This transcript was created using transcription software.
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Andrew
China
00:00:00:12 - 00:00:01:01
Simona
Taiwan
00:00:01:01 - 00:00:01:13
Simona
China.
00:00:01:13 - 00:00:02:00
Andrew
Taiwan.
00:00:02:00 - 00:00:04:19
Kassandra
Europe is just delaying making hard choices.
00:00:04:21 - 00:00:10:03
Kai
It's hard for businesses to give up on this kind of, money making machine.
00:00:10:06 - 00:00:15:23
Simona
I think people really probably underestimate the kind of catastrophic effects
00:00:16:00 - 00:00:47:13
Kassandra
Hey and welcome to The Dip. Today we are looking to the horizon because there might be a perfect storm brewing for Europe, which is what if China invaded Taiwan? And that's not only a political issue or military issue, but is also a big economic one, actually. Exactly. And we're all wondering, of course, how big is it? According to some figures, such military aggression could actually wipe $2 trillion, not just $1,000,000,000,002 trillion off of the European economy and $2 trillion feels like insane.
00:00:47:15 - 00:01:08:17
Kai
And so I'm really happy that we've got two experts lined up to go deep dive on this one. First up is Simona Grano. She's head of research for China and Taiwan relations at the University of Zurich. And she also advises the Swiss government on how to, you know, deal with the tension over there. And also down the line, we've got Andrew Fang, our colleague from Taipei.
00:01:08:17 - 00:01:26:09
Kassandra
Hey, Andrew. Hi, guys. And Andrew, we're actually going to start with you. You know something? I always wonder whenever we see headlines about China here, out of Berlin, is is the potential for conflict real, or is this just classic Western fear mongering?
00:01:26:11 - 00:01:48:09
Andrew
So it's very real. It's definitely not the mongering. So, you know, it's in the past it's we've seen, it's roughly the time when Chinese President XI came into power. In the past decades, we've seen China's PLA People's Liberation Army has heightened its coercion around Taiwan. So for for like, for example, the latest figure, I can get it from Wednesday, actually.
00:01:48:09 - 00:02:21:19
Andrew
So on Wednesday, you know, Taiwan, Taiwan's government, Taiwan's army, we detected 11 PLA aircraft and nine PLA ships. So it's happening every day in daily basis. And as a part of its salami slicing tactics to try to wear out Taiwan and Taiwan's allies, partners, awareness and making people getting really used to it. But I think what's changed, starting this year is that, we see Chinese President XI Jinping is trying to pivot in, in trying to form, you know, trying to position China, position Beijing government as a peacemaker.
00:02:21:21 - 00:02:49:20
Andrew
So, actually, before the Chomsky talk, we know that you can ping saying that, you know, the Taiwan so-called the Taiwan problem is, is the cork, discussion between us and China. But but before that, in April, actually seating Peking met Taiwan's opposition party leader generally win in Beijing in April. So I think we've seen Beijing is trying to become you know, they used to it's sort of a carrot and stick.
00:02:49:20 - 00:03:10:10
Andrew
Right. So with no that, Po is capable of invading, they try to do this in 2027, but now they are trying to showcase that they can talk peace. So with no with make people know that we have a stake. And, you know, this military coercion can happen. But also if you if you are willing to talk peace, we can talk peace.
00:03:10:10 - 00:03:24:18
Andrew
So I think that's what's changing now. But what hasn't changed is that it's happening on a daily basis, you know, this kind of harassment and coercion. So where Taiwan and it's happening every day. So it's it's very true actually.
00:03:24:20 - 00:03:39:12
Andrew Fang
So like a very visible conflict that that you have happening over there. Simona, Taiwan and China, they both do a lot of business with the EU, but both are a bit different in their approach.
00:03:39:12 - 00:03:46:01
Kai
Let's say. How did they differ, like China and Taiwan in trade relations with the EU?
00:03:46:03 - 00:04:06:14
Simona
I think it depends a little bit right on what we are talking about. Of course, both are extremely important for Europe, but in a different manner. Of course, we know that Taiwan is especially important for semiconductors, although I think that's a bit reductionist in the sense that for the EU, of course, what's important is also the maritime routes around Taiwan we know that about.
00:04:06:16 - 00:04:26:18
Simona
And the estimates are a bit, of course, difficult on that front. But they say about between 50 and 60% of global container ships go through the strait. And it's not just, you know, the European economy that is dependent on that part of the world remaining open, but it's also countries in the area that are like Japan for example, or even the Philippines, that are really worried about what is going on.
00:04:26:18 - 00:04:53:22
Simona
Well, we just heard also the military intimidations is something that is prompting other countries in the area, something that happened a few days ago is really also that Japan and the Philippines started to talk about monitoring together what Chinese doing, because they also have contested islands with China as well. And so I think the conductor's dependance for Europe specifically, and the whole world, we know that, you know, the most advanced ones, the very small ones, about 92% come out of the island of Taiwan.
00:04:53:22 - 00:05:18:00
Simona
So how can you substitute that? But it's really also a find out. Remain sure that the lanes and the maritime routes, which are important for the whole world. Look at the Strait of Hormuz. When that is closed, remain open. And also, I think in many strategic senses, it's also important for the United States that the island of Taiwan never falls under China, because then they would have, of course, basically a free entry into the Pacific.
