Chinese Warships Off Taiwan's Coast – Commodity Investors Should React Now
China threatens a serious escalation – both with ships and through supply stoppages of production-critical metals. For the umpteenth time, the Chinese navy has crossed the median line between the mainland and the island of Taiwan. The aim of the maneuver: to demonstrate China’s claim of ownership over the island nation, which it considers part of its empire. Incidents of this kind have increased since Nancy Pelosi’s visit to Taiwan and Taiwanese President Tsai Ing-wen’s trip to the USA. What many overlook in this scenario is China’s dilemma due to its lacking high-tech semiconductor industry.
The USA has pledged support to the Taiwanese head of state in the struggle for the island’s independence. In doing so, they are helping to ensure that China cannot easily annex the world’s leading semiconductor manufacturer. However, China also does not have the option to import semiconductor technology from the USA, as the states prohibit this with the Chip Act passed some time ago. This strategy by the USA and its European partners puts China in a difficult position, as it does not have any significant semiconductor production of its own and is dependent on exports. But China can also exert pressure: it still supplies over 90 percent of the rare earths arriving in Europe.
We feel the impact of China’s serious escalation drills primarily in the area of supply security for European industry. In the past, the Middle Kingdom has imposed supply stoppages and export tariffs on technology metals and rare earths to achieve political goals. The government in Beijing is currently discussing stopping the export of rare earth technologies and raw material products needed for solar expansion. Thus, China is once again making the EU feel its dependence on its strategic metals. The market for technology metals and rare earths will almost certainly react to supply bottlenecks with unpredictable price jumps. The fact that China exported 8% fewer rare earths in March than in previous years could already be a first sign of the scarcity to be expected in the future.
Investors in technology metals and rare earths should buy now to be on the safe side. By investing in these commodities, investors not only protect their assets through the security of a physical investment, but can also look forward to the opportunity of high returns, including tax-free purchases and tax-free profits after a holding period of one year.