Speaker 1: You are listening to Asia Centric from Bloomberg Intelligence, the
Speaker 1: podcast that explores the big ideas and trends moving money
Speaker 1: across the region. My name is Kadid Miitrieva with Bloomberg News.
Speaker 2: In Hong Kong, and I'm John Lee from Bloomberg Intelligence.
Speaker 2: The President of Taiwan liking To last week gave it
Speaker 2: an important address to his people. The Annual ten tenths Speech,
Speaker 2: as it's called, lays out the leader's vision for the
Speaker 2: impacts go beyond its borders.
Speaker 1: Yes, it's always closely watched by people around the world,
Speaker 1: but especially in the US and China as a kind
Speaker 1: of gauge of how relations will shape up in the
Speaker 1: coming years with US. To discuss takeaways is David Sachs,
Speaker 1: Asia Studies Fellow at the Council on Foreign Relations.
Speaker 3: Welcome David, thanks for having me now.
Speaker 1: The Annual ten tens Speech as it's called, it's important
Speaker 1: not just for Taiwan, but also has global implications and
Speaker 1: it acts as a guide for US China relations as well.
Speaker 1: What were your takeaways from the speech this year?
Speaker 3: Well, if you compare President Lie's Double ten speech to
Speaker 3: his inaugural which was delivered in May, I think that
Speaker 3: the consensus is. He took a step back on a
Speaker 3: few of those points. So, for instance, in his inaugural address,
Speaker 3: he called out China by name and was very direct
Speaker 3: in his criticisms of China. There was no such direct
Speaker 3: criticism in this Double ten speech. Instead, he talked very
Speaker 3: vaguely about the threat that authoritarianism poses around the world.
Speaker 3: Now there were also olive branches to Beijing, so he
Speaker 3: talked about a willingness to work with China on global
Speaker 3: issues like climate change and infectious disease, and some members
Speaker 3: of Li's administration pointed to a line about hoping that
Speaker 3: China will live up to the expectations of the international
Speaker 3: community and take up its responsibilities as another signal of
Speaker 3: goodwill that he wasn't closing the door on China and
Speaker 3: prejudging it, so to speak, as kind of a revisionist power,
Speaker 3: but actually expressing hope that China could find its way
Speaker 3: in the international system without being disruptive. So those were
Speaker 3: some signals that observers in the United States looked to,
Speaker 3: as well as reassurances that he would seek to maintain
Speaker 3: the status quo, but those were clearly not reciprocated by
Speaker 3: Beijing and not recognized by Beijing. They responded to his
Speaker 3: Double ten speech by announcing Joint Sword B, a large
Speaker 3: military exercise. There was a continuation of Joint Sword A,
Speaker 3: which it introduced after his inaugural address. So I think
Speaker 3: that the quandary, or the dilemma for observers is that,
Speaker 3: on the one hand, I think many believe that this
Speaker 3: was a more moderate speech, but on the other hand,
Speaker 3: there wasn't really a moderation in Beijing's response, And so
Speaker 3: where does cross straight relations go from there?
Speaker 1: So, David, why do you think China stepped up these
Speaker 1: military exercises given as you say, President Lai extended these
Speaker 1: kinds of olive branches in his speech.
Speaker 3: Yeah, so, you know, we could all analyze the text
Speaker 3: of what Lai said, and I'll do that very briefly.
Speaker 3: He said that the Republic of China, which is Taiwan's
Speaker 3: formal name, and the People's Republic of China are not
Speaker 3: subordinate to each other. That's something that the PRC takes
Speaker 3: umbrage to, but it's not a new formulation, his predecessor
Speaker 3: saying when said the same thing during her twenty twenty
Speaker 3: one Double ten speech. He also talked about how essentially
Speaker 3: the name of Taiwan didn't really matter. Some people call
Speaker 3: it the Republic of China, some people call it the
Speaker 3: Republic of China Taiwan, and some people just call it Taiwan.
Speaker 3: And of course, you know, for China, that is akin
Speaker 3: to talking about independence and a separate identity internationally for Taiwan. Now,
Speaker 3: I'll take maybe a bit of a contrarian view on that.