00:05:18:02 - 00:05:34:03
Kai
Andrew, if you look at the numbers, that you trade a lot more with China than it does with Taiwan. So looking at the numbers, it seems to be the more important partner. Do you agree with that assessment? Looking at Taiwan.
00:05:34:05 - 00:06:02:23
Andrew
I mean, that's true because just just look at the data. You know, EU and China, they're each other's second largest trading partners. But meanwhile, you know, Taiwan is EU 13th largest. And you know EU is Taiwan's the world's largest. And they became the EU became the fourth one, added fourth largest just last year. And it's something you know, but what's also happening is that, in 2025, US surpassed China became the first largest, trading partner of Taiwan.
00:06:03:00 - 00:06:31:05
Andrew
So I think what we're seeing that the Taiwanese government, we used to be and also the Taiwanese industry, we used to highly, rely on, factories in China and rely on the trading between, across the Taiwan Straits. But we've seen the risk in the past decades, Taiwanese people, Taiwanese government have seen its dangers to, super rely on China because it's something highly, you know, connected to the geopolitical risk.
00:06:31:05 - 00:06:57:12
Andrew
So I think what the Taiwanese government trying to do right now is to do more business with any other partners, you know, other than China. And, people are really focusing on the, on the U.S before. But since Donald Trump came to power and, you know, in the U.S and people have seen that the current white House can change the policy, it's just a snap and it's something that it's an uncertainty nobody want to see, especially the Taiwanese investors.
00:06:57:12 - 00:07:22:17
Andrew
So we've seen the Taiwanese investors are trying to, you know, invest more to EU, to European countries. And that's something happening right now. And, I think it's also important to really diversify and diversify not only to, you know, diversify, you know, getting away from the reliance on, on China, but also, you know, Adele, the US is Taiwan's main, you know, security partner.
00:07:22:19 - 00:07:48:16
Andrew
But we also can't only rely on the US. We have to diversify, you know, with European nations, European countries. And meanwhile, it's it's pretty hard to make the, the EU as a union to, you know, make some decision, make some big deal, with Taiwan. So I think the Taiwanese government is, trying to do right now is to build up, you know, one, one and one on relations.
00:07:48:18 - 00:08:10:03
Andrew
So it's, uncertain on European countries, we try to make business, try to make more deal and more, highly, highly, officials visit between the two countries. So I think that's what the Chinese government's doing right now. It's slow. And compared to what China have right now and the volume it's it's lower and it's weaker.
00:08:10:09 - 00:08:13:24
Andrew
But, I think the Taiwan is trying to diversify. And that's what they're doing right
00:08:14:01 - 00:08:37:02
Kassandra
So not putting all your eggs in one basket so to speak. But unfortunately I think the European basket might be made of red tape. But staying with Europe Simona, I want to come to you. In my view, it's really seems like Europe is being has been caught on the back foot when it comes to the economic consequences of military conflict or say, Covid, for example.
00:08:37:06 - 00:08:50:14
Kassandra
But when we think about military conflict, of course we have Trump in Iran, Putin, Ukraine, when we're talking about what could happen in the Strait of Taiwan, what do you see as the risks to Europe?
00:08:50:16 - 00:09:18:13
Simona
I think the rest of Europe are the ones that we mentioned before. I mean, it's the fact that I think people really probably underestimate the kind of catastrophic effects that we will get out of a not only a kinetic conflict. You mentioned it before. That would be more or less -8 or 10% of global GDP. But even if we just had, I think it was first, the the rhodium Group that calculated this in December 2022, only if they were to be a blockade of the island of Taiwan.
00:09:18:13 - 00:09:51:13
Simona
That would also actually present cost of $2.5 trillion in annual losses. I mean, that is something that I think, especially in Europe now that we are seeing, you know, what it means to be dependent sometimes on energetic needs from authoritarian regimes like the Russian ones, with the aggression war in Ukraine, we need to avoid at all costs. And I think that very often we are not aware enough of what it would mean if we had actually a potential conflict involving Taiwan, because that would be much worse than the Covid pandemic, than the 2008 financial crisis.
00:09:51:17 - 00:10:15:15
Simona
And also that what is going on at the moment, as I said, with the Russian war of aggression towards Ukraine. So I think these kind of things need to be made much more present in the public. There was a Bloomberg report, I think, last week that really also calculated by country what that would mean. Right. And I think it's useful for people to hear because you cannot expect, unfortunately, everyone to care about Taiwan because it is democracy.
00:10:15:15 - 00:10:36:10
Simona
They should, especially because we are living through geopolitical, phases in which we see that democracies can actually also not be that stable. So I personally think that a successful example like Taiwan should be protected and helped. Just because of that. But maybe the good way to go about it is also to let people understand that it would really touch them.
00:10:36:15 - 00:11:02:14
Simona
It's something that would have an impact on their own personal interest because it would touch their bank accounts. It would mean really global losses of a catastrophic proportion. And I think that this is something we don't really emphasize enough. And Europe has, in my opinion, particularly, and advantage its position because we are divided and there are 27 different voices, and these voices do not all perceive China as a threat in the same way and do not all perceive Taiwan in the same way.
00:11:02:14 - 00:11:26:01
Simona
But still we got an economic weight. We are important for China. China, the moment has, of course, a business model that is mostly premised on its exports as a problem because of the tariffs by Trump. And so it is dependent on the European market. And in my opinion, European countries don't do nearly enough that what they could do to actually use this way to sometimes also really communicate to China that they should not change the status quo.
