Chip crisis, global dependency in context of China-Taiwan crisis

When things go wrong, as in China-Taiwan crisis that left its mark on recent weeks, countries that hold power have a huge weapon against dependent nations and do not hesitate to use this weapon when necessary.

Chip crisis, global dependency in context of China-Taiwan crisis

At the beginning of the 2000s, the world began to be defined as a "global village" with the effects of the increasing usage of communication tools and the Internet. This had a great impact on the world economy. Production had become much easier across the world, where raw materials and labor were now cheaper than before. This opening-up was very inviting for the economies of developed countries, which were stifled by such matters as increasing labor costs, environmental and labor standards, and raw material transportation costs.

First in areas that do not necessitate extensive know-how, such as textiles, and later in those that require high technology, production shifted to "underdeveloped" or "developing" countries, generally to Asia. Without a doubt, this could have been an opportunity to transfer capital -- if only a little -- to non-wealthy countries, in terms of building an ideally shared world that economists dream of.

Though there were countries, like China, that turned these new circumstances into an opportunity, close examination reveals that this situation caused much environmental pollution in "underdeveloped countries," along with the small amount of capital transferred to them. Also, growing in importance has been the question of "What consequences of countries becoming more dependent on each other bring in terms of world peace?" It was thought that countries in political dispute would not easily be able to burn the bridges and that somehow, an agreement would be reached.

Challenge to global trade dependence by COVID-19, container crisis

The experiences we have lived through in recent years have shown that we should not be too optimistic about world peace. First the Russia-Ukraine war and then the China-Taiwan crisis broke out. In fact, the entire world bitterly experienced what kind of strategic difficulties could emerge from economic dependence on another country or region.

In a domino effect, the economy of the world was paralyzed from east to west with the halt of daily life in East Asian countries, especially China, which is considered the factory of the world, as they became the starting point for the pandemic. Other countries that were dependent on raw materials or semi-finished products from that region had to slow down or suspend production. So much so that the containers that went to Europe and America could not return to Asia as they could not be filled due to lack of output. As production returned to normal in Asia, a lack of containers to carry the goods emerged. Similarly, the six-day closure of the Suez Canal, which forms the backbone of Europe's connection to the East, negatively affected world trade.

New dimension of technological dependence: Chips

Small but packing an immense impact, semiconductors, or chips, have become the symbol of technological dependence in the world. Production in many industries, from automotive to electronics, depends on chips, which are the fourth-most traded product in the world. While revenues from the world chip industry were $300 million in 2012, this figure reached $583.5 billion in 2021. Taiwan is by far the leader in world chip manufacturing with 66% in 2022. It is followed by South Korea with 17% and China with 8%.

The remaining countries account for only 9% of the world's chip production. This shows the degree to which the entire world is dependent especially on Taiwan and on South Asian countries, which realize 91% of the world's chip production, in order to produce anything containing electronics. When things go wrong, as in the China-Taiwan crisis that left its mark on recent weeks, countries that hold power have a huge weapon against dependent nations and do not hesitate to use this weapon when necessary.

In the situation that emerged with the China-Taiwan crisis, many countries, especially the US, mobilized to announce chip investment programs of $446 billion in order avoid the impact of possible chip supply problems and to be able to produce the necessary chips for their industries themselves by the end of 2023. The European Chips Act, passed by the European Commission last February, aims to support semiconductor research and development within the EU and reduce Europe's dependence on chips purchased from other countries.

According to the plan, which envisages an initial investment of $11 billion, private and public investments will reach $45 billion by 2030. As will be recalled, one of the sectors that was first affected by the chip crisis that emerged after the pandemic was the automotive industry. Germany, where automotive production constitutes a significant part in its industrial sector, also incentivized investment to become independent in chip production. German Minister of Economic Affairs and Climate Action Robert Habeck explained that Germany's chip investments by saying: "We want to strengthen chip production in Germany and Europe in order to become less dependent on international supply chains." The US also plans to support chip production with funds totaling $52 billion.

Global dependence in agriculture, health fields

The situation is not much different in agriculture, another vital area for the world. Dependence on a few countries in both grain and raw materials for fertilizer is pushing the world towards a food crisis. In the situation that emerged with the Russia-Ukraine war, we faced the fact that the world is dependent on several countries for basic grain products. Five nations hold the lion's share in world wheat, soybean, sunflower, and corn output. Ukraine and Russia together produce 15% of the world's wheat and 60% of the world's sunflower oil. Also, Canada, Russia, and Belarus rank among the top three global potassium producers. The price increase in potassium, the main raw material for fertilizer production, directly affects food costs, and due to this dependency, fertilizer prices have tripled in 2022 compared to last year. Many of the countries facing food shortage in the world are dependent on Russia and Ukraine for grain and oil. Lebanon gets 90% of its grain from Russia.

Another dependence painfully experienced in the world during the coronavirus pandemic was in the field of health. In what was a tragicomic situation, developed countries that had shifted their textile production to Asia were unable to produce masks when there was a sudden need, despite it not requiring high technology. Vaccine development efforts, which required huge research budgets and know-how, were also used for political purposes among developed countries when needed.

Over the last 50 years, we have witnessed many times how countries that produce oil and its derivatives used this dependency when the occasion arose. It is precisely this one-sided dependency that underlies the attitudes towards Russia of these European states, which have been unable to go beyond condemnation amid the Russia-Ukraine crisis. To be rid of this dependency, European countries are trying to switch to renewable energy sources, but they need at least 10 years for this.

In attempts to capture castles or cities in past eras, efforts were made to cut them off from water sources. It has been bitterly experienced in the last few years that in the 21st century's globalized and economically interdependent world, countries seeking to realize their ambitions do not hesitate to use strategically important products for their own interests, even if it is to the detriment of humanity.

In the coming years, we will continue to see plans and investments to reduce the dependency of "developed countries" in their strategic plans, even if these are not profitable in the short term, to produce some products on their own or to guarantee their supply. While countries that are "developed" or have the means will be able to make these investments, the dependency of those that do not will continue on an increasing basis.

AA/Dr. Huseyin H. Nuroglu