The Mercator Institute for China Studies (Merics) has issued a stark warning about the potential consequences for Germany amid rising tensions in East Asia.

"Any political, economic, or even military escalation in the region, and especially around Taiwan, could significantly damage the German economy," Merics expert Claudia Wessling told Reuters on Wednesday. The Taiwan Strait is one of the world's most important waterways for global container shipping. "A conflict in the region would disrupt supply chains worldwide, which would naturally impact Germany as well." In addition, thousands of German companies are present in the People's Republic of China and hundreds in Taiwan, all of which would face disruptions to their market and trade activities in the event of a conflict.

According to the Berlin-based Merics Institute, the island is of enormous importance to the German economy. "With its advanced chip industry, Taiwan is highly significant for the global digital industry and is a key supplier of vital IT components," Wessling said. Approximately 300 German companies from various sectors are active in Taiwan, including major corporations such as Siemens, Bosch, and BASF. German firms are also important suppliers to Taiwan's semiconductor production.

"THE MOST IMPORTANT SUPPLIER OF COMPUTER CHIPS"

According to Merics, German-Taiwanese foreign trade volume has remained around 20 billion US dollars for years. Commerzbank reports that German imports of computer chips from Taiwan rose by only four percent in the first three quarters of this year. "For Germany, Taiwan is currently the most important supplier of computer chips," said Commerzbank economist Vincent Stamer. By the end of September, Germany had imported semiconductors worth about three billion US dollars from Taiwan. The world's largest chip manufacturer for artificial intelligence applications, TSMC, is among those producing there.

China regards Taiwan as a renegade province that should be reunited with the mainland by force if necessary. Taiwan rejects these claims, insisting that only the island's residents can decide their future. Tensions in the region have risen significantly in recent times. The catalyst was comments from Japanese Prime Minister Sanae Takaichi, suggesting that a potential Chinese attack on Taiwan could trigger a Japanese military response. The director general of Taiwan's National Security Bureau, Tsai Ming-yen, warned parliament on Wednesday that the Chinese military regularly simulates attacks on foreign naval vessels in the Taiwan Strait.

"MASSIVE ECONOMIC COSTS"

According to Merics, there are currently about 200 research collaborations with Taiwan. In addition to digitalization sectors, there are promising prospects for cooperation in other innovative fields--from green tech, automation, and aerospace to photonics and life sciences.

"An escalating conflict between China and Taiwan would severely impact, and possibly paralyze, the operations and market activities of German companies on the ground," warned Merics expert Wessling. "Potential sanctions against China in response to aggression against Taiwan would entail massive economic costs for German companies in the People's Republic."

(Reporting by Rene Wagner; Edited by Kerstin Dorr; For inquiries, please contact our newsroom at berlin.newsroom@thomsonreuters.com)