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The intensifying rivalry between the United States and the People’s Republic of China is shaping global affairs, both politically and economically. For now, the conflict is still playing out primarily through trade policy. However, a military confrontation can no longer be ruled out. The flashpoint: Taiwan. Beijing is currently increasing the pressure, while the US response remains hesitant. “A Taiwan crisis is one of the greatest risks for global financial markets,” warns Thorsten Fischer, Managing Director and Head of Portfolio Management at Moventum AM.

China is pressing ahead with its claim to control shipping traffic around Taiwan. US intelligence agencies believe that the People’s Liberation Army could be operationally ready to take action against Taiwan by 2027 at the latest. “An escalation could become a focus for Chinese President Xi Jinping, particularly with a view to Taiwan’s presidential election in January 2028,” says Fischer.

Pressure on Taiwan has already become the new normal. China’s coastguard is contacting ships in international waters and demanding information on their ports of origin and destination. Together with military exercises, airspace violations and cyberattacks, this creates constant psychological pressure intended to wear Taiwan down. “Beijing’s aim is evidently not a conventional military strike, but rather a victory below the threshold of war,” Fischer explains. The Taiwanese population is to be discouraged, while doubts are simultaneously sown about the reliability of the US security guarantee. At the age of 73, Xi is also likely to have a narrower strategic window in mind.

One focus is Taiwan’s 2028 presidential election. Whether incumbent Lai Ching-te is re-elected or Cheng Li-wun, a more China-friendly KMT candidate, stands for office, Taiwan’s course is likely to remain cautious from Beijing’s perspective in either case. “If frustration over the lack of political concessions continues to grow,” says Fischer, “China could increase the pressure further.”

One possible instrument is a “customs quarantine”: instead of launching an invasion, Beijing could obstruct air and maritime traffic to Taiwan and force clearance via the mainland. Such an economic blockade would be difficult for the US to break without simultaneously risking uncontrolled escalation. “Washington appears insufficiently prepared for such a scenario,” says Fischer. Delayed arms deliveries to Taipei, a focus on invasion scenarios rather than grey-zone strategies, and a US election campaign during the critical period in early 2028 could open a favourable window of opportunity for Beijing.

For investors, an intensifying Taiwan crisis would be highly significant. Taiwan produces a large share of the world’s most advanced chips and accounts for between one fifth and one quarter of global semiconductor production. A conflict would severely disrupt technology-sector supply chains and significantly increase geopolitical concentration risk in portfolios. Fischer says: “Those with heavy exposure to technology stocks linked to Taiwan should give greater consideration to diversification, alternative semiconductor locations and geopolitical hedging strategies. The decisive question remains whether credible deterrence and diplomacy can prevent strategic stability from turning into an open crisis that could affect the entire global economy.”