Measuring cross-country exposure to China-Taiwan tensions

Contingency planning for possible disruptions caused by rising geopolitical tensions is becoming an increasingly important factor in business strategy planning. To this end, we have developed a globally consistent framework showing cross-country GDP vulnerabilities to an escalation in China-Taiwan tensions, focused on disruption to the global semiconductor supply chain.

What you will learn:

• Although semiconductors are mostly used in advanced manufacturing, a supply crunch would ripple through all industries. Therefore, gauging exposures must go beyond direct supply chain monitoring and planning to include a wider perspective on macroeconomic risks.
• Technologically advanced economies and countries with geographical proximity to Taiwan rank highest in our index. While many South and East Asian economies are deeply engrained in the electronics supply chain, much of the high-end design and manufacturing processes that make use of semiconductors takes place in the US and Europe.
• Comparing vulnerability scores over time shows that exposure to cross-strait tensions is rising. The US has mitigated its trade exposure increase since 2019 by decoupling from China and encouraging large-scale re-shoring of semiconductor production under the CHIPS Act. Meanwhile, European economies’ vulnerability has remained steady on average, possibly resulting from a less active industrial policy to counter China’s economic rise.