Markets Calm Down After Pelosi Visit to Taiwan, but Risks Remain

- Advertisement -


House Speaker Nancy Pelosi accepts an award from Taiwan President Tsai Ing-wen. (Photo by Handout/Getty Images)

- Advertisement -

Getty Images

- Advertisement -

China fired missiles in an area ringing Taiwan in live military drills on Thursday, escalating Beijing’s response to US House Speaker Nancy Pelosi’s visit to the self-ruled island China claims as its own. The worry is that the status quo underpinning the US-China relationship has changed.

Markets calmed down after earlier angst about the U. S-China relationship as Pelosi landed in Taiwan. But geopolitical analysts stressed the unfolding response—including the launch of live-fire drills that come close to Taiwan’s commercial ports and missiles that land within Japan’s exclusive economic zone—marked a change to the long-held status quo over Taiwan and raised geopolitical stakes.

- Advertisement -

Pelosi’s arrival drew criticism and frustration in China amid a groundswell of support among the Chinese people for a stronger response for what many saw as unacceptable tightening of US-Taiwan relations, according to panelists on an online event hosted by the Center for Strategic and International Studies on Thursday on Taiwan.

China sees Taiwan as its own—and considers any efforts to bolster Taiwan’s independence as crossing a red line. The trip comes as a deteriorating US-China relationship and myriad actions and comments by US officials since the Trump administration feed Beijing’s concerns the US may be reassessing its one China policy despite the US reaffirming it.

“We are at a dangerous, acrimonious state of the relationship. Distrust is at an all-time high,” said Bonnie Glaser, director of the Asia Program at the German Marshall Fund of the United States on the CSIS panel. “We are looking over the precipice, and I hope our two governments will find a way forward to talk about their intentions, red lines and concerns and prevent a continuous downward spiral in the relationship.”

On the military front, analysts are keeping close watch on the next couple of days of planned live-fire military drills and whether China follows up recent moves with naval and air activity or if it flies jet fighters inside Taiwan’s airspace. One growing concern: that these exercises amount to a rehearsal of a blockade of Taiwan, which is reliant on imports for a host of needs, including fuel. “This is the signal they are trying to send—that they have the capability to implement a blockade, which is also worrisome,” Glaser added.

The good news for now: Beijing still appears focused on preventing Taiwan’s independence rather than forcing reunification at this point—and it hasn’t shifted to preparing its population or using its industrial defense capacity to prepare for a military invasion by building a naval amphibian fleet , said John Culver, a nonresident senior fellow with the Atlantic Council’s Global China Hub and a senior intelligence officer, on the panel.

“A full war would include the US and shift the basis for the Chinese Communist Party’s legitimacy from prosperity and international standing to defense of sovereignty, which would be a stark reversal,” Culver says. “For Xi Jinping and the Chinese Communist Party Politburo, Taiwan is a crisis to be avoided, not an opportunity to be seized.”

What’s clear is that the tensions aren’t likely to defuse soon—forcing investors to keep a close eye on how Beijing responds, not just in coming days but months, and if there is a pathway to restarting dialogue between the US and China.

TS Lombard strategists are bracing for more turmoil, even if near-term economic fallout is limited to some shipping disruptions. “The broad direction and impact on macro and markets is clear: Assets exposed to China and Taiwan tension will warrant a higher risk premium over the coming weeks, while deteriorating US-China relations will accelerate decoupling, increasing pressure on Chinese ADRs as well as the The global semiconductor and electric vehicle industries,” writes Rory Green, the firm’s chief economist Economist.

Take that as a warning for anyone bargain-hunting in Chinese stocks—or even in big-cap tech stocks since what happens in Taiwan will have major ramifications to anyone who depends on the country’s chips and other inputs.

Write to Reshma Kapadia at [email protected]

,

Credit: www.marketwatch.com /

- Advertisement -

Stay on top - Get the daily news in your inbox

DMCA / Correction Notice

Recent Articles

Related Stories

Stay on top - Get the daily news in your inbox