In the latest in our megatrends podcast series, we look at Taiwan. The country is in a strategic hotspot, a key manufacturer of critical semiconductors and a flashpoint for US/China tensions. The upcoming presidential and legislative election in January 2024 is highly contested. The Democratic Progressive Party prioritises Taiwanese sovereignty, while the other parties may move Taiwan closer to China. Any resulting conflict could cause major disruption to the global economy.
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The upcoming Taiwanese election could be a flashpoint for geopolitical tensions between China and the US. The fragile ‘1992 consensus’ that has governed relations between China and Taiwan for three decades may not hold in the face of another victory for the pro-independence Democratic Progressive Party (DPP). China may be forced to take more significant action to bring Taiwan under its control.
There are three possible outcomes should the DPP win. The first is that tensions continue to rise after the election and there is an ongoing risk premium applied to Chinese and Taiwanese assets. However, there is also a possibility that China uses hybrid military tactics, including – potentially – a blockade. There are military manoeuvres, which have become more frequent, but no immediate signs of further escalation. A full-scale invasion is an outside possibility.
The key unknown is how the US will respond. It has followed a policy of ‘strategic ambiguity’, but President Biden has repeatedly said he will protect Taiwan’s integrity. Any hint at sanctions or, far worse, a military invasion, would be highly destabilising for the global economy and financial markets.
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