US consumers could suffer from Pelosi trip to Taiwan: Experts | Company

Taiwan Ministry of Foreign Affairs/Handout/Anadolu Agency via Getty Images

(WASHINGTON) — When House Speaker Nancy Pelosi arrived in Taiwan last week, the world braced for China’s response. Hours after leaving, China began military exercises around Taiwan, leaving the world to wonder how far China is prepared to take its response.

Evidence suggests that China will not stop at military exercises.

“The last time we [saw] a crisis like this was in 1996,” Kai Hao Yang, an assistant professor of economics at the Yale School of Management, told ABC News. ” At that time [the] The computer chip market was not yet dominated by Taiwanese manufacturers, and the market was much smaller than it is now.”

Chinese President Xi Jinping warned of the economic consequences during a call with President Joe Biden ahead of Pelosi’s trip.

So how would American consumers be affected? First, China could hamper Taiwan’s ability to export products. Taiwan is one of the top 10 trading partners of the United States. In addition to vehicles and machinery – major Taiwanese imports – the island is also home to TSMC, the world’s largest computer processor chip maker.

“Some people say China is blocking Taiwan’s ports so Taiwan chips can’t get out,” Ming-Jen Lin, an economics professor at National Taiwan University, said in an email to ABC. News. “If that really happens, that’s another story. But I think we’re a long way from that.”

If China takes this step, it could force US tech companies to use US-made chips, raising prices for consumers.

“The unit cost of producing a chip is 50% higher in the United States than in Taiwan,” Lin said.

The second way China’s retaliation threatens the American consumer is if Beijing chooses to impose economic sanctions on American trade. These actions could mean higher prices for US consumers and more headaches in the supply chain.

“The Chinese escalation could further exacerbate the supply chain problem we are facing right now,” Yang said.

Former US Ambassador to China and former US Senator Max Baucus is more optimistic about the fallout.

“I think there will be short-term disruption,” Baucus told ABC News, “but I don’t think long-term because business is so important to both countries.”

China is at a crossroads of where to go next. A war would be catastrophic and trade sanctions are far from ideal.

“China worships the altar of stability,” Baucus said. “And they want to keep the country’s economy stable. And that means business.”

For many decades, American consumers have appreciated China’s ability to produce cheap goods. Those days, however, could be numbered.

“The cheap price era of the past 20 years is definitely over,” Lin said. “I’m not saying it will happen overnight, but certainly gradually.”

For now, US consumers have more to worry about, such as 40-year high inflation and a possible recession. But economic uncertainty awaits as communication between China and the United States stalls.

Copyright © 2022, ABC Audio. All rights reserved.


Comments are closed.