Speaker 3: I think what Lie is trying to signal is actually
Speaker 3: that he's not going to pursue a formal name change
Speaker 3: of the island through the legislature or through other means
Speaker 3: that would cause a crisis. And he's essentially saying that
Speaker 3: he wants to set aside those divisive issues in the
Speaker 3: in favor of national unity. So that's my own view,
Speaker 3: but China clearly does not like that formulation. But you
Speaker 3: know what I would argue more broadly is that regardless
Speaker 3: of what Lie says, China will respond the way that
Speaker 3: it has responded. It has a deep distrust of Lie,
Speaker 3: and you might even say that it has a visceral
Speaker 3: hatred of Lie. This goes back to a statement that
Speaker 3: he made years ago that he was a quote pragmatic
Speaker 3: worker for Taiwan independence. Now, he said that before he
Speaker 3: was the vice president, and obviously before he was running
Speaker 3: for president. But if you meet with any Chinese scholar
Speaker 3: or official and they bring up lie, they always remind
Speaker 3: you of that common that he made now when he
Speaker 3: was running for president, and since he's assumed the presidency,
Speaker 3: he's had a few other lines that have raised eyebrows
Speaker 3: in Beijing. For instance, on the campaign trail, he talked
Speaker 3: about how his dream would be to visit the White
Speaker 3: House as president, which you know China really objected to,
Speaker 3: And since assuming the presidency, just a few days before
Speaker 3: his double ten speech, he asked rhetorically, how can China
Speaker 3: claim to be the motherland of Taiwan when the People's
Speaker 3: Republic of China is younger than the Republic of China,
Speaker 3: And so those kind of tweaks of China also really
Speaker 3: stick with them. But my overall point is, regardless of
Speaker 3: what he says, China's response will be Okay, well you
Speaker 3: have to match that with actions. How can we trust
Speaker 3: what you say and that you really mean it. So
Speaker 3: I think that no matter what the content of his
Speaker 3: speech was, they were going to react in a forceful way,
Speaker 3: and as you noted at the top, you know he's
Speaker 3: going to give three more of these speeches during a
Speaker 3: first term, so we should anticipate I think a pretty
Speaker 3: robust response from Beijing each of the next three octobers.
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Speaker 2: where do we go from here? Do you think geopolitical
Speaker 2: risks could escalate or do you think we're at the
Speaker 2: height right now?
Speaker 3: I don't think we're at the height, So I think
Speaker 3: that the risks will continue to be elevated because I
Speaker 3: don't think that Beijing is accepting of the status quo
Speaker 3: as most define it, and they continue to see opportunities
Speaker 3: to shift the status quo in their favor. So to
Speaker 3: give you just one example, a few months ago, there
Speaker 3: was a Chinese vessel that capsized off of the offshore
Speaker 3: island of gin Men, and some Chinese fishermen died and
Speaker 3: others were taken into custody in Taiwan. And China used
Speaker 3: that as an opportunity to change what had been practiced
Speaker 3: for decades around patrols near Jinmen. And they don't pull
Speaker 3: back after they've established a new baseline. Another instance, you know,
Speaker 3: China's naval vessels used to only operate really on Taiwan's
Speaker 3: west coast. Now on a near continuous basis, you have
Speaker 3: pla navy vessels on Taiwan's west coast, it's east coast,
Speaker 3: and the north of Taiwan. So the military activity the
Speaker 3: new normal is highly elevated, and in my view, China
Speaker 3: will continue to elevate the new normal military activity. In
Speaker 3: the economic realm, you know, we've seen a few rounds
Speaker 3: of tariffs imposed on Taiwanese goods since Li took office.
Speaker 3: My own view is that at some point China will
Speaker 3: will withdraw the EKFA agreement. They've already tried to lay
Speaker 3: the foundation for doing so, saying that Taiwan is in
Speaker 3: violation of its commitments under EKFA.
Speaker 1: And just for just for listeners, what is EKFA sure?
Speaker 3: So the Economic Cooperation Framework agreement is essentially a free
Speaker 3: trade deal reached under the mind Joe administration in Taiwan
Speaker 3: and the PRC, and it gives Taiwanese firms an array
Speaker 3: of ways to have preferential access to the Chinese market.
