Taiwan Strait: Vulnerable Crossroads of Commerce

Taiwan Strait

‍As we mentioned in our last post, the Taiwan Strait is critically important to the semiconductor supply chain. But it’s also a crucial artery and a choke point for global trade on many other fronts. Any disruption of maritime traffic through the Taiwan Strait would have global repercussions.

‍

History

About 100 miles wide and less than 200 miles long, the Taiwan Strait sits at a crossroads of major regional supply chains in Asia, connecting Northeast Asia with Southeast Asia and beyond, giving it outsized importance in global trade. 

Since 1949, the Taiwan Strait has separated China from Taiwan, an island nation that China considers its territory. Despite heavy international ship traffic, China claims the strait as an internal waterway and could, in theory, attempt to close it to international traffic. This would have a profound ripple effect through global supply chains: in addition to semiconductors, the strait is an important route for many other industries.

‍

Energy 

The Taiwan Strait is a key route for transporting energy resources. A significant proportion of the world's liquefied natural gas and oil shipments pass through this area, coming from the Middle East and Africa to major consumers in East Asia, including China, Japan, and South Korea. Energy-intensive industries would be affected by any disruptions in these energy supply routes.

‍

Telecommunications 

Taiwan's significant role in producing telecommunications equipment and components means that this industry is particularly sensitive to disruptions in the Taiwan Strait.

‍

Automotive 

The automotive industry is increasingly dependent on electronic components, many of which originate in Taiwan. Disruptions in the Taiwan Strait could impact the supply of these critical parts similarly to the impact of the COVID pandemic, affecting manufacturing and assembly lines worldwide.

‍

Aerospace 

Similar to the automotive industry, the aerospace sector relies on a steady supply of electronic components and advanced materials, many of which pass through the Taiwan Strait.

‍

Consumer Goods 

Many consumer goods, from electronics to clothing and toys, are manufactured in East Asia and transported through the Taiwan Strait to global markets. This industry depends on the stability of this route for timely delivery and inventory management.

‍

E-commerce 

E-commerce depends on the steady flow of goods through major shipping routes like the Taiwan Strait for their inventory. Disruptions can lead to delays, stock shortages, and increased costs.

‍

Information Technology

Beyond semiconductors, Taiwan also contributes to the broader information technology sector through the production of various computer components and hardware.

‍

Pharmaceuticals

While not as directly reliant as other industries, the pharmaceutical sector also utilizes components and raw materials that may transit through this region, particularly for products manufactured in or passing through East Asia.

‍

In summary, the Taiwan Strait's importance to global supply chains cannot be overstated. Its role in facilitating the efficient movement of goods, energy, and critical electronics makes it a key artery in the global economic system. Any disruption in this region could have significant and far-reaching consequences for global trade and economies.

‍