00:11:26:03 - 00:11:51:18
Kassandra
So many important points there that I want to us to keep talking about. But you've alluded to this. Andrew also kind of mentioned how different countries within the EU, are, are making relations with Taiwan or Taiwan's reaching out to different nations within the EU. Let's break down some of those risks. Who in your mind, Simona, is most exposed to any potential conflict in this region?
00:11:51:20 - 00:12:16:01
Simona
The Bloomberg report was talking about Germany. That would mean, you know, -14% for them or the GDP. So of course, Germany is one of those countries that is mostly affected. And I think Germany probably would have double shock because of course, it's highly dependent also on especially for its automotive, sector on on China. Right. So it's not just the shock that comes out out of Taiwan if, you know, semiconductors don't come out, but it's also, you know, for those countries, I have a high dependance.
00:12:16:01 - 00:12:37:08
Simona
Switzerland is also one of them. From China. You need to understand that in that moment when China is enmeshed in a conflict, be this a kinetic one or not, it means that China cannot continue to do trade in the usual manner with this country. It also means that European countries, most probably, and the United States would impose sanctions, would hamper, of course, the Chinese economy.
00:12:37:13 - 00:13:02:20
Simona
So you are enmeshed from several shocks. Right. And I think this is something that going back to the first question you also asked when we talked about how likely is a war, I think that it's quite concerning certain actions that the Chinese are taking and not just, what Andrea was mentioning. Of course, the military aggressive coercion measures that we see every day, but they are de facto really insulating their economy.
00:13:02:22 - 00:13:27:14
Simona
They are stockpiling energy reserves. They are stockpiling gold. They are studying the Russian aggression in Ukraine to see how they can avoid swift systems of banking payments, so that they can insulate the fact that their economy in the case of a war, this doesn't mean that they will, of course, want to invade Taiwan tomorrow, but it is concerning because it means that they are trying to take all the measures in order to be ready for it.
00:13:27:14 - 00:13:29:14
Simona
Right?
00:13:29:16 - 00:13:51:10
Kai
Andrew, you already mentioned it. And I think when I researched the story, I was like, what? How is this possible? So China and Taiwan obviously have this complicated relationship, but there is still a massive amount of trade going on, a massive amount of investment between the two countries. What kind of goods. And you know, factories, are being traded there.
00:13:51:12 - 00:13:53:20
Andrew
So I think one of the main, you know, you cannot believe
00:13:53:20 - 00:13:56:20
Andrew
believe this, one of the main products, Taiwan export
00:13:56:24 - 00:14:12:03
Andrew
to China is IC, which is chips. So, you know, there are some certain chips are are banning from, you know, from time before from Taiwan to China and like there there is a strategic high tech, commodities, you know, under that there are 12 types of IC.
00:14:12:09 - 00:14:36:16
Andrew
You know, products are limited. You know, you cannot sell this to Chinese, companies. And also you cannot sell this to Huawei or to certain, Chinese company which are, blacklisted. But, you know, other than that's the limits, you know, compared to what the US doing right now, they are banning exporting AI chips to, to, you know, those high efforts from us to China, including Nvidia.
00:14:36:16 - 00:14:57:07
Andrew
And that's the, you know, Nvidia's my my be fighting for that. But compared to that, I think the limits can't. Now you know in Taiwan is much to lose. And then what the US have and what's happening right now this week is that, in Taiwan and Taiwanese government, maybe you get some pressure from us, or maybe they just try to align with what the US is doing right now.
00:14:57:12 - 00:15:22:05
Andrew
So I think they considering it's also found in Bloomberg. They're considering to, you know, tighten its limits. So not just to Huawei, not just to certain companies, but to many, even every Chinese. And so it's it's something I think, I think since they're considering I think in the end they might be tightened up, maybe not to all Chinese companies, but to some more Chinese companies.
00:15:22:05 - 00:15:40:02
Andrew
So I think what we see is I think Taiwan is definitely trying to align their limits on exporting chips to China. And, but overall it's, it's it's all about, you know, getting rid of the supply chain. And to diversify this, I like saying or even not, you know, diversify. The main goal is now to get away from there.
00:15:40:06 - 00:15:59:05
Andrew
You know, Taiwan's reliance on China, you know, the supply chain that we can get as least as possible. You know, that I think it's the least it's to say to Taiwan, you know, the least, you know, related to China means that it's safer because now we're the now the one of the only actually the only country. They aren't threatening me.
00:15:59:07 - 00:16:20:14
Andrew
Threatening Taiwan is China, right. So I think that's, that's reasonable, but I think it's also, you know, day back to to the old days when, when Taiwanese people still have those pro-Beijing sentiment and believe in it's good to do business with China. I think in the past decades, since XI Jinping came power, Taiwanese people have seen it's it's not a good idea.
00:16:20:16 - 00:16:36:16
Andrew
We've seen the risk and we've seen, how, dictatorship might be really dangerous, not just for democracy like us, but also for for business. Right? For business. There are increasing risk all around the world to Taiwan, to Europe, and also to the US.
00:16:36:18 - 00:16:54:17
Kai
One follow up on that. So how do businesses view this? Oh, we want to move away from China a little bit because obviously like they are doing a lot of business with each other. So other businesses in general, more like pro China or hey, let's keep the trade because we make a lot of money on it.