Speaker 3: China warned during the presidential election cycle, if you elect
Speaker 3: a lie, you know this might come into question. And
Speaker 3: the review just so happened to coincide with the day
Speaker 3: of the election. And I believe that China is going
Speaker 3: to do more to undo that agreement. So I think
Speaker 3: that impose more economic costs on Taiwan. The military pressure
Speaker 3: will rise, It'll continue to try to isolate Taiwan internationally,
Speaker 3: and then of course add into that mix. We don't
Speaker 3: really know what a future US administration's policy will be
Speaker 3: towards Taiwan. President Trump has said on multiple occasions, Taiwan
Speaker 3: hasn't given us anything. Taiwan stole our chips manufacturing. We
Speaker 3: are no different than an insurance company, and Taiwan should
Speaker 3: pay US for defense. So you could have an element
Speaker 3: of instability in the Taiwan straight in my view, if
Speaker 3: Trump returns to office and China concludes that the United
Speaker 3: States is not committed to Taiwan's defense, and it might
Speaker 3: seek to test a Trump administration on its commitments to Taiwan.
Speaker 3: On a Harris administration too, I think there's an open
Speaker 3: question is Harris more similar to Biden or is it
Speaker 3: going back to the Obama approach to China. So I
Speaker 3: think there will be a test regardless of what happens
Speaker 3: in the US election, in the South China Sea, potentially
Speaker 3: the Taiwan Straight and the question is really how that's
Speaker 3: navigated and what the takeaways from Beijing are.
Speaker 2: David, what would be an Obama approach to Taiwan.
Speaker 3: Well, it's a very interesting question. I think that what
Speaker 3: the Chinese concluded during the Obama administration was that they
Speaker 3: could get US restraint on Taiwan by dangling the prospect
Speaker 3: of US China cooperation on certain issues, and that they
Speaker 3: would present the Obama administration with those trade offs, and
Speaker 3: that the Obama administration would choose the US China cooperation
Speaker 3: at some point in the future over doing certain things
Speaker 3: with Taiwan. And so one tangible result of that is
Speaker 3: arm sales. So under the Obama administration you had what
Speaker 3: we're referred to as bundles of arm sales. So you
Speaker 3: would have arm sales that were not announced for months
Speaker 3: or even over a year, and then you would suddenly
Speaker 3: have a big package of arm sales announced, so that
Speaker 3: there would only be one set of blowback from Beijing.
Speaker 3: Under the Trump administration, arm sales were normalized so that
Speaker 3: just like we do with all other partners, when Taiwan
Speaker 3: makes a request for certain arms, those are reviewed and
Speaker 3: then if those are approved, they're notified in the order
Speaker 3: that they're approved. And that's continued under the Biden administration,
Speaker 3: so you see much more routine arm sales to Taiwan
Speaker 3: rather than what we saw under the Obama administration.
Speaker 1: Of the bundling, you're laying out a risky future. I
Speaker 1: guess it's always the case with Taiwan. So as an investor,
Speaker 1: I guess what should be the takeaways going forward? Because
Speaker 1: Taiwan's Semiconductor t SMC, it's the biggest chips company in
Speaker 1: the world based in Taiwan, We've seen the company increasingly
Speaker 1: look to build plants elsewhere. Other companies are doing the same.
Speaker 1: I mean, as an investor who's heard this speech, who's
Speaker 1: heard that there are some concessions, but China has still
Speaker 1: had this reaction. What is the takeaway what should they
Speaker 1: expect in the next couple of years.
Speaker 3: So I'll address the China part first and then the
Speaker 3: Taiwan part. I think that for many investors, the assumption
Speaker 3: was that a conflict over Taiwan was around zero percent.
Speaker 3: For a long time, I think the assumption was, you know,
Speaker 3: Beijing talks about potential use of force against Taiwan, but
Speaker 3: it's not really serious. It's just doing that to appease
Speaker 3: the nationalists at home and show its domestic audience that
Speaker 3: it's making progress on this issue. But I think that
Speaker 3: that has fundamentally changed over the last four to six years.
