic product.

Beijing’s targeting of fish and citrus fruits is anticipated to have little impact on Taiwan’s economy. However, the country can cause much more harm by stopping shipments of semiconductors.

Why Does China Need Semiconductors From Taiwan?

China, like Taiwan, is heavily reliant on its semiconductor sector. 

Despite investing huge amounts of money in growing its sector, China only has less than 10% of the market, with SMIC, based in Shanghai, as the market leader.

China is dependent on Taiwan because, despite the fact that Chinese businesses are capable of designing semiconductors, they have a limited ability to produce them, particularly at the leading edge.

The potential of SMIC to produce 7-nm circuits has reportedly surfaced recently. However, this technology is still in its early stages, falling well behind TSMC and Samsung.

SMIC Semiconductors

The Race for Semiconductors Between China and the United States

TMSC

Taiwan has created a defensive masterstroke on the front lines of the conflict between the United States and China for superpower dominance. It has become indispensable to both parties.

Both superpowers are now reliant on the small island at the center of their increasingly heated competition.

Allowing a rising China to occupy TSMC’s foundries in a war would endanger the United States’ military and technological superiority. However, there is no certainty that Beijing will be able to seize the valuable foundries intact if it invades.

They might perish in the war, cutting off the supply of chips to China’s massive electronics sector. Besides that. even if the foundries managed to withstand a Chinese takeover, they would almost certainly lose access to the global supply chain necessary for their output.

Conclusion

China and America both aim to end their dependence on Taiwan when it comes to semiconductors. United States has persuaded TSMC to open a U.S. foundry that would produce advanced semiconductors, and it is planning to invest billions of dollars in rebuilding its domestic chip-making business.

Although Beijing is also making significant investments, its chip sector is behind Taiwan’s in several crucial areas by about ten years. Analysts predict this gap will grow even further in the next few years.

Moreover, these foundries are so crucial to the world economy that some people refer to Taiwan’s chip industry as a “silicon shield” that prevents a Chinese invasion and guarantees American support.