Apple’s disaster scenario is a real possibility, say US and UK

Back in March, we warned of the risk of Apple’s disaster scenario: Chinese takeover of Taiwan. Yesterday, the heads of both US and UK security services gave an “unprecedented” warning that this is not only possible but that China has been taking steps to prepare for this.

If it happened, it would lead to the almost total disruption to the vast bulk of Apple’s manufacturing resources…

Status of Taiwan

The status of Taiwan depends on who you ask. The Chinese government views the island as a territory of its own country. Taiwan, in turn, still technically claims control of mainland China, but makes no practical moves to exert power, being content to view itself as an independent nation.

Taiwan has its own constitution, elections, passport, currency, and armed forces.

However, China refuses diplomatic relations with any country that recognizes Taiwan’s independence, so most Western countries play an uneasy game of pretending not to, by having “representative offices” on the island – which are embassies in all but name.

Why a Chinese takeover of Taiwan hasn’t happened yet

The threat of a forced Chinese takeover of Taiwan has been an ever-present one. However, one of the main deterrents has been America’s Taiwan Relations Act. This creates a legal obligation on the US to help Taiwan defend itself against a Chinese invasion.

China invading Taiwan has therefore been seen as a potential World War III scenario, where China would find itself in armed conflict with the US.

Why the risk exists now

As we noted back in March, the global response to Russia’s invasion of Ukraine demonstrated to China that while it might face economic risks by invading Taiwan, it was unlikely to face military ones.

Yes, the US is theoretically committed to helping Taiwan defend itself against invasion, but there is what some have called “strategic ambiguity” in the wording of the act. Since exactly the same risk of escalation to nuclear war would exist with China as it does with Russia, the prospect of the US doing very little in practice had always seemed likely.

And right now, China has pretty solid evidence from the Ukraine invasion that Western military intervention would be unlikely to do the same in Taiwan.

MI5 head Ken McCallum and FBI director Christopher Wray have now specifically highlighted this risk as one of several threats posed by China.

The heads of UK and US security services have made an unprecedented joint appearance to warn of the threat from China […]

The FBI’s Wray warned that if China were to forcibly take Taiwan it would “represent one of the most horrific business disruptions the world has ever seen.”

Wray said that this is far from a theoretical risk – China has already taken some preparatory steps.

“We’ve seen China looking for ways to insulate their economy against potential sanctions, trying to cushion themselves from harm if they do anything to draw the ire of the international community,” Mr. Wray said. “In our world, we call that kind of behavior a clue.”

The pair said that China has already demonstrated its willingness to risk global conflict though cyber attacks, industrial espionage, and electoral interference.

Apple’s disaster scenario

This would be Apple’s disaster scenario for two reasons.

First, the Cupertino company is hugely dependent on Taiwan itself. Its A-series, M-series, and S-series chips are all manufactured by the Taiwan Semiconductor Manufacturing Co (TSMC). Almost all of this production takes place in the company’s plants within Taiwan. An armed conflict would have a devastating impact on the country and its people, and that would include massive disruption to its manufacturing operations.

Second, it is inevitable that the US and most of the rest of the world would respond to a Chinese takeover of Taiwan in the same way it has to the Russian invasion of Ukraine: sanctions.

If these sanctions were as wide-ranging as the ones imposed on Russia, Apple would no longer be able to give any business to Chinese companies – which is where the vast majority of Apple products are manufactured.

iPhones, iPads, Apple Watches, Macs – you name it, by far the largest volume of every Apple product is assembled in China, with many components also made there.

It’s impossible to over-emphasize the threat this would pose to Apple, and the fact that the heads of MI5 and the FBI have chosen – for the first time – to raise this scenario as a real and present danger is something that must be terrifying to the company’s senior execs.

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Naveen Kumar

Friendly communicator. Music maven. Explorer. Pop culture trailblazer. Social media practitioner.

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