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The discreet vigilance of Europeans in the face of the Taiwan crisis

The European Union remains very discreet about the tensions around Taiwan, while the crisis comes just after the resumption of an economic and commercial dialogue with China.

The European Union has remained silent since the start of the diplomatic crisis between Beijing and Washington, which continued Friday to produce gunpowder fumes around the island of Taiwan. The Union’s senior officials will have let the German presidency of the Group of Seven (G7) take hold of the subject, and consider that “there is no justification for using a visit as a pretext for aggressive military activities in the Taiwan Strait”.

On the diplomatic level the European Union is fractured by the individual positions of its membersbetween a Hungary which openly courts Beijing and a Lithuania which defends Taiwan to the point of granting it a de facto embassy.



“It’s hard to imagine a return to more productive and cooperative relationships in the short term.”

“Now that Nancy Pelosi has opened the door to Taiwan much wider, I’m sure other defenders of freedom and democracy will cross it very soon“, had assured Tuesday the Minister of Foreign Affairs of the latter, Gabrielius Landsbergis.

In any case, given Beijing’s ulcerated reaction to the G7 communiqué, “it is difficult to imagine a return to more productive and cooperative relations in the short term”, noted Friday Mikko Huotari, director of the German think tank Merics, while the EU and China had resumed a high-level economic and trade dialogue just before the summer break.

Waiting companies

While Beijing continued its large-scale exercises around Taiwan, European companies active in the region waited for the storm to pass. “I think for now China has no intention of blocking Taiwan: what China wants to do is show its ability to blockade. But it imports most of its semiconductors from Taiwan, it has no interest in cutting off the flow at this stage”, observes from Hong Kong Alicia Garcia-Herrero, specialist in Asian geoeconomics and member of the think tank Bruegel.



“For European companies, this is a first warning. And it could lead to those active in Taiwan postponing investment projects there.”

Alicia Garcia Herrero

Bruegel

And even if it does not materialize, the risk is not without consequences for foreign companies present in the region. “They are getting ready. The risk is not immediate but it will not disappear with the announced end of the military exercises“, continues Alicia Garcia-Herrero. “For European companies, this is a first warning. And this could lead to those active in Taiwan, mainly in wind power, distribution and banking, postponing investment projects there. But I don’t think these companies are tempted to leave Taiwan. So in my opinion, everyone is going to try to lay low, nobody is going to make big decisions.”

A milestone of “decoupling”

If this consideration is valid for European and American companies, it is probably less so for Taiwanese companies themselves, starting with the world champion in the production of advanced semiconductors. “TSMC, I think, makes sure that it can produce high-end components elsewhere. Because in the event of a blockade, it would be a problem for the world…”, resumes Alicia Garcia-Herrero.

But this week’s crisis could be a milestone in the economic undocking between China and the United States, she believes. Also on Friday, China announced a plan to stop importing iron ore, another sign if any were needed that the forces of economic decoupling are not only coming from Washington, but also from Beijing, she says – “Taiwan is only accelerating the decoupling that was already underway.” The most recent example of which has been the American effort to curb technology transfers to China in the high-end electronic chip sector. “The United States is pressuring companies, including European ones, not to deliver the most advanced lithography technologies used to produce semiconductors of less than 10 nm or less”, recalls the one who is also chief economist for the region at Natixis bank.

While the People’s Liberation Army was to continue its unprecedented campaign of intimidation against the island over the weekend, the risk of escalation remains acute. If it were to materialize, “a lot of companies should consider whether they can continue to produce in mainland China”, warned Mikko Huotari. We are not there yet.

The summary

  • While it resumed an economic and commercial dialogue with China in mid-July, the European Union remains very discreet about the tensions around Taiwan.
  • Its companies must understand the risk of a prolonged deterioration of traffic conditions in the strait, or even of a military escalation.
  • And adapt to the pursuit of an economic decoupling between the United States and China that this crisis is only accelerating, notes the geoeconomist Alicia Garcia-Herrero (Bruegel).

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