What has Happened:

• China has issued harsh warnings regarding the prospect of House Speaker Pelosi visiting Taiwan as part of her Congressional Asia tour.
• While not confirmed by the U.S. or Taiwanese officials, Taiwanese media has announced her visit to the island.
• A Chinese foreign ministry spokesperson called the potential visit “a gross interference in China’s internal affairs.”
• In 1997, Newt Gingrich was the last U.S. House Speaker to visit Taiwan and Speaker Pelosi’s visit would be the highest-level U.S. visit in 25 years.

U.S. intelligence is closely monitoring Chinese military activity and China announced on Saturday that it would conduct live fire drills in the waters off the southeastern Fujian Province, which is 80 miles from Taiwan.

• In addition, on Sunday, a Chinese Air Force spokesperson said the Chinese Air Force would be flying “around Taiwan” to demonstrate its “ability to defend its territory.”
• The USS Ronald Reagan Strike Group left Singapore last week and is now in the South China Sea.

Why it Matters:

“The Chinese have stated that they would attempt to deter her flight using Chinese aircraft creating a threatening situation which could escalate. I seriously doubt they would shoot it down as also threatened. I suspect the Taiwanese would be threatened as well with provocative demonstrations of air and naval actions. I don’t believe these are just threats. I believe some action will occur with the potential for unintended consequences.”

– General Frank Kearney

 “China will be diplomatically aggressive…tough talk, little likelihood China will militarily interfere with Pelosi’s visit should she get the green light from President Biden to go. China, not unlike the Russians and Iranians in the Persian Gulf, may threaten Pelosi’s aircraft or possibly US naval ships which are underway in the vicinity. The risks are too high for the Chinese to interfere and not expect (and wargame) the worse possible outcome.”

– General Spider Marks

“Bond markets seem to pay attention to this news. We are seeing yields drop (though ISM prices paid helped yields lower too). Equities, so far, seem to be higher on lower yields rather than manifesting any fear of the trip. If anything does flare up, this could disrupt supply chains and undo some of the progress of recent months, which would hit the economy and likely ramp up inflation.”

– Peter Tchir, Head of Macro Strategy

“While China is unlikely to directly interfere with the Speaker’s transit in/visit, Xi will have to take some action given China’s threats to do so. Surprisingly, I haven’t seen much commentary on what China could do directly to Taiwan (which in my mind would serve as an equally impactful action/message). The most obvious response would be punishing Taiwan on the trade front and upping its game (in the wake of the Speaker’s visit once the rhetoric dust has settled) in terms of increasing its provocative flight incursions and/or missile tests in the vicinity of Taiwan. The larger question for the Biden administration is whether it can articulate a clear and convincing strategy re: Taiwan’s independence and what the U.S. will do/will be willing to do to help preserve that independence.”

– Admiral A.B. Cruz

“The diplomatic and information rhetoric will be intense and threatening from China without taking the next steps in risking conflict at this time. Xi is not yet ready to take on the U.S. militarily. The greater concern to Xi is whether the U.S. is slowly shifting away from the “One China” policy that has underpinned relations for 50 years. Much has changed since then, both in China and in Taiwan, leading some to question the policy. The information coming out of both sides is ratcheting up tensions between the two superpowers. Xi is learning from Putin in Ukraine and understands that he needs overwhelming force to deter the U.S. from supporting Taiwan in a military conflict. China is not there yet.”

– General Robert Walsh

“We needed someone from the U.S. to go and demonstrate our support and commitment to defend Taiwan. Sending the Speaker gives the Biden administration an out as they can say that she is not part of the cabinet and clearly, President Tsai does not think it crossed a red line or she would not have been allowed to visit (from the Taiwan side). The visit is a huge win for Taiwan as it is a demonstration of U.S. commitment to the region. This is a concern as some nations don’t know if they can trust the U.S. after the Afghanistan withdrawal and the global community remains unsure what will happen in Ukraine and if the U.S., NATO, and the West will remain committed as winter comes to Europe and heating houses becomes an issue (along with the economic impact).

We must support Taiwan TODAY due to the semiconductor challenges we have because Taiwan is the only place some of the semiconductors we need are made. Therefore, we are working with major U.S. semiconductor manufacturers to bring the capability back to the U.S.

I liken the Speaker Pelosi visit to my being able to go to Nicaragua for a visit as an Army 2 star General, which was a visit General Kelly as the SOUTHCOM Commander (a 4 star) could not make due to the strategic messaging it sends. However, I ended up having to cancel a week out because Ortega decided to ban the opposition political party from the upcoming elections. I was under the “messaging” radar – like the Pelosi visit – and left some degree of deniability by the administration at the time.

We needed to demonstrate that we would be there to stand up to China, build trust with our allies and partners, and convince them that we are committed to the region.

I also think there is a lot of behind-the-scenes dialogue ongoing. Probably assurances to China of no escalation and the full understanding that both nations must posture publicly, like we have seen in the past with other countries (we say one thing publicly but privately support).”

– General K.K. Chinn