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China wants control over Taiwan. That’s a problem for U.S. tech companies

The mainland’s long-standing ‘One China’ stance is getting more aggressive. And Taiwan is key to how consumer electronics get designed and manufactured.

China wants control over Taiwan. That’s a problem for U.S. tech companies
[Photo: iStock]

Over the last two years, the U.S. tech industry has been forced to deal with a spectrum of trade issues with China. These include the federal government’s ban on equipment from telecom giant Huawei, increased tariffs, and, most recently, China’s clampdown on Hong Kong. But according to my contacts in Washington and Asia, Taiwan could reemerge as a hot spot, and U.S. tech companies should be aware.

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It would be an understatement to say that America’s relationship with China has been bad over the last two years. The current U.S. government is moving away from globalization, while China, at least on paper, remains committed to it.

The reality is that China, under President Xi, is marching toward a policy of exerting more control over trade and business issues within its country. If China had its way, it would also be the master of U.S. companies seeking to do business in the country. This parochial approach causes a great deal of concern for nations that trade with China and that have companies inside China. They worry that over time, China could move even to nationalize companies that have offices in China.

I don’t believe this will happen any time soon. However, companies with dedicated offices and businesses in Taiwan tell me a Chinese threat is now more real than even two years ago.

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Chinese Communist Party officials believe Taiwan is part of China and should be under Chinese national control. It’s part of a doctrine called the “One China Policy.” For decades, China has pushed this position, but has so far not moved to take Taiwan back. It makes threats all the time, and diplomatically speaking, it threatens the U.S. and other nations over anything that suggests they see Taiwan as anything other than a part of China.

Taiwan is very important to the tech industry, since most of the companes that perform contract manufacturing are headquartered there, as is TSMC, the world’s largest for-hire chip maker. It is too early to tell how fast China could move to nationalize Taiwan, but this has been its goal for decades. Now, high-level Taiwanese tech executives see this as a real possibility, and it could have an unknown impact on our current tech market in the future.

The U.S. and Taiwan

The U.S. has stopped short of recognizing Taiwan as an independent country, but has sold it military equipment and opened direct trade with it.

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In 1979, Congress passed the Taiwan Relations Act “to pledge a continued moral commitment” to Taiwan after official diplomatic relations were terminated. It stated America’s “expectation that the future of Taiwan will be determined by peaceful means,” and declared that the use of force or coercion against Taiwan would be seen as “a threat to the peace and security of the Western Pacific area and of grave concern to the United States.” The act committed to provide arms “of a defensive nature” to Taiwan.

For many years, I have traveled to Taiwan and read about how it became “estranged” from the People’s Republic of China. If you want to know more about its history, you can check this link.

While there has been a lot of saber-rattling in this area of the Pacific, the fact that the U.S. has not recognized Taiwan as an independent nation has kept the U.S. and China out of armed conflict.

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However, the current administration has made some key moves in the last three months that may signal a U.S. policy change. This has already gotten a hostile response from Beijing.

Rising conflict

On August 9, U.S. Department of Health and Human Services Secretary Alex Azar led a delegation to Taiwan. Azar is the highest-ranking U.S. official to visit the country. The U.S. delegation met with Taiwanese President Tsai-ing Wen and Taiwanese health officials to discuss the COVID-19 pandemic.

China was not happy with this and let the U.S. know it. In fact, it sent two fighter jets into Taiwanese airspace on the first day of Azar’s meetings with Taiwanese officials.

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On September 18, U.S. Under Secretary for Economic Growth and the Environment Keith Krach led a delegation to the memorial service for former Taiwan President Lee Teng-Hui. The Chinese leadership protested the visit.

The big question is whether these direct meetings with top Taiwanese political leaders foreshadow a U.S. move to formally recognize Taiwan’s bid for independence.

It may be too early to know. But my contacts in Washington say to watch for more high-ranking U.S. officials going to meet with Taiwanese leaders in the next few months. That could give us more indication of any changes in U.S. foreign policy toward Taiwan.

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Taiwan and tech

Although the threat of China taking control of Taiwan has been around for decades, top business leaders in Taiwan say they are now more concerned about this eventuality than ever before.

The biggest short-term fear is that China could try to bring Hong Kong-like control to Taiwan. The second biggest fear is that they would make a military strike of some sort. I was told that China could start by taking control of one of the disputed Taiwanese islands as a way of testing the U.S.’s and other countries’ responses.

China also has the option of an all-out military advance to impose its rule over Taiwan.

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If China ever actually moves on Taiwan, the overall impact on the tech industry nationally and globally could be significant.

It’s very unlikely that China will take major actions on Taiwan during the transition period between the Trump and Biden administrations.

Uniting Taiwan with mainland China could give China influence or some control over Taiwan’s many original design manufacturers, which design and manufacture many of the electronics products sold under Western brands names. (Foxconn is the best known of these companies, although much of its manufacturing happens on the mainland.) Unification could also have an impact on TSMC, which makes processors for Apple, AMD, Qualcomm, and dozens of other companies that do not have their own semiconductor manufacturing facilities.

One possible fear of direct Chinese influence on TSMC is that the Chinese government might then require the company to make chips for Chinese companies before serving U.S. tech manufacturers. While my sources emphasize that this is not going to happen except in the highly unlikely possibility that China nationalizes TSMC, it shows up in scenarios mentioned by tech execs I have spoken with in Taiwan.

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Also, in September, the U.S. put restrictions on Chinese semiconductor company SMIC. The ban is not all-inclusive, as the U.S.’s ban on Huawei is, but it is enough to make China angry.

It’s very unlikely that China will take major actions on Taiwan during the transition period between the Trump and Biden administrations. China has signaled a desire to work with President-elect Biden.

Still, I have this recommendation for companies with operations in Taiwan or that depend on components made in Taiwan: Create a task force to monitor this situation and begin modeling best-case and worst-case scenarios.

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