Logisticians and supply chain professionals need to pay close attention to the situation between China, Taiwan, and the United States (US). In particular you need to be sharpening your contingency pencils and looking for alternate sources of supply and demand.
The world’s supply chains are still far from the pre-pandemic “normal” state. World economies are still reeling from several shortages such as food and microchips. In the United States pressure continues from port workers, Covid waves from overseas manufacturing plants, oil prices, the Ukraine War and labor shortages across the supply chain in general. China remains critical to the US marketplace and infrastructure.
The US has a “One China” policy - This policy states there is only one China, the People's Republic of China or PRC. The US does not recognize PRC sovereignty over Taiwan and regards Taiwan as an unsettled issue awaiting a peaceful settlement. The US Congress passed the Taiwan Relations Act in 1979. This act provides for US relations with Taiwan via a corporation called the American Institute in Taiwan. This corporation provides a framework for relations without official diplomatic ties. It also provides US commitments to Taiwan’s security and commercial/cultural relations. Congress mandates that the US provide defensive arms to Taiwan to resist force, coercion, or anything else that jeopardizes security or the Taiwanese social and economic systems.
Let’s review some quick facts on the situation
Geography:
Taiwan sits 108 miles from the Chinese mainland.
The Strait of Taiwan is a crucial shipping lane between China, South Korea, Japan, Philippines, and Southeast Asian countries. Bypassing this area is costly in time and fuel.
The airspace surrounding Taiwan is critical for tourism and trade. Like shipping, bypassing this area is costly for the same reasons.
Most countries subscribe to the fact that territorial waters extend 12 nautical miles offshore. The Contiguous zone extends limited jurisdiction out another 12 miles to 24 miles. Beyond 24 miles it is generally considered international waters. This leaves a narrow-contested gap between China and Taiwan.
Chinese - US Fast Facts
2020 US-China Trade $615.2 B.
2020 US Trade Deficit of $285.5 Billion
2017 China had over 60% of the US Electronic Imports
China is # 3 in Total US Trade. Only Canada and Mexico rank higher.
Top 5 Chinese Imports 2019:
$43.67 B - Telephones
$37.24 B - Automatic Data Processing Machines
$12.3 B - Tricycles, Scooters, wheeled toys & other Toys
$11.25 B - Communication Apparatus
$5.352B - Games
Top Five US Exports 2019:
$13.13 B – Airplanes & other aircraft
$12.46 B – Soybeans
$7.89 B – Vehicles with only spark ignition internal combustion engines
$4.95 B – Electronic integrated circuits, Processors, controllers
$3.97 B- Oils
Taiwan:
30% of Taiwan’s exports go to mainland China.
Taiwan is China's 3rd largest trading partner.
Taiwan is ranked 8th in trade with US
Regardless of where you stand politically, Nancy Pelosi’s trip to Taiwan had real implications not only in the political world, but also in the business world. Let’s review how China has reacted so far.
Chinese actions as a result of Pelosi’s visit:
Active military exercises in the Taiwan Strait, including use of “live” ordinance.
Incursion into the Taiwan territorial waters and the Taiwan marine border, within 10 miles of the Taiwan land mass.
Disrupting shipping traffic within the Taiwan Strait.
“Live” missile over-flight of Taiwan.
Extension of these exercises beyond the known scheduled end date.
5 missiles landing in Japanese waters.
Canceling China-U.S. Theater Commanders Talk.
Canceling China-U.S. Defense Policy Coordination Talks (DPCT).
Canceling China-U.S. Military Maritime Consultative Agreement (MMCA) meetings.
Suspending China-U.S. cooperation on the repatriation of illegal immigrants.
Suspending China-U.S. cooperation on legal assistance in criminal matters.
Suspending China-U.S. cooperation against transnational crimes.
Suspending China-U.S. counternarcotics cooperation.
Suspending China-U.S. talks on climate change.
Economic sanctions on Taiwanese agricultural goods and imports of Chinese sand.
Boycotts on some fish and fruit imports.
Diplomatic protest and summoning of the US Ambassador to China
Cyberattacks against Taiwan.
Others are watching how we react. This week Russia has ceased Nuclear Arms inspections with the US. The war in the Ukraine continues, winter in Europe is coming, adding pressure to energy prices. There is a food shortage in Sri Lanka. US middle east relations are strained. The US is no longer self-sufficient. The supply chain is critically fragile. Changing world events can quickly create new risks and opportunities.
How will your company/industry be impacted by these events? What contingency plans do you have? How and when will you react? How are you evaluating risks and opportunities? What are you doing to “Win”?
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