00:16:54:19 - 00:17:27:20
Andrew
I think in in the old days, people are, you know, we see, lots of businesses, especially those Taiwanese company have, factories in China and those corporations, they used to pressure, the government on, you know, more friendly, measures to, to, to wear on Chinese government because they want to do business. But I, I think, I think, pandemic the that, you know, the Covid pandemic is one of the, the, those many multiple events that make people really see the risk of doing business with China and so see the uncertainty of the Chinese regime.
00:17:27:22 - 00:17:55:10
Andrew
They can change their policy real quick. And it might be inhumane in a way. And, so I think what people and, the business in Taiwan right now, they're seeing more opportunities to, you know, other countries we've seen, we've seen, you know, ever since Taiwan booting out, you know, try to boost their, collaboration, especially with the US or, you know, under certain, big tags.
00:17:55:12 - 00:18:35:18
Andrew
For example, on Nvidia, it's, you know, we just finished at Computex right now, but we've really seen when you diversify the supply chain, it's actually good for business. It's actually a good for not just in businesses as leverage of Taiwan. You know, semiconductor as a leverage of Taiwan. It's worth it to, you know, sometimes to to, you know, in my scene in the first when TSMC building up factories all around the world and in our partners allies in Japan, US, in Germany, it might, you know, some people might, might see an is it, you know, is it decreasing the silicon shield of Taiwan, I think yeah, I think it's it's also a diversifying the
00:18:35:19 - 00:18:37:12
Andrew
supply chain. Yeah.
00:18:37:14 - 00:18:41:20
Simona
Simona I mean yeah, please go ahead to what.
00:18:41:20 - 00:19:07:22
Simona
what Andrew was saying. I think one of the things that also is convincing many Taiwanese business, persons to not to do business with China is really also China's behavior. We were mentioning the carrot and stick approach. And I mean, we see that China uses that also towards different, tycoons in the sense that those who are aligned with the DPP, the Democratic Progressive Party, who is now in power in Taiwan, are usually targeted much more, of course, than the KMT business tycoon.
00:19:08:03 - 00:19:32:23
Simona
And but even those are actually not safe. So I think a good case is the one that we saw with, Terry go, you know, Foxconn, during the elections, who was running actually as a third incumbents to be elected as president of Taiwan and during the, you know, run up to the elections, actually, China announced that there were problems with the land surrounding the Foxconn company in China and slapped him basically with taxes fraud.
00:19:33:04 - 00:19:52:11
Simona
Right. It was an allegation, of course, which in the end made him drop out of the race and everyone knew, although, of course, it wasn't really said out loud that this was also because the CCP wanted to interfere. They wanted to make sure that he would not split the blue vote, which in the end happened anyway because there was no joint ticket between the opposition party and they lost.
00:19:52:13 - 00:20:16:24
Simona
But I mean, this is also something that I think signals very clearly that also China friendly or more aligned, actually, business tycoon can actually be at the whim of the CCP. And I think it's something that does not bode well. So it was really these changes also in trade relations between China and Taiwan is to be seen also in a in the in the light of the geopolitical change in context since Taiwan came along.
00:20:16:24 - 00:20:36:15
Simona
And of course, the CCP started to punish, the party and of course, Taiwan, not to have tourist flows towards Taiwan. And that really also changed, I think, the attitude from the previous era of, mind you, of the Taiwanese media and Bohrer of thinking, you know, the re trying to actually interfere with our daily life, including through business ties.
00:20:36:17 - 00:21:03:06
Kassandra
So I want to use some of this interpretation now towards what China is actually doing, because I can't help but wonder if, if we're looking at this through a certain lens, that certain actions that we're seeing from China, you know, the striving towards energy independence, for example, if that couldn't be seen as a way for the country to harden its economy ahead of some kind of kinetic action, what are you seeing?
00:21:03:08 - 00:21:27:01
Simona
I would definitely say that, as I said before, I think there are some actions that Chinese taking that are to be read in this context. The fact that they want to insulate their economy. Now, whether that is only because of a potential conflict over Taiwan? I don't think so. I think this is a long term plan which dates back at least ten years since the first Trump administration, when China started to see, of course, that, you know, initially there was a trade war.
00:21:27:02 - 00:21:54:06
Simona
Then it started to be, all encompassing, sort of like tech, and military competition between the US and China. And so I think that, you know, at the time, XI Jinping and the CCP thought it should be a good idea anyway to insulate their own economy. You also launched XI Jinping, several plans, like do a silk relation to sort of like make the world more dependent on China but make, you know, China more autarky, more self-sufficient.
00:21:54:08 - 00:22:30:04
Simona
So I think it's not just because of a potential conflict over Taiwan, but I do think that these measures that they implemented in the past decade, of course, have for the CCP a double benefit of also helping the country in case they ever would decide to really attack Taiwan. Of course, that's also really dependent, in my opinion, on a variety of more pragmatic considerations, such as the fact that the state of the economy in China is not particularly good at the moment, that we got youth unemployment, that you have a real estate crisis, and of course, that the geopolitical situation with the United States, despite Trump being friendly, decision being, is actually quite tense.
