Chip shortages, energy, China-Taiwan: 5 global flashpoints to watch

A new era of superpower rivalry is redrawing the map of the world economy and forcing business leaders to navigate around a growing number of global flashpoints.

With a war heating up in Europe and a growing chill between the US and China, the rest of the world is under pressure to take sides. Political leaders are imposing new economic priorities as they struggle to make up for shortages of critical commodities – from natural gas to semiconductors – and use those they control as leverage.

For commerce veterans in Davos this week, it all marks a shift away from an era of ever-closer global relations, when big business thought it had succeeded in making the world flat. Now this is in for a bumpy ride.

The debate at the World Economic Forum will revolve around these emerging geo-economic risks. Some center on key commodities or markets – such as the focus on worldwide energy security since Russia’s invasion of Ukraine, or the US campaign to deny China cutting-edge technology. Others are geographic, particularly the risk of conflict in Taiwan.

“We are living in a more fragmented world that includes financial fragility, so one thing is clearly on everyone’s mind: where to invest, and how to invest, in a more multi-polar world,” Karen Harris , New York said before flying to Davos, managing director of the Macro Trends Group at consulting firm Bain & Company.

Here is an overview of some of the potential hotspots this year in the fast-paced world of economic statecraft.

weaponized energy

Energy is at the heart of the economic war pitting the United States and its allies against Russia. Both sides have tried to weaponize this, and further turmoil is likely in 2023.

President Vladimir Putin says Russia will not sell oil to any country participating in the price cap the US and its group of seven allies are trying to impose. For now, that means a range of $60 a barrel. The G-7 rules have helped push Russian crude exports well below that limit – potentially undermining Putin’s ability to finance the war.

Russia still has buyers, notably India, China and Turkey. It also has the option of cutting off supply entirely, which would wreak havoc on oil markets – threatening a repeat of last year’s crude price hike that fueled inflation everywhere.

It is not all about crude oil. Similar curbs on refined Russian products such as diesel are due next month, and some Western officials worry they could trigger shortages.

And the shutdown of Russian natural-gas pipelines has left a huge hole in global supply. So far, a warm European winter has helped make the shortage less acute and bring down gas and electricity prices. Still, this year will likely see countries scramble to lock down scarce shipments of the liquefied fuel.

battle for chips

Semiconductors, a critical component of everything from electric cars to ballistic missiles and new artificial intelligence technologies, are emerging as one of the most important battlegrounds of the global economy.

Over the past year, the Biden administration has used various tools, including export controls, to block China from buying or manufacturing the most advanced chips. It has also launched a $52 billion subsidy program for the domestic chip industry to bring manufacturing capabilities back to the country.

The US says its blunt-force sanctions are aimed at Chinese military capabilities, while Beijing says they are part of a wider effort to halt China’s economic progress. Whatever the case, US allies will have to be on board for the sanctions to work. The Netherlands and Japan, which host some of the most advanced chip firms, have already agreed.

Compliance would come with a cost, as companies making the chips or machinery could be shut out of the vast Chinese market. Meanwhile Beijing is pumping cash into its own semiconductor industry – although cutting-edge technologies will be hard to replicate – and could retaliate if sanctions are tightened.

War on Taiwan?

US and European leaders fear the next front in the new Cold War – which could heat up – will be Taiwan.

China has claimed Taiwan since the overthrown Nationalist government in Beijing fled there after the Communist Revolution. The Pentagon recently said that it sees no signs of an imminent attack. But it expects more aggressive behavior that has become a pattern since former House Speaker Nancy Pelosi visited the island in August, triggering a furious response from Beijing, including increased military drills and incursion actions by air and sea. Had happened. President Joe Biden has pledged to send US troops in the event of an invasion, something he has refused to do in Ukraine.

Apart from the obvious risks of direct conflict between the superpowers, there is also an economic dimension to the standoff. As home to TSMC, the world’s largest chip maker, Taiwan is vital to global supply chains of all kinds. Even a short war like a Chinese blockade can set off a huge domino effect.

A Chinese move against Taiwan and a possible Western response, says Tim Adams, chief executive officer of the Institute of International Finance, “is a contingency that everyone is planning for.” “Every single firm is gambling on what those sanctions will look like, and who America’s allies will be.”

‘Friendship’ and subsidy

Governments are increasingly inclined to use their economies as tools of statecraft. When offensive, it can mean denying rivals access to goods or markets. On defence, this meant that only allies could be trusted to deliver strategic supplies, an idea known as friendshoring.

But friends can break up, and the friendliest edge is at home. That’s why nations are increasing subsidies to their domestic producers — a shift from free-trade orthodoxy that is already causing friction.

The Biden administration is spending more than $50 billion to boost chip makers at home, and is also supporting the electric-vehicle industry as part of a $437 billion plan to fight climate change. Europe reacted furiously, accusing its allies of unfair trade practices that encourage companies to relocate to the US, and says it could roll out financial support of its own.

The risk is a global subsidy race where the winners are the countries with the deepest pockets, and the losers are already suffering from mounting debt burdens in the developing world.

secret of the dollar

More and more countries – not all of them anti-American – are looking for ways to do more business outside the dollar, as they see the US turning its currency into a tool to further foreign policy objectives. .

The Biden administration froze some $7 billion in Afghanistan’s central bank’s reserves, to keep the money out of the hands of the country’s new Taliban rulers. The US and EU are looking for ways to legally seize Russian reserves worth some half a trillion dollars and use them to rebuild Ukraine.

If that happens, it could take years to displace the dollar as the world’s reserve asset. The greenback’s safe haven status was evident last year when it was in the turbulent early months of the Ukraine war. It is embroiled in everything from central banking to commodity trading, and there is no clear alternative.

Still, countries such as China, Russia and Iran – as well as India and the Gulf energy giants, which have more cordial relations with Washington – continue to look for ways to build trade links that avoid the dollar. Chinese President Xi Jinping’s visit to Saudi Arabia last month, which sparked talk of energy deals denominated in China’s currency, with investment about to flow the other way, could be a sign of things to come.

The risk to the US and its allies is twofold. Their accepted weapon, which relies on the dominance of the dollar to be effective, may be losing some of its power. And they may face higher inflation, as trade deals between non-Western economies drive key goods out of the market, driving up prices for other buyers.

“The US dollar has a hex on all of us,” former Singapore foreign minister George Yeo told a conference last week. “If you weaponize the international financial system, the options for changing it will multiply.”

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)