The German economy needs the market and the production facilities in China as well as the semiconductors and high-tech from Taiwan. A military conflict over the democratic island would have serious consequences for Germany.
Taiwan's Cheng Kung-class frigate during civil defense exercises
“A military conflict in Taiwan is perhaps the greatest threat to the close economic ties that have developed between Taiwan over the past few decades Germany and China,” said Max Zenglein, chief economist at the Berlin Mercator Institute for China Studies (MERICS) on Friday of the German Press Agency.
“An escalation would result in a chain reaction with far-reaching negative economic consequences,” Zenglein continued. Disruptions to important supply chains or possible economic sanctions against China due to aggression against Taiwan would entail massive economic costs: “The increasing geopolitical risks are currently showing us how fragile the globalized production processes are.”
Russia's invasion of Ukraine, Europe's dependence on Russian energy and supply problems caused by lockdowns in China due to its zero-Covid policy have already made the German economy painfully aware of just how dependent it is on China. Should the world turn against China because of a war over Taiwan, as against Russia, the German and global economy could be hit hard.
China's jet pilots are still just practicing, but concern is growing in Taiwan, as with these ladies in the hairdressing studio in Taipei
Corona would only be a foretaste
The executive board member of the German Chamber of Commerce in China (AHK), Jens Hildebrandt, emphasized the importance of the Chinese market for the German economy: “China is the center of production hubs for important and supplier products in a wide variety of industries. A further loss of primary and intermediate products from China would give the German economy a bleak outlook.”
The week-long curfews in China have already severely disrupted the supply chains. “The German economy and German consumers have clearly felt the effects of this,” said Hildebrandt.
Danger for almost every industry
China has been Germany's largest trading partner for six years – and after the USA, Germany's largest export market. Conversely, Germany is also the most important export market for Chinese companies within the EU: “It is important to recognize that German-Chinese economic relations are about mutual dependence.”
A military conflict over Taiwan would affect the global supply chains, especially because of the island republic's central role in semiconductors and other high-tech components for electrical engineering. Suppliers from Taiwan are important trading partners for the German economy.
Shanghai – We have already learned with great pain what happens when there is no replenishment of goods from the Far East
The components are found in almost all modern technical products – from cars to computers, smartphones and all consumer electronics such as TVs, Hi-Fi or game consoles to medical technology. Almost nothing works in our networked everyday life without these basic building blocks.
Almost everything depends on the chips
Since the beginning of the Corona crisis, when the global supply chains came under pressure or at times broke completely, there have also been significant bottlenecks in the supply of chips in Germany. The automotive industry felt this particularly badly: at Volkswagen, Mercedes-Benz, BMW and Opel as well as many industry suppliers, the shortage slowed down production, and in some cases entire plants had to take weeks of forced breaks and staff had to go on short-time work. “Heaps” of half-finished cars, lacking the final equipment, piled up in front of some factories.
The result was a drop in sales, while at the same time the shortage drove up prices and waiting times for a number of models. However, the manufacturers in Taiwan or other central production countries such as South Korea, Japan, China or the USA are only partially responsible for the development.
The car manufacturers have to blame themselves: at the height of the corona When there was a lull, they prematurely canceled contracts with the chip manufacturers, which were then compounded by failures due to fires, lockdowns or natural disasters.
There are chip factories in Europe too. But they – here Bosch in Reutlingen – cannot produce enough
Mutual dependencies
However, various players in the automotive industry estimate that the situation will ease somewhat by the end of the year. The issue is not settled, however, because the global economy remains vulnerable to the war in Ukraine and the tensions over Taiwan and between China and the USA. EU initiatives for more own European chip plants should defuse the problem. New factories are being built in Germany, for example by Bosch or Intel.
There are also semiconductor customers for renewable energies. Semiconductors are also required for automation, robotics and all infrastructures that are converted from AC to DC. German companies deliver many preliminary products, equipment and machines to Asia. Taiwan, in turn, also sells ready-made information and communication technology to Europe.
All in all, trade relations with Taiwan are also quite important for Germany. In 2021, according to data from the Federal Statistical Office, the country ranked 25th among the import sources with an import volume of almost 12.2 billion euros. Conversely, Taiwan was ranked 30th among the German sales markets with an export value of around 9.3 billion euros. According to the Chamber of Foreign Trade, around 250 German companies had representations in Taiwan in 2020.