00:22:30:04 - 00:22:55:06
Simona
Right? That's being said, of course, these are pragmatic considerations which should lead us to think that, you know, XI Jinping would not want to start a war under, you know, uncertain conditions also, of not knowing whether other countries in the region will interfere. But I'm afraid that sometimes these kind of decisions in autocratic regime do not only depend on, you know, practical decision and pragmatic ones, but also very much on ideology.
00:22:55:06 - 00:23:01:21
Simona
And unfortunately, in that case, of course, the situation is much more difficult and tends to predict.
00:23:01:23 - 00:23:25:01
Kai
Andrew, when I read it up on this story, you often see this term shield of chips or, you know, shield of semiconductors. That that Taiwan has meaning because they have these super important chips for AI that that's this, that, that kind of offers them a shield of protection. But now TSMC like they start building factories in other places in the U.S. and Germany.
00:23:25:03 - 00:23:33:03
Kai
Isn't that taking away this kind of protection that the semiconductors used to offer Taiwan?
00:23:33:05 - 00:23:54:13
Andrew
It is true that people are seeing this, you know, contradiction. You know, in one hand we we do need to you know, we we are benefits from the silicon shield. You know, we are because we got all these semiconductor factories in Taiwan in single, which is known as the Silicon Valley in Taiwan because because of that, we are safe.
00:23:54:13 - 00:24:02:21
Andrew
We are safer because there are more try to protect us, because we get all of those important, chips, especially under this AI era. But
00:24:02:23 - 00:24:30:03
Andrew
when we see, this kind of AI competition right now, it's boosting. But it's also important to, to really just back to the diversifying, of supply chain when we build up, semiconductors factories in Arizona, in the US or the EMC, the build up in Germany and or or in Japan, I think they are trying to do more business to these, friendly partners of Taiwan.
00:24:30:03 - 00:24:53:13
Andrew
Right, who try to do more business to America, try to do more business to to Europe, and try to do more business to Japan because these countries, at least they won't try to invade Taiwan. And it's safer and it's so diversify. So back to the questions we've talked about. You know, China, but, you know, half of our, ICS are exported to China.
00:24:53:14 - 00:25:15:23
Andrew
But we really I think the Chinese government really trying to decrease these kind of reliance and by building, all these different fabs in our, you know, friendly allies, friendly partners, it's also part of the way to, you know, getting rid of this kind of red supply chain. But also it does raise some kind of, skepticism, especially in Taiwan.
00:25:16:02 - 00:25:37:21
Andrew
In the past few years. Not right now especially, but, you know, the opposition party leaders, they are trying to, you know, be criticizing the ruling party for allowing TSMC to build out fabs, you know, good at factories outside outside Taiwan because it's going to break to Silicon Shield. But I think meanwhile everybody knows that you know Taiwanese government is under pressure.
00:25:37:21 - 00:26:11:01
Andrew
And if we want security, commitment from these partners at this semiconductor is the, the leverage. So I think this kind of collaboration, it might seem seems, you know, contradictory, but also it's trying to do both. It's maybe it's a safer bet, right? Because, you know, in doing so, we can diversify the supply chain. And in doing so, really, if the war happen, it's actually safer for the war, because if things really, you know, turns out really bad, you know, we can steal our allies.
00:26:11:01 - 00:26:29:12
Andrew
Our partners can still get these chips. And I, I think it's it just seems contradictory. But I think what the Taiwanese government, I assume they're trying to do both because doing both is the safest way to, you know, compared to just bet on the, you know, either one of the options.
00:26:29:14 - 00:26:31:05
Simona
And I think
00:26:31:05 - 00:26:40:17
Simona
interject, I think, you know, Andrew is right, because first of all, what can you do? Can you, as a Taiwanese government reliant on defensive measures from partners like the United States, tell Donald Trump we're
00:26:40:19 - 00:26:45:03
Simona
we're not going to build this plant. It started already with Biden. Also, I think very briefly, I think that
00:26:45:06 - 00:26:48:19
Simona
hope for Taiwan really is, and I think that's something that they're trying to do.
00:26:48:24 - 00:27:09:08
Simona
They are so good. They have mastered, I mean, the fabs in a way that they can always be faster in producing the smaller nanometers, right. So the next generation hopefully will always be in Taiwan. And that's something that still continues to, in my opinion, protect Taiwan because the capabilities that you need, and especially for AI and military purposes, you need a really small chips.
00:27:09:13 - 00:27:14:15
Simona
And this is something that Taiwan, of course, still has the best capacity in the world to produce in Taiwan.
00:27:14:17 - 00:27:18:19
Simona Grano
Yeah, I appreciate you both getting a bit into the details with us here. But I know that we've
00:27:19:00 - 00:27:43:07
Kassandra
we've been, he's both been quite generous with your time so far. So just one final question, for both of you, Simona, it seems like, you know, when we zoom out here that other countries call the shots, and then Europe pays an outsized price, and I can't help but wonder, you know, is Europe unprepared, punching above its weight too dependent on other countries?
00:27:43:07 - 00:27:49:06
Kassandra
What's the right way for us here, here in Europe to think about these things?
00:27:49:08 - 00:28:08:17
Simona
I think it's difficult because the European Union was conceived as a not as a security, of course, union, but as an economic one. Right. And now we are struggling to adapt to a new geopolitical phase in which you cannot detach economic relationship from geopolitical concerns. So that's something that requires a lot of, you know, understanding, a lot of strategizing.
