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  • Writer's pictureCreimerman Product Team

Microchip Wars and Global Trade Strategies: Paraguay's Shines Amid US-China-Taiwan Tensions.

The relationship between China and the United States has been marred by complex geopolitical and economic tensions over the years. One of the key flashpoints in this ongoing rivalry is the competition and disputes surrounding chips and microprocessor intellectual property. As both countries strive for technological dominance, the semiconductor industry has emerged as a critical battleground. Coupled with the importance of Taiwan in the global supply chain and the tariff war between these giants, the stakes have never been higher.

Intellectual Property Theft and Tariff tensions

The accusation of intellectual property theft has been a longstanding grievance in Sino-American relations. The US and other Western nations have raised concerns about China’s involvement in stealing sensitive semiconductor technology and trade secrets from US-based firms. This aggressive pursuit of intellectual property led the United States to initiate a tariff regime on products coming from China, with tariffs reaching up to 25% during the period of former President Trump. Tensions escalated during the Biden administration, and in response, President Xi Jinping imposed a tariff regime on products originating from the United States. The tension persists.

Taiwan’s Crucial Role

At the heart of this dispute lies Taiwan, an island nation with a significant presence in the global semiconductor industry. Taiwan Semiconductor Manufacturing Company (TSMC), a world-renowned semiconductor foundry, holds a pivotal position in manufacturing advanced chips for tech giants worldwide, as it is responsible for the manufacture of 60% of all semiconductors and 95% of the advanced semiconductors worldwide. Any disruptions to Taiwan’s semiconductor exports could have severe implications for the technology sector and economies on a global scale, but not only economic consequences are at stake, military tensions are also in play, as China has openly declared that it considers Taiwan to be part of its territory and would be willing to take control by force. Similarly, the United States has openly declared that if this were the case, it would support Taiwan and assist in its defense.

Implications of US — China tensions in international trade

China and the United States are currently the world’s most important economies, and any tension between these nations has severe consequences on the global supply chain, therefore many companies that manufacture their products in China have been affected by this dispute and are seeking alternatives to relocate their production outside of China while maintaining a competitive cost and volume to meet their needs.

Many companies have found a viable alternative in India or Vietnam; however, there is an under explored option in the American continent that brings significant competitive advantages.

Mercosur region

The MERCOSUR (Southern Common Market) free trade agreement is a regional economic integration initiative among South American countries, including Argentina, Brazil, Paraguay, and Uruguay, with associate members such as Bolivia and Chile. It eliminates tariffs and trade barriers, facilitates market access, and establishes common rules and regulations to foster a more integrated and competitive regional market. It also encourages cooperation in areas such as agriculture, energy, industry, and technology.

Paraguay’s Maquila Regime

Through this regime, investors can introduce goods, products, or services to the country in order to be assembled, repaired, improved, worked, or processed for subsequent export, once the added value is made.

Tax aspects and benefits

Maquila Unique Tribute consists of a Single Tax regime of 1% on the value-added in the national territory. With the exception of the Single Maquila Tax and the tax treatment established by the Law for sales in the domestic market, the Maquila Contract and the activities carried out in its execution are exempt from any other tax, such as Value Added Tax (VAT), suspension on import duties, and exemption from paying any tax on dividend remittances abroad.

Any product with between 40% and 60% of Mercosur value is exported with Paraguayan origin labeling, and tariffs for these products in the United States range from 0% to 6.5%, depending on the product

Labour matters

Paraguay, as part of the Mercosur region has access to installed infrastructure, an excellent entrepreneurial ecosystem, and a much cheaper skilled workforce compared to China. If we were to compare salary ranges with another country, the most accurate comparison would be with Vietnam.

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