Geopolitical Risk: The Unpriced Taiwan Conflict
A potential military conflict between the United States and China over Taiwan could trigger a market shock for which investors are profoundly unprepared, according to Dr. Hal Brands, Henry A. Kissinger Distinguished Professor of Global Affairs at Johns Hopkins SAIS. Speaking at Elara Capital’s Ashwamedh – India Dialogue 2026, Brands emphasized that the escalating tensions between Washington and Beijing present a geopolitical risk far greater than current market anticipations.
Brands argued that the rivalry between the two global powers is structural and cannot be resolved solely through leader-level diplomacy. He highlighted 2028 as a particularly high-risk period, citing upcoming elections in both Taiwan and the US, which could intensify the geopolitical competition.
Beyond Invasion: Blockade Scenarios
The professor suggested that Beijing might not necessarily be preparing for an outright invasion of Taiwan, but rather for measures such as a customs quarantine or an economic blockade. Such scenarios could have severe implications for global trade and critical technology supply chains, making it exceptionally difficult for investors to accurately assess the potential market fallout in advance.
Brands noted that financial markets have limited experience in pricing low-probability events that carry exceptionally large economic consequences. He stated, “No one has a good idea how to price in the risk of a US–China military conflict over Taiwan.” The uncertainty is further amplified by Taiwan's crucial role in global technology supply chains and the strategic importance of trade routes in the region. A conflict or blockade could therefore ripple far beyond financial markets, impacting companies, supply chains, and international trade.
Lessons from History and a Shifting Global Economy
To illustrate the difficulty markets face with extreme geopolitical risks, Brands pointed to the Cuban Missile Crisis, where the Dow fell by only about 7% despite the severe confrontation. This historical context underscores his warning that market movements may not fully reflect the true scale of a geopolitical shock before it occurs.
Brands also observed a fundamental shift in the global economy, moving away from the highly integrated post-Cold War model towards greater fragmentation and strategic competition. Countries and companies are increasingly prioritizing resilience, diversification, and reducing vulnerable dependencies. In this emerging environment, economic relationships themselves can become instruments of geopolitical leverage.
For investors, this implies that conventional economic indicators may no longer suffice for risk assessment. Geopolitical developments, particularly concerning US-China relations and Taiwan, are poised to increasingly influence technology, trade, and capital flows. Brands concluded by urging investors to integrate geopolitical analysis into their market assessments as the world enters a “much more volatile, complex world” over the next five to ten years.