There is one risk more alarming than all the others, capable of upsetting the economy and finance in the world: the warning comes from business leaders like Warren Buffett and Elon Musk.
If there is a danger to financial and political stability, it is the deterioration of US-China relations especially over the Taiwan issue. To say it are two investment and business leaders: Warren Buffett and Elon Musk.
The deterioration of relations between the two powers and the growing tensions over Taiwan are increasingly prompting illustrious business leaders to launch an "invasion alarm", which would impact everything: finance, the economy, geopolitical relations and the US electoral campaign itself for the 2024 presidential election.
China has been at the top of the US agenda for years, as President Xi Jinping pushes to expand his nation’s power. China’s policy towards Taiwan, a world leader in the semiconductor industry, could end up making the dragon a priority and obsessive political issue for next year’s vote.
Not only that, the question of a potential war for Taiwan is already influencing investment choices, as demonstrated by the latest moves and statements by Buffett and Musk.
Why Buffett and Musk are alarmed by the US-China challenge
There is no doubt that Xi Jinping has made the "reunification" with Taiwan a focal point of his agenda and that Beijing has escalated hostilities against the island, shining a spotlight on its importance to the global economy and evoking fears of a major international conflict that could eclipse Russia’s devastating war in Ukraine.
Of the same evidence is the determination of the United States to defend the integrity and sovereign independence of the island, in an anti-Beijing strategy which is now getting stronger every day.
This conflictual context is having repercussions on the business world.
“China’s official policy is that Taiwan should be integrated. So I think there is some inevitability to the situation”, Elon Musk said, adding that this escalation would be bad for “any company in the world”.
Tesla just last month announced plans to open a new factory in Shanghai that will build "Megapack" batteries. A conflict between the US and China would be harmful and embarrassing for the company’s development plans.
Musk’s remarks came a day after Warren Buffett revealed in a statement that he has fully exited his recently acquired stake in Taiwan Semiconductor Manufacturing Co, which was worth more than $4 billion. The world’s largest chipmaker, headquartered in Hsinchu, Taiwan, produces most of the advanced semiconductors used by top tech companies like Apple, Amazon, Google, Qualcomm.
The aging billionaire said geopolitical conflict over Taiwan was “certainly a consideration” in his decision to unload the stock over the past two fiscal quarters. And he added that while the company was “wonderful”, it had “reevaluated” its position “in light of certain things that were happening”.
Meanwhile, Ray Dalio, founder of hedge fund titan Bridgewater Associates, warned in late April that the US and China were on the verge of war, although he specified that this could mean a war of sanctions rather than military power.
Dewardric McNeal, senior policy analyst at Longview Global, underlined that the alarm on the Sino-US conflict has been raised for years, warning the business world against excessive dependence on China as a source for the sale of products [and] the production of products”.
He also noted that Buffett still holds shares in BYD, an electric car maker based in Shenzhen, China, even though it sold more than half of its stake last year. “Frankly, it is beneficial for China to scare investors away from Taiwan and harm or taint that economy, because that is one of the scenarios [where] they could bring Taiwan into obedience without armed intervention” McNeal said.
The semiconductor node scares the global economy
In the China-US issue and the fears of a conflict there is also the delicate but crucial question of the role played by Taiwan for the semiconductor sector. This is why the challenge of the two superpowers can destabilize the global economy and finance.
“Hardly anyone realizes that the Chinese economy and the rest of the global economy are like Siamese twins. It would be like trying to separate conjoined twins,” Musk told CNBC. “This is the gravity of the situation. And it’s actually worse for many other companies than for Tesla. I mean, I’m not sure where you’re going to get an iPhone, for example”.
Some CEOs of America’s biggest banks have said they would withdraw their business from China if asked to do so following an invasion of Taiwan. But Musk’s assessment of the tangled global economy is no exaggeration and much of the attention has fallen on TSMC.
“If Taiwan were eliminated, it would be like severing our brains, because the world economy will not function without [TSMC] and the chips coming out of Taiwan today”, said John Rutledge, chief investment strategist at Safanad.
David Sacks, a researcher at the Council on Foreign Relations, said that Apple is in a “very difficult position” because the more advanced chips it needs are made in one building at TSMC’s Taiwan campus.
The company’s technological lead in the production of semiconductors, which are used in all kinds of products, from automobiles to washing machines, has led it to become a potential “single point of failure” for many companies McNeal said.
However, just the global reliance on TSMC, as well as China, which reportedly depends on the company to supply about 70% of the chips needed to power its electronics industry, could act as something of a bulwark against an invasion.
A Stimson Center document highlighted: “Undoubtedly, the first Chinese bomb or rocket to land on the island would make the supply chain impact of the COVID pandemic seem like a mere hiccup in comparison”.
In summary, a danger from US-China tension on the Taiwan issue exists. Buffett and Musk said so, warning about how everything can fall apart.
Original article published on Money.it Italy 2023-05-20 10:44:46. Original title: Il più grande rischio per la finanza globale è uno: parola di Buffett e Musk
