Nancy Pelosi’s Taiwan visit has the world on edge

U.S. House Speaker Nancy Pelosi is expected to visit Taiwan as soon as today, and China has one message: Don’t. If the situation escalates, anything could be on the table.

First, how did we get here? TLDR (Here’s the longer version):

• China and Taiwan go way back. Taiwan has been governed independently from China since 1949.
• China still sees Taiwan as its territory and has vowed to unify the two — even if that means using military force.
• Caught in between, the U.S. — which sells weapons to Taiwan — had various levels of relationships with Taiwan under different U.S. administrations.

The U.S. and Taiwan have become closer since Trump’s administration, and political analysts are on the fence, deciding whether an invasion will happen. China isn’t ruling out using force to take Taiwan, and the U.S. hasn’t ruled out defending Taiwan.

Fast forward to today: Pelosi is planning a visit to Taiwan, and China warned of potential military action if she does. This matters because she’s…

• The “No. 3 U.S. official,” which makes the trip “highly sensitive” per Chinese Foreign Ministry spokesman Zhao Lijian (BBG) — and also the highest-ranking elected U.S. official to visit Taiwan in 25 years.
• In May, Beijing responded to the United States’ “commitment to a free and open Indo-Pacific” by sending 30 warplanes into Taiwan’s air defense zone.

What’s the impact of war? Per Professor of Global Affairs Hal Brands, a major war could lead to “global economic chaos” that makes “Russia’s war in Ukraine look minor by comparison” (BBG).

Investors: This is what many call a “black swan event” — a low probability unpredictable event with severe consequences. Long-term investors are often better off riding them out instead of trying to time these events.