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China’s live-fire military drills around Taiwan are threatening to disrupt trade and commercial travel in East Asia, forcing vessels to reroute away from one of the world’s busiest waterways and putting further pressure on strained global supply chains.

“There is potential for substantial disruption to trade in the region,” said Peter Williams, a trade flow analyst at VesselsValue.

Shutting down trade routes around Taiwan, even temporarily, “raises concerns about whether China might successfully do this again, and what this could mean not just for future trade, travel and economic patterns, but potentially defensive and security scenarios as well,” said Nick Marro, lead analyst for global trade at the Economist Intelligence Unit.

What is the strategic importance of this island of 23 million people, one smaller than Maryland and Delaware combined, that is causing tensions between the U.S. and China to run high?  Semiconductor computer chips.  Taiwan produces over 92% of the world’s mid-end to advanced computer chips, those configured for use in smartphones, computers, cars, and military equipment.  Both the U.S. and China are dependent on Taiwan corporations, the largest of which is Taiwan Semiconductor Manufacturing Company (TSMC).  Samsung Electronics in South Korea, also a major player in advanced semiconductors, produces the remaining 8% in the global market.

More important, 92% of the world’s leading-edge semiconductors—circuits just 10 nanometers in size or smaller—are produced in Taiwan, according to a joint study by the trade industry body SIA and Boston Consulting Group from last April.

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