Global investors are increasingly assessing a once-unthinkable scenario: a possible Chinese invasion of Taiwan. This shift in perspective is spurred by potential changes in U.S. foreign policy should Donald Trump return to the White House.
For years, the risk of military conflict between China and Taiwan—a democratically governed island that Beijing considers a breakaway province—was viewed as remote. However, heightened geopolitical tensions and the Biden administration’s assertive China policy have already brought the issue to greater prominence in financial circles. Now, speculation about a Trump presidency in 2025 has added a new layer of uncertainty.
Investors say that while the likelihood of war remains low, events during Trump’s first term—including erratic foreign policy decisions and a more isolationist posture—have compelled them to treat a Taiwan conflict as a ‘tail risk,’ meaning a low-probability but high-impact event.
“It’s not that we think it will definitely happen, but the consequences are so severe that we have to think about it,” said one fund manager based in Singapore.
However, preparing for such a risk is difficult. Analysts note that traditional hedging strategies for geopolitical events—like shifting capital to safe-haven assets or diversifying geographically—offer limited protection in the face of a Taiwan conflict. A military confrontation could disrupt global supply chains, particularly those involving semiconductors, where Taiwan plays a dominant role. This makes nearly all global portfolios vulnerable.
Several financial institutions have started conducting internal scenario assessments, including simulations of disruptions in trade and technology supply chains, but most admit they lack comprehensive tools to effectively mitigate the risks.
The growing focus on Taiwan as a geopolitical flashpoint underscores the broader concern that investors feel increasingly exposed to unpredictable political shifts in major powers—including the uncertainty that comes with erratic U.S. foreign policy, particularly under Trump.
As elections in the U.S. approach, markets are likely to keep a close eye on political developments, adjusting strategies not only around economic policy expectations but also around the potential for escalation in critical geopolitical hotspots like the Taiwan Strait.
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