If you pay attention to what Warren Buffett thinks, you’re probably doing it for investment advice, not geopolitical predictions. But there’s something more than a little unnerving about the “Oracle of Omaha” selling his conglomerate’s remaining shares in the world’s largest chipmaker, Taiwan Semiconductor Manufacturing Co. (TSMC), because he isn’t confident that Taiwan is a safe place to do business anymore.
On an analyst call this month, Buffett said, “I don’t like its location, and I’ve reevaluated that.”
“I feel better about the capital that we’ve got deployed in Japan than Taiwan. I wish it weren’t so, but I think that’s the reality, and I’ve reevaluated that in the light of certain things that were going on.”
The Berkshire Hathaway chairman famously emphasizes long-term investments, yet the conglomerate’s involvement with TSMC was fleeting: Berkshire Hathaway’s $4.1 billion purchase of TSMC shares last fall was 86 percent offloaded in February, and now Buffett has sold off the rest.
As Taiwan’s biggest company and a major semiconductor supplier globally, including for Apple and other U.S. tech giants, TSMC is among the most geopolitically strategic companies in the world. When Rep. Nancy Pelosi (D-Calif.) visited Taiwan last August, when she was still House speaker, she had lunch with two top executives from the company. TSMC makes the semiconductors used in F-35 fighter jets and a wide range of military hardware used by the Pentagon. In addition to the many other reasons a Chinese invasion of Taiwan would be catastrophic, Beijing’s conquering of the island would cut off the supply of chips vital to the functioning of U.S. defense systems.
What’s particularly alarming about Buffett’s decision to sell the stake in TSMC is that seemingly the sole reason behind it was the company’s “location.” Taiwan is about 100 miles from the southeast coast of China, which claims the island as its sovereign territory. Beijing has become increasingly bellicose in recent months as it threatens to seize control of the self-governing democracy. China’s military added a new twist to its intimidation tactics last month, practicing an aircraft-carrier-based attack from the east, with a record 91 warplanes flying near Taiwanese airspace, instead of making the usual feint across the Taiwan Strait from the west.
In an April 12 interview with CNBC, Buffett said, “I think Taiwan Semiconductor is one of the best — well, it’s the best in that field, and it’s one of the best companies in the world. It’s a fabulous enterprise. And Apple buys a lot of the products from them.” Referring to TSMC’s plan to expand and upgrade a new factory in Arizona, Buffett said, “They’re good and they’re coming to the United States.”
So, what scared Buffett away from TSMC clearly had nothing to do with the quality of the company itself. It was just the sheer unpredictability of China’s plans. Confirming to his interviewer that the threat of a Chinese invasion had driven his thinking, Buffett said, “China and the United States are going to be superpowers … and they will always compete with each other,” but he worried about matters getting “out of control” or “accidents” occurring. Buffett added, “It’s a dangerous world.”
No kidding. Unfortunately, Buffett’s withdrawal from TSMC might make the world a tiny bit more dangerous. If Buffett isn’t sure Taiwan is a safe place to invest anymore, then it’s a sign that China’s intimidation is already working. Economic power is a form of leverage — after all, Taiwan must pay for its military defenses — and if China can scare foreign investors away from Taiwan, it will gradually but steadily erode Taiwan’s ability to pay for what it needs to deter an invasion.
Even worse, Buffett isn’t alone in his pessimism about Taiwan’s future; recent weeks have brought a strange wave of corporate leaders making an invasion of Taiwan sound likely. Elon Musk said in a May 16 interview with CNBC that the “official policy of China is that Taiwan should be integrated. One does not need to read between the lines. One can simply read the lines. There’s a certain inevitability to the situation.” Bridgewater founder Ray Dalio wrote on LinkedIn on April 26, “China and the US are now already on the brink of war.”
Taiwan is currently the United States’ 10th-largest trading partner, with U.S. foreign direct investment in Taiwan reaching $31.5 billion in 2020. Taiwan would be a serious underdog in any matchup against China, but it is blessed by its prosperity and strong economic ties to the United States — at least for now. Who knows how many other U.S. investors will interpret Buffett’s move as a signal to cash out? Anything that weakens Taiwan and adds to its isolation would be welcome news in Beijing as China, to all appearances, continues to prepare the battlespace.