00:28:08:20 - 00:28:39:20
Simona
And it's increasingly difficult when you have 27 different voices. Some of them are pro-China. Look at Hungary now. It's changing with the new government. But under, of course, Orban, that's what it was. Cyprus, which routinely, of course also vetoes, you know, excuse me, any kind of, you know, major speaking about Taiwan. So I think what's the best option is really to continue to engage with Taiwan, but process in the sense that this is not something that in the EU we are actually used to doing right to talk our security, concerns.
00:28:39:22 - 00:28:47:02
Simona Grano
Andrew from where you're sitting looking at the European Union, what would you kind of wish from us, that we could do?
00:28:47:02 - 00:28:53:24
Kai
We should do, you know, to give you some more security in this relationship?
00:28:54:01 - 00:29:26:07
Andrew
I think doing business is a good way, right? Because I think, in the past, not even anything political. If you try to make a big deal with Taiwanese government and any kind of details, any kind of, you know, by calling Taiwan to Taiwan, my, my make Beijing angry and I think many of the business, business leaders or, politicians might be, you know, they try to avoid any kind of this kind of harassment from China or like, they don't want to, you know, make this into a story.
00:29:26:07 - 00:29:47:12
Andrew
You make this into a big deal. So they, they just try to. They just don't. Okay, maybe not touching Taiwan, but I think now we've seen many, Taiwanese cooperation, especially because of the semiconductor. We've seen Taiwanese, companies are showing their how robust they are, their supply chain and what they can offer, what's, how one can offer and what they are willing to do, what they're willing to collaborate with European and countries.
00:29:47:14 - 00:30:13:17
Andrew
So I think by, you know, considering Taiwan as a nice business partner because it it really is especially on high tech, you know, building a business collaboration. It's also a way to, you know, not only good for Taiwan, it's also good for the European Union. Right? Because we see, the supply chain when it comes to when it comes to, you have the supplier from China, you have a supplier friendly to China.
00:30:13:19 - 00:30:38:12
Andrew
There are so many, in risk, geopolitical risk. But also it's political and political risk. If I'm from Beijing, if they are saying something, they trying to, influence your decisions. It's it's all happening. Really fast. But I think by doing business with Taiwan and Taiwan, showing that they are reliable and they are friendly to the war.
00:30:38:14 - 00:30:58:06
Kassandra
Well, we wanted to get into the nitty gritty here and look at how this tension, that we just heard about how it might affect an industry that's really, really important here in Germany. German, which is, of course, the automotive sector. Right. And to do that, we're actually joined by Beatrix Kime from the center for Automotive Research, also known as Car.
00:30:58:09 - 00:31:01:05
Kassandra
Beatrix, thanks for joining us.
00:31:01:07 - 00:31:04:22
Beatrix
Hi, Kassandra. Hi, Kai. Thanks for asking me to join.
00:31:04:24 - 00:31:19:08
Kai
Beatrice, give us a quick rap. Like how? Deeply integrated. Is the European car industry or the German car industry into this Asian region? China. Taiwan?
00:31:19:10 - 00:31:51:07
Beatrix
Well, on one hand side, it's, of course, from, export side, it is integrate integrated very, very deeply. Not only from the car side. I mean that import into China especially fell of course, in the recent years, which for all the manufacturers. But for any kind of industry which is very deep and very yeah, very, very warm to Germany, it's like machinery, chemistry, pharmaceuticals, it is very much involved.
00:31:51:07 - 00:32:17:21
Beatrix
And that includes, of course, Taiwan, small things like the very famous chips and semiconductors, even small things, the nitty gritty ones, like screws. There is a lot of import or exchange happening between the EU, especially Germany and Taiwan. So both China and Taiwan are very, very important for the overall export import statistics of Germany.
00:32:17:23 - 00:32:33:11
Kassandra
When we're talking about a potential currently hypothetical conflict, between China and Taiwan, what is the main strategy for businesses to deal with any potential conflict? How are they planning?
00:32:33:13 - 00:33:09:06
Beatrix
Well, I think these are very these are scenarios which are more a little bit more far away because of current point of time. Everybody is just dipping into these volatilities, especially coming from the US. But of course the the conflict situation between China and Taiwan is always down the plate as well. So on one hand side it is something like not only a China plus one, a Taiwan plus one, meaning that you differentiate and make a bit more diverging cases for your suppliers that you're looking into.
00:33:09:12 - 00:33:39:20
Beatrix
What do I need to get from China, what is really necessary and cannot be sourced somewhere else? Same for Taiwan. Or can I ask the manufacturers now talking more about the Taiwanese ones to perhaps have their production capacities not in China, but then perhaps in Vietnam and Thailand. So in other countries or Romania, Poland, Hungary, countries which are either closer and or cheaper than, production in Europe.
00:33:40:01 - 00:34:09:13
Beatrix
But to really diversify more the sourcing in this way, not to delete completely and to completely cut the ties to Taiwan suppliers, but to ask them perhaps to have some other production sites available as well. And of course, to look into other suppliers to search for, to source for new suppliers who are supplying the same material in similar or even perhaps better quality.
00:34:09:15 - 00:34:21:13
Beatrix
Of course, they need to then balance the cost as well, but that is definitely to have not all eggs in one basket. But really diversify on a global level.
