Nancy Pelosi’s visit to Taiwan illuminates U.S.-China relations
China announced large-scale military exercises surrounding Taiwan in response to the visit to Taiwan by U.S. House Speaker Nancy Pelosi and her delegation on August 2-3. Despite these actions and associated warnings from each side, the United States and China are demonstrating that they want to avoid a serious conflict over Taiwan.
Nonetheless, the visit heightened the sense of distrust and strategic competition that now frames the U.S.-China relationship. Taiwan will remain an issue that could lead to conflicts between the two countries, both deliberate and accidental. Pelosi’s visit will reinforce Chinese suspicions of U.S. intentions towards Taiwan, and China’s military activities will strengthen U.S. doubts that China’s intention is unification with Taiwan by “peaceful” means.
U.S.-China military conflict unlikely in near-term; uncertainty for next few years
Looking ahead, tensions over Taiwan will intensify as each side moves to test the other and defend its red lines. Actions by either side, coupled with charged rhetoric, will cast uncertainty over the investment climate in both Taiwan and China.
Our assessment is that a U.S.-China military conflict over Taiwan is unlikely in the near future, but the next few years – some say the next 1,000 days – will continue to generate uncertainty.
Companies should closely consider the geopolitical environment shaping the business environment, understand the risks to their value chains in both Taiwan and Mainland China (and for Chinese companies, their U.S. investments), and engage in scenario planning.