If you've been bracing your portfolio for a Taiwan shock, a senior U.S. diplomat thinks you're paying too much for that fear. "I actually think the most mispricing is with regard to Taiwan, where actually I think people are overpricing the risk of something happening across the Taiwan Strait," said Michael DeSombre in a Thursday interview with CNBC at the Milken Institute Asia Summit. "Both China and the U.S. don't want conflict, and we're able to deter conflict," he added, saying those worries are "priced at too high a level."
Pressed on talk of "reunifying" Taiwan by 2027, DeSombre called Xi "a very rational actor ... To the extent that he realizes that it can't be done, or it can't be done without substantial consequences, it won't happen." He underscored the need to keep deterrence rock solid: "That's why it's important … ensuring that we have the deterrence in place with our allies and partners to make sure it does not happen."
Geopolitical risk premiums are often wrong in both directions. Market Briefs covers that pricing free every morning.
U.S. officials have repeatedly noted internal Chinese guidance for the People's Liberation Army to be prepared for action on Taiwan by 2027. Beijing, for its part, has never confirmed that timing. China claims Taiwan as its own and hasn't taken force off the table; Taiwan's democratically elected government rejects Beijing's sovereignty claim.
Beijing has also tried to push Washington to shift its long-running approach to Taiwan and explicitly "oppose" independence. After last month's meeting between U.S. President Donald Trump and Chinese President Xi Jinping, there was no public agreement on Taiwan.
China has been stepping up activity around Taiwan. In August, a surveillance report cited by Reuters said a Chinese military ship, along with two additional craft, appeared for the first time off Taiwan's Pacific shoreline. On the political front, Beijing has been courting the Kuomintang since last year as the island heads toward a 2028 presidential vote.
In Washington, the U.S. President has paused approval of a new $14 billion arms package for Taipei, following a sharp December response from Beijing to an earlier $11 billion sale. A few days after the Trump-Xi meeting, Taiwan's Foreign Minister Lin Chia-lung went to Arizona to inaugurate a new de facto consulate in the city of Phoenix.
Taiwan is the world's top maker of cutting-edge chips, and TSMC, the largest contract chip producer globally, has poured tens of billions of dollars into plants in Phoenix. Those projects are getting significant U.S. subsidies as part of the push to rebuild American semiconductor manufacturing.
What officials say about risk moves markets regardless of accuracy. Get the free Market Briefs daily newsletter and follow it.