00:34:21:15 - 00:34:34:07
Kai
A question about like hard truth. Or maybe you could say some tough love. Who is more important to the German car industry? Is it China or is it Taiwan?
00:34:34:09 - 00:35:07:18
Beatrix
China? Definitely China on offer from both sides. It is, on one hand side of of course, what is produced in China. There is of course still a lot of profit made, a lot of free investment into the production and, R&D facilities or research and development facilities in China. And if you talk not only about the manufacturers, but of course, the whole automotive industries, like the supplier industry, there is a lot going on and a lot of the suppliers, especially the German suppliers.
00:35:07:18 - 00:35:33:05
Beatrix
If you talk about Taiwan, like Bosch, continental, ZF or Hidden Champions, there are some who are more in, even more in the black mass for battery cells. This, this grinders, they are actually coming from Germany and they are very deeply involved in the supply chain in China, not only to the German manufacturers, but as well to the Chinese manufacturers and as on Taiwan.
00:35:33:05 - 00:35:50:11
Beatrix
There is there is only an import, car industry. And of course, there are some screws and the chips and so on. But even that can be sourced somewhere else. So it is definitely for sales and for sourcing. It is China.
00:35:50:13 - 00:36:15:03
Kai
There was a huge alert last year. I want to say, so production, chip manufacturing stopped in the Netherlands from a Chinese company and all the German manufacturers, car manufacturers were like, we probably need to halt production as well because we don't have any chips anymore. Have the companies learned since then? Because there was the same conversation going on about diversifying supply chains?
00:36:15:05 - 00:36:27:23
Kai
After covet, then 20, 35 happened, you know, again, not so diversified, is it, German car manufacturers diversifying or completely focusing on China?
00:36:28:00 - 00:36:56:14
Beatrix
No, no, no, they are, of course, diversifying, especially just after last year where that was an experience was in the Netherlands and had been there is kind of that they are refining then the materials in China. And this was then there was a whole diplomatic thing going on. Yes. Of course. So the, the sourcing departments of the three big OEMs and adjust as well from Stellantis and Renault were then traveling through the world.
00:36:56:14 - 00:37:18:05
Beatrix
And of course, in Korea and Japan, Taiwan, there are suppliers as well, and they are diversifying as well to have more plants somewhere else. And it's of course which kind of chips. So the next period chip, for example, is a it's called discreet chip, which lets you think that it is a very complicated one actually. It's just the other way round.
00:37:18:07 - 00:37:48:24
Beatrix
This chip is a very, very simple one. Most of for simple things like like opening with your key, the car, but the really chips, the very complex chips and semiconductors which are required for the software defined vehicle functioning. So for you more connectivity going up into autonomous driving. These are different chips and they are more yeah. Coming from Taiwan and from Korea or from Nvidia.
00:37:49:01 - 00:38:21:16
Beatrix
And of course it depends where they are. So of course on one hand side it is where do I source these chips and where are the manufacturer of these chips. Are putting the plants nursing. They are of course now diversifying as well to have scenarios worked out. What could happen, where in which geopolitical situation could we be involved and where are more safe and secure spaces, including any kind of tariff frenzies from our rose garden friend?
00:38:21:18 - 00:38:38:03
Kassandra
Beatrix, you know, you spent years in China yourself not asking you to look into a crystal ball or predict the future or anything. But from your vantage point, do you think that President XI could seriously invade Taiwan during his term?
00:38:38:05 - 00:38:40:10
Beatrix
Yes.
00:38:40:12 - 00:38:43:04
Kai
What makes you think that when.
00:38:43:06 - 00:39:08:13
Beatrix
So, number one, when he got into power back in 2012, he had that already in the swords, which are now part of the Chinese, legislation. So the XI Jinping Thought there is the program of the China Dream, which was especially then in 2012, rolled out all over China with this little girl, being a little bit more traditional.
00:39:08:13 - 00:39:46:07
Beatrix
But there was already the one country, two systems was already as a program point in, it's repeated in every five year plan and every appropriate, regulation or, or program as well directive. It's always in wherever it is required. Even if you check the documents for the 15th Five-Year plan, which is now in place for 26 until 2030, it's always the one country, two nations that needs to be achieved at any point of time.
00:39:46:09 - 00:40:07:11
Beatrix
Of course, China is very aware that Taiwan is an economic powerhouse, and the exports from Taiwan to China are especially in the semiconductor area. So that would, of course, be kind of a home run to stay in the picture. But on the other side, yeah, it's the political tensions on the other side. It is a current point of time.
00:40:07:11 - 00:40:39:08
Beatrix
China is in the inner country, the the inner market, the been the the interior consume is low, it's chaotic. It's, everything is on a decline to the outside. Nobody really sees that. But, the economic situation is not that good. So to say it a little bit more nicely. So what does, XI Jinping need to actually for, to, to gain that trust that he is not only a dear leader, but that he is a capable leader?
00:40:39:14 - 00:41:05:16
Beatrix
This is, for example, to really deliver against his promises. So to bring China up to speed, to and to bring China into a technology advantage, to really reach the top, for example, as a car manufacturer, with the leading technology, all of these things which come back from the Made in China 25 policy, these have more or less been ticked or are on the good way to be achieved.
