Inside the industry: the automotive impact of a war in Taiwan
Estimates suggest a year-long war in Taiwan could cut the US' GDP by 5-10%; China's by up to 25%
Taiwan manufactures about 70% of the world's advanced semiconductors
For around a decade now, the automotive industry’s worst-case scenario has kept getting worse, with lowlights ranging from the emissions scandal and its fallout to the pulling forward of electric car mandates by a decade, the ramping up of safety and pollution standards, the pandemic, Russia’s invasion of Ukraine and more.
But if you can forgive looking at a much bigger picture through the myopic lens of automotive, the escalating threat of China invading Taiwan has implications that extend far deeper than anything that’s hit so far.
Even the threat of invasion of this island between the East and South China Seas is enough to make your next car cost more – but military action would almost certainly unleash a tide of woe ona scale hitherto unseen.
Most significantly, Taiwan manufactures about 70% of the world’s advanced semiconductors, and while the past 18 months have taught automotive to both expand and diversify its supplier base, the finest expertise and capability remains concentrated within its 24 million inhabitants. Cars, computers, smartphones, televisions and more rely on them. Moving that expertise could take decades.
Even if – as seems likely – the Taiwanese cede swiftly to the Chinese in the event of an invasion (it has 200,000 permanent troops, to China’s two million), the semiconductor industry embedded there is likely to crumble. Getting the workers to do their jobs in the face of occupation is one challenge, but these factories are dependent on raw materials from the West, with no Chinese alternatives, and therefore represent one of the few bargaining tools in the wider perspective of any combat.
In such circumstances, a period of stalemate is inevitable. Any loosening of restrictions is likely to be a compromise that suits nobody. Estimates suggest a war that lasted just one year would cut US gross domestic product by 5-10%, and China’s by up to 25%, with Europe somewhere in between. That’s economic meltdown to make today’s cost of living crisis look like a bump in the road.
Given that doomsday scenario, it’s little wonder that car companies are already hard at work trying to unravel their dependence on Chinese suppliers, fearing everything from disruption in the chain to total blockage from sanctions. But it takes time – and in automotive circles, ‘time’ is typically one vehicle life cycle, an average of seven years.
China’s hegemony was a result of its ability to undercut everyone else, and while there are low-cost manufacturing nations elsewhere, it seems inevitable that the result will be higher prices.
Even if president Xi Jinping chooses discretion and nothing of note happens, the mitigations will. The fallout from this dizzying era of disruption rumbles on, and the era of the low-cost car, already under threat from so many angles, is truly over.