Fundamental

Taiwan Tensions Will Speed Up US-China Decoupling

Author: Ahura Chalki

Friday, 12 August 2022 Number of words: 380 Study time: 2 Minutes Views: 473

Chin-Taiwan tensions
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While China-Taiwan tensions increase the alarms for another war, the US already started preparing for separation. On Tuesday this week, President Biden signed the CHIPS act to become law and ban the companies from using US money for “material expansion” of chip-making in China.

US government also supports the world's biggest chip supplier (Taiwan Semiconductor Manufacturing Co. (TSM)) to build its latest factory in the US state of Arizona. 

Tension in the East and preparations in the West for secession

Tensions that have been increasing last week and at the beginning of this week after Pelosi's visit to Taiwan and Chinese military exercises around the island started to ease in the last two days, which helped Taiwan’s benchmark equity index to increase. 

Ukraine-Russia tensions can be a good example and lesson for other countries as well as for China that how a simple threat can end in a huge real war. Also, China can expect a wide range of sanctions, as happened to Russia. We have heard the US warnings to China for comprehensive sanctions in the event of an attack, several times and from different officials during the past weeks.

On the other hand, China is preparing for sanctions, and proof of its overseas assets and banking systems -- including Hong Kong’s. According to the latest data, China’s holdings of US Treasuries fell below $1 trillion for the first time since 2010. Also, China bans Chinese companies from listing in the US indices. 

Covid-19 restrictions and the war in Ukraine made the importance of supply chain security clear for everyone. US Treasury Secretary Janet Yellen stressed the need for “trusted” allies to secure the global supply chains.

The impact of this possible war and increasing tensions can be horrible for everyone. Sanctions can decrease Chinese export. Less export means less production and an increase in the Chinese unemployment rate. External demand includes 15% of the Chinese GDP and according to Capital Economics calculations, more than 70% of Chinese exports are going to the countries aligned with the US.

As a result, we can see the downturn in the HK 50 chart. The index is moving under 20-DMA, while MACD histograms and market volume, also confirm the downward tendency. HK50 has strong resistance at 22,585 and any upward movement needs to breathe above this level at the first. 

Chin-Taiwan tensions

Source: IFC Markets
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