The Hindu: Published on 23 May 2025:
Why in News?
The article highlights growing concerns among global investors over the possibility of a China-Taiwan military conflict, especially under the current U.S. administration led by Donald Trump. The fear of geopolitical escalation is leading to volatility in Taiwanese markets and a reevaluation of investment risk by foreign players, notably after China’s military drills and worsening U.S.-China relations.
Background:
Taiwan has operated as a self-governed democracy since the end of the Chinese Civil War in 1949, though China claims it as a breakaway province.
The U.S. follows a "One China Policy" but maintains strategic ambiguity about whether it would defend Taiwan in case of invasion.
Donald Trump’s presidency has reignited tensions through trade tariffs, tough rhetoric on China, and ambiguous foreign policy decisions.
The semiconductor industry, particularly Taiwan Semiconductor Manufacturing Company (TSMC), plays a critical role in the global economy, making Taiwan central to tech investors.
Key Issues:
Investor Dilemma: Global investors are torn between:
Staying invested in Taiwan despite high risk.
Exiting to avoid losses from a potential war scenario.
Lack of Hedging Mechanism:
Experts note there’s no effective hedge if Taiwan’s currency collapses, or markets are shut down post-conflict.
Foreign Capital Flight:
$11 billion has been pulled out from Taiwan’s markets in 2025 due to geopolitical tensions and economic concerns.
Geopolitical Uncertainty:
Trump’s policy stance and lack of strong commitment to Taiwan’s defense have led to reduced investor confidence.
China's military exercises and aggressive statements increase the perceived threat.
Perception vs. Reality:
Some local fund managers argue foreign investors are overestimating the risk of war.
However, fear-driven market reactions continue.
Stakeholders Involved:
Foreign Investors: Wary of losing capital in case of war.
Taiwanese Government: Reassuring peaceful intent while asserting sovereignty.
China: Viewing Taiwan as a non-negotiable territorial issue.
U.S. Government: Under pressure to clarify its stance.
TSMC & Tech Sector: Central to global semiconductor supply chains.
Impact / Consequences:
Market Volatility: Taiwan’s benchmark index has declined 6% YTD.
Tech Industry Concerns: TSMC’s stability is crucial for companies like Nvidia, Apple.
Global Economic Ripple Effect: Any conflict could disrupt the global chip supply, affecting electronics, automotive, and AI sectors.
Strategic Calculations: Nations and investors are recalibrating risk and defense planning in Asia-Pacific.
Future Outlook:
High Uncertainty Continues: The lack of clarity from the U.S. and continued Chinese assertiveness mean tensions will persist.
Possible Market Recovery: Some foreign capital returned in May 2025, suggesting tentative optimism.
TSMC as a Geopolitical Anchor: The belief that the U.S. will protect Taiwan due to TSMC may offer temporary reassurance to investors.