Podcast “Wirtschaft Welt & Weit”: The German Taiwan-China dilemma

“Made in Germany” as a solution?
The German Taiwan-China dilemma

By Andrea Sellmann and Mary Abdelaziz-Ditzow
09/15/2022, 4:05 p.m

If China attacks Taiwan, our economy will be in a quandary: Germany would have to participate in sanctions against China. At the same time, they would massively damage the German economy.

Since the visit of US top politician Nancy Pelosi, Taiwan has become the focus of world attention. With missile tests and military maneuvers, Xi Jinping is making it clear that China regards the island on the east coast as a breakaway province and condemns such state visits. When US warships also passed through the strait, concerns grew in Germany that the conflict could soon escalate.

From an economic point of view, the situation is doubly fatal for Germany: On the one hand, two out of three semiconductors in the world are produced in Taiwan. Components from Taiwan can be found in almost every electronic product that we use in Germany. On the other hand, an intensification of the conflict would have far-reaching effects on trade with China. The People’s Republic is one of Germany’s most important trading partners worldwide.

Germany would have to support sanctions

The economics expert Veronika Grimm fears that the German economy would be massively affected if the conflict escalated – far more than is currently the case with the Ukraine war. According to insiders, the US is already considering a first package of sanctions to avert a Chinese invasion of Taiwan. In the event of war, Germany would have no choice but to position itself politically and participate in sanctions against China, explains Veronika Grimm in the ntv podcast “Wirtschaft Welt & Weit”. The Germans would probably have to give up a large part of their wealth if they were no longer active in the Chinese market, she points out.

The German economy is dependent on China and Taiwan – that much is clear. But how can we free ourselves from this dependency? Reinhard Loske, political scientist and economist and self-confessed skeptic of unregulated globalization, relies on bringing production sites back to Europe. For years he has observed with concern how vulnerable supply chains have become, he tells ntv. Companies with production capacities must therefore return to Germany and the EU.

Chip manufacturers hope for state aid

However, this is not easy, especially in the semiconductor industry. Because Taiwan is highly specialized. Microchips manufactured there dominate the global market because they are particularly small and powerful. Europe is currently trying to gain ground in global competition with legislative projects such as the “European Chips Act”. If Brussels approves these plans, funding could flow more easily in the future.

The US semiconductor manufacturer Intel, for example, is currently hoping for this help for its planned plant in Magdeburg. Only with generous state support can the cost gap to other locations be closed. There is also repeated speculation about the settlement of the market leader TSMC from Taiwan on German soil, but so far there have been disputes about such plans.