Global trade braces for impact of Chinese military drills off Taiwan coast becoming a 'new normal'

Wed 10 Aug 2022
Posted by: Phillip Adnett
Trade News

Global trade braces for impact of Taiwan

China’s military drills around Taiwan could be set to become a “regular occurrence” for traders to deal with, experts have warned.

Beijing undertook live-fire drills last week – affecting shipping and air traffic into Taiwan. The exercises were due to end on Sunday but carried on past this deadline, only finishing today (10 August).

‘New normal’

M. Taylor Fravel, professor and director of the Massachusetts Institute of Technology’s Security Studies Programme, told Bloomberg that China would continue down this path.

“There is a new normal, or a new status quo, in terms of kind of the military presence that China will have around Taiwan,” he said.

The FT also reports that the Chinese military have confirmed it will regularly conduct patrols and drills in the area.

US-China tensions

Tensions between the US and China increased after the visit of Nancy Pelosi to Taiwan last week. ,

Beijing wants Washington to stop boosting ties with Taiwan and to restore the diplomatic understanding that discouraged any senior figures from visiting it for the past 25 years.

US defence department policy chief, Colin Kahl, said Beijing’s goal is to try to influence the international community by threatening to restrict shipping in the Taiwan Strait, reports the Guardian.

South Korea hit

According to the Loadstar, China’s actions will affect Taiwan’s trade with South Korea, which is a major trading partner for the country.

Korean Airlines and Asiana Airlines have cancelled flights to Taiwan, and some Korean shippers have had to take detours to get to the Taiwan Strait. 

The Korea International Trade Association said: “If Sino-US and China-Taiwan relations continue to deteriorate, South Korea’s exports to Taiwan may be affected.”

Intertwined economies

Taiwan has downplayed the likelihood of China’s measures having a major impact on China-Taiwan trade because of how closely the two economies are intertwined.

Beatrice Tsai, the chief statistician at Taiwan’s Ministry of Finance, told Fortune that the electronics industries in both countries are “highly dependent on each other” and Taiwan is China’s biggest source of imported integrated circuits. 

Despite slow export growth this year, the combination of China and Hong Kong remains, by far, Taiwan’s largest export market. Shipments totalled more than $16 billion in July, compared with nearly $7 billion in total exports to the US. 

Tech suppliers

However, Apple is concerned about growing tensions and has asked suppliers to ensure that shipments from Taiwan to China contain language that indicates the island is part of China, reports Metro.

It told suppliers that China has started strictly enforcing a long-standing rule that Taiwanese-made parts and components must be labelled as being made either in “Taiwan, China” or “Chinese Taipei”.

Pivot from China

In Germany, a study from economic think-tank, the Ifo Institute, has advised companies to pivot away from China towards other countries to reduce dependency, reports Reuters.

The report warns that Germany could face costs almost six times as high as Brexit if it and the EU were to shut China out of their economies.

The goal of German and EU economic policy should be "to establish strategic partnerships and free trade agreements with like-minded nations such as the US," co-author Florian Dorn said.