Speaker 3: Number one, due to what's happened in Hong Kong and
Speaker 3: the demolition of one country two systems. Number two, the
Speaker 3: war in Ukraine, I think has shown Taiwanese people, but
Speaker 3: also people around the world, that when an authoritarian wants
Speaker 3: a piece of land, they're going to act potentially aggressively,
Speaker 3: and what we might not think is rationally to try
Speaker 3: to achieve those geopolitical aims. And if you look at
Speaker 3: how Xi Jinping views Taiwan and how Putent views Ukraine,
Speaker 3: it's remarkably similar in a sense. So I think that
Speaker 3: you have to factor into your investment decisions in China
Speaker 3: a not zero percent chance that there is a major
Speaker 3: conflict potentially involving the United States. And so you know,
Speaker 3: as you well know, that's referred to as a China
Speaker 3: plus one model. You can't have all of your eggs
Speaker 3: in the China basket because there is a potential future
Speaker 3: where there are heavy sanctions levied on China and potentially
Speaker 3: major trade restrictions. So if I was running a multinational corporation,
Speaker 3: I would not be comfortable with all of my production
Speaker 3: occurring in China or with my biggest growing market being China.
Speaker 3: And I think that that's what needs to be taken
Speaker 3: into account on the Taiwan side of the ledger, you know,
Speaker 3: I think that what's striking to me is that there
Speaker 3: are some in the United States who do believe that
Speaker 3: we're going to achieve autonomy and semiconductors within the next
Speaker 3: five to ten years. They look at TSMC's investments in
Speaker 3: Arizona and they think, well, basically, at some point we'll
Speaker 3: manufacture one hundred percent of our chips and then we
Speaker 3: won't have a stake in piece of stability in the
Speaker 3: Taiwan straight And I think that that's quite flawed. I
Speaker 3: think that we're looking at a future where, regardless of
Speaker 3: the investments TSMC makes in Japan, in the United States,
Speaker 3: and in Europe, the world is going to be very
Speaker 3: reliant on Taiwan for its chip supply. And I think
Speaker 3: the best case scenario is that you're able to build
Speaker 3: redundancy and resilience for chips that you need for critical
Speaker 3: national security applications. So in a worst case scenario, if
Speaker 3: there is a conflict between China and Taiwan, you're still
Speaker 3: going to be able to get the chips you need
Speaker 3: to fight a war and to continue as a society.
Speaker 3: So I think that that's the most realistic scenario in
Speaker 3: the future. But I don't really see a future at
Speaker 3: least in the near to midterm where the world achieves
Speaker 3: self sufficiency in chips and doesn't need Taiwan, especially for
Speaker 3: the advanced chips that it really does have a stranglehold on.
Speaker 1: David.
Speaker 2: So your point, Taiwan exports to the United States for
Speaker 2: this year will likely eclips those to the mainland China
Speaker 2: for the first time in over twenty years. And now
Speaker 2: this was based on a report by my colleague Marvin
Speaker 2: Chen of Bloomberg Intelligence. A lot of this has been
Speaker 2: influenced by searching demand for AI chips by the likes
Speaker 2: of Nvidia, But you're also seeing US restrictions for Taiwan
Speaker 2: sales to these chips to mainland China. Do you see
Speaker 2: this as more of a blip or do you see
Speaker 2: Taiwan's economy slowly decoupling from mainland China towards the US.
Speaker 3: I think that we do see a decoupling in a sense.
Speaker 3: I mean, there's not going to be a full decoupling
Speaker 3: because so many of the intermediary goods the China needs
Speaker 3: to then manufacture the finished products that are re exported
Speaker 3: around the world come from Taiwan, so you know, Taiwan
Speaker 3: is deeply integrated into these supply chains. But you can
Speaker 3: also look at things like FDI where Taiwanese outbound FDI
Speaker 3: into China has gone down, you know, off a cliff
Speaker 3: essentially over the last six or eight years. And as
Speaker 3: you know it also Taiwan's trade is rebalancing away from
Speaker 3: the PRC. Some of this, I think is due to
Speaker 3: the COVID nineteen pandemic and fears of the lockdowns that
Speaker 3: caused companies to kind of reallocate their manufacturing and refocus
Speaker 3: in Southeast Asia. Some of it is due to policies
Speaker 3: that the Taiwanese government has undertaken, like the new Southbound
Speaker 3: policy under President's side that's sought to build up these
Speaker 3: relationships in Southeast Asia. But when you have also events
Speaker 3: like a executive of a major Taiwanese company you know,
Speaker 3: under an exit ban in the PRC right now, or
Speaker 3: you have Taiwanese individuals convicted under these guidelines of promoting
Speaker 3: Taiwan independence, a lot of Taiwanese businessmen are going to
Speaker 3: be increasingly uncomfortable doing business in China and they're going
Speaker 3: to look for other avenues. So I do think that
Speaker 3: we're going to continue to see a rebalancing of Taiwan's
Speaker 3: economy away from China and more towards Europe, the United
Speaker 3: States and Japan.
