US Speaker of the House Nancy Pelosi left Taiwan after a whirlwind visit that brought a furious response from China, including plans for three days of live-fire drills off the Taiwan coast – a significant military escalation with implications for regional shipping and supply chains.
Immediate implications for global businesses
Global businesses will feel the reverberations from Pelosi’s visit for some time. Those operating in Asia should prepare for steadily increasing cross-Strait tensions, reflecting China’s concerns that the US is retreating from its commitments to a “One China” policy, a cardinal concept that has kept the peace in East Asia.
Three risks in particular stand out:
Armed conflict, while remote in the foreseeable future, is not out of the question. Businesses must now at least consider the risk of supply chain mayhem as well as massive US sanctions.
A technological arms race between China and the US risks accelerating, with Taiwan caught in the middle. The CHIPS Act and the $369 billion climate and tax package proposed by Democrats in the Senate are adding to a combustible mix. The semiconductor industry is rapidly becoming a new strategic flashpoint.
Political rhetoric on Taiwan is hardening in both the US and China. For instance, former US Secretary of State Mike Pompeo has publicly called for formal US recognition of Taiwan. China’s position, too, is becoming increasingly inflexible. Over time businesses will face pressure to take sides. Already, China expects businesses earning profits in China to support the Chinese Communist Party’s domestic and foreign policy priorities, and none is more important to Beijing than Taiwan.