Markets too ready for conflict over Taiwan – US diplomat

Investors are overestimating the threat of a military confrontation over the island, Michael DeSombre has told CNBC Investors are exaggerating the likelihood of a military confrontation over Taiwan, a senior US diplomat has said.

Michael DeSombre, US assistant secretary of state for East Asian and Pacific affairs, told CNBC on Thursday that investors were “overpricing the risk of something happening across the Taiwan Strait.” “Both China and the US don’t want conflict, and we’re able to deter conflict,” he said.

Beijing regards Taiwan as part of its sovereign territory and says it seeks peaceful reunification, although it has not ruled out using force.

The self-governing island remains a source of friction between China and the US, which maintains a one-China policy but continues to supply Taipei with weapons.

Experts, however, warn that financial markets may be ill-prepared for the economic fallout of a crisis.

Taiwan dominates global production of advanced semiconductors, supplying chips essential to smartphones, vehicles, and AI systems.

A blockade or military escalation could disrupt manufacturing and key shipping routes, sending shock waves through global trade and technology supply chains.

Read more US delivers latest F-16s to Taiwan A confrontation could also derail US-China trade relations, triggering new tariffs, export restrictions, and investment controls.

Asian markets and American technology companies would be particularly vulnerable.

Investors have already priced geopolitical risks into Taiwan-linked stocks, including chipmaking giant TSMC, according to MarketWatch.

Bloomberg Economics estimated in February that a US-China war over Taiwan could wipe $10.6 trillion, or 9.6%, off global GDP in its first year.

The EU would be among the hardest-hit regions, according to British think tank Chatham House.

Johns Hopkins University professor Hal Brands has warned that Beijing could opt for a blockade or customs quarantine rather than a full-scale invasion.

“No one has a good idea how to price in the risk of a US-China military conflict over Taiwan,” he told an investment conference in September, according to Business Today.