Speaker 1: Investors are likely thinking about this as well. They're quite optimistic.
Speaker 1: It looks like Taiwan stock index, the tai X, is
Speaker 1: up almost thirty percent year today. It's the best performing
Speaker 1: major stock index in the world. So do you think
Speaker 1: investors are correct and sort of ignoring the geopolitical risks,
Speaker 1: which it seems is happening.
Speaker 3: Well, I don't think you can ignore the geopolitical risks,
Speaker 3: and I think you have to understand that Chijinping, in
Speaker 3: my view, is fundamentally different from his predecessors. Think that
Speaker 3: the assumption, again to go back to how people were
Speaker 3: reading China for decades, was that the most important thing
Speaker 3: for the Chinese Communist Party leadership was generating economic growth,
Speaker 3: and that if there was ever a trade off that
Speaker 3: had to be made, they would choose a favor of
Speaker 3: economic growth because the regime legitimacy rested on delivering that
Speaker 3: prosperity to the Chinese people. But I think what's becoming
Speaker 3: increasingly clear is that the number one priority for Shijinping
Speaker 3: is national security, which he defines as regime security, and
Speaker 3: if there is a tension between economic growth and national security,
Speaker 3: he's going to choose national security. So I don't think
Speaker 3: that we can be complacent and say, well, China needs
Speaker 3: Taiwan's economy so much, it needs the trade so much,
Speaker 3: it needs trade with the West so much, it'll never
Speaker 3: use force against Taiwan because that would be lunacy. I
Speaker 3: think that he has a different calculus at work here.
Speaker 3: We don't really know exactly what it is, and I
Speaker 3: don't think that I can sit here and tell you
Speaker 3: exactly what he's going to do. But I also think
Speaker 3: we can't apply those frameworks that we've been using for
Speaker 3: decades because I think that they are flawed and pretty
Speaker 3: out of date at this point. So to get back
Speaker 3: to your QUO question, there's a risk here, but I
Speaker 3: don't think that a conflict is imminent. I think that
Speaker 3: deterrence in the Taiwan strad is real. I think that
Speaker 3: when you know, Chijinping asks his generals about whether they
Speaker 3: can accomplish unification at a acceptable cost to him, the
Speaker 3: answer is probably no. And so if Taiwan continues to
Speaker 3: invest in its defense, if the United States continues to
Speaker 3: take steps to bolster deterrence in the Taiwan strade, if
Speaker 3: Japan also is increasingly active in this respect, then I
Speaker 3: think deterrence will still hold. So you know, again, I
Speaker 3: think that that is what's keeping Sijinping from acting. It
Speaker 3: is the question in his mind on whether they can
Speaker 3: accomplish their objectives militarily and at an acceptable cost. And we,
Speaker 3: the United States as well as Taiwan, can manipulate that variable.
Speaker 2: David, if I could change track. What about the average person,
Speaker 2: average VERSI in Taiwan. You know, the world often views
Speaker 2: Taiwan through geopolitical risks, a tension between the US and
Speaker 2: China and Taiwan is stuck in between. But what about
Speaker 2: the average VHOTO Are they really concerned about these foreign
Speaker 2: policy risks or are they sort of more concerned about
Speaker 2: mundane domestic policies, for example, issues like housing prices.
Speaker 3: That's a really interesting question. So to get back to
Speaker 3: the main topic of our conversation, which is lies double
Speaker 3: ten speech, we're all focusing on crosstrate issues. That's what
Speaker 3: gets the PRC's attention, and that's what gets attention in Washington.