00:41:05:18 - 00:41:31:19
Beatrix
But it's that one point. And you might remember, there was this picture with Taiwan at the Spratly Islands and some other islands with the dotted lines, which you usually have for the, the sea, the, the sea boundaries. And there was then this, push out either ya so not one single act less. And that included Taiwan. That was like 5 to 10 years ago, that it was really.
00:41:31:21 - 00:41:55:10
Beatrix
Yeah, spread throughout the social media and China. And to really make all the people aware that the China dream is not only a nation stream, it's the dream of every single Chinese person. And that includes for them Taiwan. So would it be wise to go ahead? No. Is that something he needs to deliver against? Yes. But he has still time.
00:41:55:10 - 00:42:09:08
Beatrix
He is president for life. So. And he's just turning in what is today. It's the 11 in 4 days he's turning 73. He looks good. So there is sufficient time to still deliver against it.
00:42:09:10 - 00:42:27:14
Kassandra
There was so much that we could have kept talking about in those conversations, both with Beatrice, but then also with Andrew and Simona. But the thing that really jumps out at me when I kind of zoom out on these conversations, right, is I can't help but wonder if Europe is just delaying making hard choices.
00:42:27:15 - 00:42:47:06
Kassandra
We saw this, especially on the German side, for a long time when it came to energy or like what kind of, investments were going to be made in electric vehicles, in the auto sector. So maybe I'm a bit primed to see it, but I'm just wondering, is Europe putting its head in the sand? Yeah. I mean, it's kind of what Andrew was talking about a lot.
00:42:47:06 - 00:43:09:10
Kai
Right? So Taiwan trying to develop relationships with Europe, but there is 27 countries that you need to talk to and nobody really speaks with one voice. And that makes it super hard for them, you know, to move away from China and be like, hey, we have these new countries that we can trade with and that's the, the, the thing that also the EU wasn't constructed for this.
00:43:09:10 - 00:43:31:18
Kai
It's not like a security alliance, it's a trading alliance. But even on trade, we are like, we cannot really agree what we want. No, it's really hard to, to to know where the bloc is moving. It's not even like moving, one big ship. Which would you have to turn quite slowly? It's like moving many big ships and then some small ships, and everybody wants to do their own thing.
00:43:31:20 - 00:43:51:00
Kassandra
Another thing that shocked me was what Andrew was saying, about trade with China, that actually Taiwan, despite having such a, such a difficult relationship with China that there's so much trade going across the border. Yeah. I mean, I guess history. Right. So it's a really it's really close to Taiwan and it's easy to trade with them.
00:43:51:02 - 00:44:15:04
Kai
And probably it's a really easy opportunity to make money. But obviously when relationships like that turned sour, it's hard for businesses to give up on this kind of, money making machine. These easy, easy euros, dollars. Pick your currency. Right. To pick those low hanging fruit, it's hard to resist that, so to speak. And I don't know.
00:44:15:05 - 00:44:34:03
Kassandra
Beatrix at the end was saying, and she knows more than me. And so maybe I'm de Lulu or complacent or ignorant, but I have a really hard time. I would be really shocked if we're actually talking about a kinetic conflict, like a war between China and Taiwan next year or the year afterwards. But again, maybe I'm just a, bourgeoisie.
00:44:34:03 - 00:45:01:10
Kassandra
I've had my feet up too long and I'm not there on the ground. Yeah, I don't think like when you read what the commentators are saying, all Out War is like the least likely thing to happen, basically. But obviously it's. Yeah, it's step by step by step by step and taking away bits and pieces here and there, weaponizing the economic relationship by saying, okay, yeah, we don't trade with you anymore and suddenly you don't, a lot of businesses don't make money anymore in Taiwan.
00:45:01:10 - 00:45:26:12
Kai
And but if you want the money, you need to work with us or be one nation again, then like what Andrew was saying too, about, like, a carrot and a stick. A carrot looks a lot tastier when the stick looks a lot bigger. So maybe that's just like part of the strategy. If it if it seems like a kinetic war is more possible, maybe a different kind of negotiation, from the Chinese side becomes more appetizing to the Taiwanese side.
00:45:26:12 - 00:45:48:02
Kai
Yeah, obviously. I mean, you don't want war. You want to kill kids, right? But, yeah, it's always hard to argue against the numbers, as Beatrice was saying, you know, for the kind of story China is just more important, full stop. So, yeah, there is not going to be a lot happening from Germany to push for a bigger relationship with Taiwan.
00:45:48:03 - 00:46:11:24
Kai
It's like, what I'm expecting. I would much rather, see like the US doing a lot more because these semiconductor chips that TSMC is producing, they like sending them to Nvidia to AMD because these are the companies that design them and TSMC manufactures them. And as of right now, the AI boom is holding up the whole economy in the US.
00:46:11:24 - 00:46:25:02
Kai
And if that goes away, Donald Trump is going to have a lot more problems. You know, than just, the problems he's made for himself already, possibly. Allegedly. Yeah.
00:46:25:04 - 00:46:45:10
Kai
And that's it this week for us on the dip, unfortunately. But if you have any comments you want to leave, do it wherever you're listening to this podcast, either on Spotify or if you're watching on YouTube. That's right. And of course, shoot us an email if you like good old fashioned email, or if you have a lot to say, you can do that by shooting us an email at the dip@dw.com.
00:46:45:10 - 00:46:52:15
Kassandra
Because of course we love getting your messages all the time. Until next time and thanks for watching The Dipppp! Bye.