Why China, Taiwan tension could have a major global financial and economic impact

Martijn Rasser, senior fellow at the Center for a New American Security, discusses the rise in tensions between China and Taiwan, potential responses by the U.S. and G-7 countries, and whether Beijing could use a military invasion to gain control of Taiwan’s critical semiconductor industry. For access to live and exclusive video from CNBC subscribe to CNBC PRO:

We have seen amphibious exercises we have seen spy planes we’ve seen warplanes flying over taiwan it’s clearly china is agitating for something what do you think that something is great to be with you well that something is most likely taiwan semiconductor industry china has been very clear that it seeks to be a world-class contender in the semiconductor

Industry and right now taiwan is the big juggernaut so they have all the advanced capabilities they have the most advanced fabs it’s it’s a juicy target yeah what is the likelihood of straight-up conflict i mean a military incursion i don’t want to use the other word invasion i guess i just did is there any chance that there is military real military force

By china used against taiwan or is this more of as you have said in some of your writings a gray zone in other words kind of spook them and maybe spook customers of taiwanese companies so they don’t do business there because they’re simply nervous about the economic future yeah i think a a hot war kinetic action it’s very much a low probability high impact

Scenario something we have to think about just because of the huge implications but it’s it’s unlikely to happen much more likely is what you said right gray zone tactics and this is that area between peace and war there’s a variety of ways you can go about this information warfare economic coercion cyber attack and you mentioned the types of intimidation

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Through military shows of force that we’ve seen there’s a lot that beijing can do to influence taiwanese domestic politics it can influence western perceptions of what china is doing in taiwan i think that’s where beijing’s focus area is going to be is there anything the u.s or european leaders can do to stop this martin yeah absolutely we’ve seen strong shows

Of support from the administration for taiwan the united states has come out very strongly with statements and phone calls and visits there was the quad summit that had strong language about taiwan and now of course the the g7 statement that in and of itself is very significant that these technology technology-leading democracies are coming out saying that we

Stand with taiwan so yeah the uh the support is there but of course there’s a lot more that needs to be done right we have to have a military show forced to make sure that beijing understands that the type of intimidation that they’re pursuing will not get them the results that they’re looking for how long does this go on i mean what what exactly is there an end

Game for china where maybe their their semiconductor industry starts to take a bunch of share from taiwan semi and then they let up i mean what what exactly would be the goal here well we’re we’re in the long term strategic competition technology is very much at the center of this competition so i mentioned how china is very much focused on indigenizing cutting

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Edge semiconductor fabrication they’ve made a lot of progress but they also have some some major headwinds in particular they are entirely dependent on foreign companies for semiconductor manufacturing equipment if you compare uh combine that with the long-term strategy of the united states to keep china at least two generations behind on the state of the art

That makes it difficult for china to catch up they have to spend a lot of money they have to make up for human capital shortfalls so when you consider that they have a lot of that capability sitting a hundred miles off their shore you have to start worrying about will beijing take certain actions to shortcut their indigenous development and go for the the shorter

Route and look to taiwan to fill that gap shepherd smith here thanks for watching cnbc on youtube

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Why China, Taiwan tension could have a major global financial and economic impact By CNBC Television