Speaker 3: But actually it was a very small proportion of his
Speaker 3: speech that dealton crosstraight issues. A lot of it was
Speaker 3: on the bread and butter issues that you were talking about,
Speaker 3: long term elderly care, youth, unemployment, housing prices. So I
Speaker 3: think that that is a core concern for Taiwanese people
Speaker 3: and they face a lot of the same challenge the
Speaker 3: advanced democracies around the world face. I think one of
Speaker 3: the takeaways from the DPP, the ruling party, from the
Speaker 3: election is actually the lie underperformed expectations because there was
Speaker 3: dissatisfaction with the DPP undertying when in a sense and
Speaker 3: how was able to address those quality of life issues.
Speaker 3: I mean, if you're young in Taiwan, it's incredibly difficult
Speaker 3: to buy a house. Youth unemployment, especially for college educated kids,
Speaker 3: is a real issue. Of course, you have, like in
Speaker 3: everywhere in East Asia, rapidly aging population and the costs
Speaker 3: that are associated with that. So those are real issues
Speaker 3: and that's what animates voters. But let me just qualify
Speaker 3: what I said, because at the presidential level, when you
Speaker 3: have a presidential race in Taiwan, everything is filtered through
Speaker 3: a cross straight lens in my view, And so for
Speaker 3: the KMT, much of its answer for how you address
Speaker 3: that is closer economic relations with the PC. If crosstrate
Speaker 3: relations are not so tense. If we have a better
Speaker 3: relationship with China, it'll make it much easier to address
Speaker 3: these issues. We won't have to invest as much in defense,
Speaker 3: you know, we can focus on this and we won't
Speaker 3: have to deal with the military intimidation every day. For
Speaker 3: the DPP, that is a big vulnerability. How much Taiwan
Speaker 3: relies on China and how China can manipulate that whenever
Speaker 3: it wants to inflict pain on Taiwan, and so part
Speaker 3: of dealing with all these challenges is to diversify the
Speaker 3: economy away from China. So crosstraight relations really also are
Speaker 3: at the front of mind when you get into a
Speaker 3: presidential contest and think about what your vision for the
Speaker 3: island's future is.
Speaker 2: Taiwan is obviously home to TSMC, the world's largest semiconductor company.
Speaker 2: But outside of technology, and outside of TSMC, what does
Speaker 2: Taiwan actually make? Are they famous for anything else? I
Speaker 2: heard that they are also the biggest bicycle manufacturer in
Speaker 2: the world as well.
Speaker 3: I was about to mention bicycle manufacturing, which was a
Speaker 3: surprise to me a long time ago, but actually I
Speaker 3: heard something interesting a little while ago, because in Washington
Speaker 3: there's a lot of tabletop exercises wargames going on about
Speaker 3: Taiwan scenarios if there is a war over Taiwan, what's
Speaker 3: vulnerable from the US perspective, where can China inflict pain
Speaker 3: on us? And how do we shore up those vulnerabilities?
Speaker 3: And one person mentioned to me that Taiwan is actually
Speaker 3: the world's second largest producer of screws. His point was
Speaker 3: it can be something as mundane as a screw. But
Speaker 3: if you run a multinational corporation, you probably rely on
Speaker 3: Taiwan for screws, and there are some very specialized screws
Speaker 3: out there, and so if you're not getting those anymore,
Speaker 3: how easy is it for you to find a substitute
Speaker 3: and to source those and get those in your production line. So,
Speaker 3: I full disclosure, I wasn't able to independently verify that
Speaker 3: Taiwan is the world's second largest producer of screws. But
Speaker 3: if that person is right, I think that those are
Speaker 3: the types of issues, you know, we need to get
Speaker 3: smarter about. And to get back to your point about TSMC,
Speaker 3: TSMC is supported by a host of highly specialized Taiwanese
Speaker 3: corporations that help service this equipment, that keep it running,
Speaker 3: that provide all of these little parts the TSMC needs,
Speaker 3: And so that's really also part of the success of TSMC.
Speaker 3: And what are the difficulties of attempting to replicate that
Speaker 3: in Arizona or Japan. On a lighter note, I think
Speaker 3: Taiwan is known as the founder of bubble t which
Speaker 3: has now become a worldwide since it's coat And then
Speaker 3: of course didn't Taiphung, which is the soup dumpling chain
Speaker 3: which just opened its first location in New York. So Taiwan,
Speaker 3: you know, specializes in everything from chips to to boba
Speaker 3: and soup dumplings.
Speaker 1: I guess, yeah, there's a lot at stake, a lot
Speaker 1: more than people think.
Speaker 3: Well, I thought, you know, some of your colleagues at
Speaker 3: Bloomberg did a simulation on the economic costs of a
Speaker 3: conflict over Taiwan a few months ago, and they put
Speaker 3: the price tag at ten trillion dollars, which is roughly
Speaker 3: ten percent of global GDP. Makes the war in Ukraine
Speaker 3: and the COVID nineteen pandemic look small by comparison. But
Speaker 3: what was striking to me is that I think that
Speaker 3: they did the same type of simulation about a war
Speaker 3: on the Korean peninsula, and they estimated that that shaved
Speaker 3: I believed four trillion dollars off of global GDP. So
Speaker 3: when you think of a calamitous event like a war
Speaker 3: on the Korean peninsula, that's still a fraction of a
Speaker 3: war in the Taiwan straight And a lot of that
Speaker 3: is driven not just by what Taiwan makes, but because
Speaker 3: of the fact that so much global shipping goes through
Speaker 3: the Taiwan Straight, which would be closed during a conflict.
Speaker 3: And so if you're South Korea, if you're Japan, China
Speaker 3: as well, so much of their imports transits the Taiwan
Speaker 3: Straight or the South China Sea, and that would obviously
Speaker 3: be a zone of conflict, and that drives up these
Speaker 3: costs as well.
Speaker 2: Is there anything that globalingus, well, you know, foreigners get
Speaker 2: wrong about Taiwan.
Speaker 3: Actually, I think that's an interesting question because I think
Speaker 3: a lot of what investors get wrong is the chips question.
Speaker 3: I think, on the one hand, you have people who
Speaker 3: are convinced that China only wants Taiwan for the chips,
Speaker 3: and therefore, if the United States, for instance, says well,
Speaker 3: we will destroy the FABS during a conflict, that would
Speaker 3: then make China want Taiwan less because that's driving its behavior,
Speaker 3: and that's totally false. You know, China wanted Taiwan before
Speaker 3: the semiconductor was even invented, and if Taiwan was some rural,
Speaker 3: agrarian economy, it would want Taiwan just as much. In
Speaker 3: my view, so I think that putting all of your
Speaker 3: emphasis on chips is fundamentally wrong. And if I could
Speaker 3: just flip that a little bit, I think there's also
Speaker 3: similar notion that basically, well, if China takes Taiwan, it
Speaker 3: would be calamitous for the United States because it could
Speaker 3: just turn on the switch on the TSMC fabs, produce
Speaker 3: the most advanced chips in the world, reverse the kind
Speaker 3: of export ban on the United States, and we're in
Speaker 3: a very vulnerable position. And I also would push back
Speaker 3: on that because TSMC needs US equipment, US software, US
Speaker 3: persons help operate these things. Presumably a lot of these
Speaker 3: engineers would not be in Taiwan after a conflict, and
Speaker 3: so I also would say that we shouldn't assume that
Speaker 3: the PRC, even if it were able to gain control
Speaker 3: of Taiwan, would be able to seize the fabs and
Speaker 3: keep them going like they're running now. I think that
Speaker 3: there's also flaws in that reason.
Speaker 1: That's a good point. Well, it's been an interesting conversation,
Speaker 1: everything from chips to screws, from the US to China
Speaker 1: and Taiwan. Thank you so much for joining us.
Speaker 3: Today, David, Sure, thanks for having me.
Speaker 1: I'm Katadmitriyeva in Hong Kong.
Speaker 2: And I'm John Lee, also in Hong Kong.
Speaker 1: This podcast was produced by Clara Chen and you've been
Speaker 1: listening to the Asia Centric podcast