President Donald Trump recently spoke with both Chinese President Xi Jinping and Japan’s Prime Minister Sanae Takaichi, aiming to ease regional tensions. However, the ongoing dispute over Taiwan appears far from being settled, raising broader economic and market concerns across Asia and globally.

Diplomatic Moves and Strategic Signaling

Trump’s call with Xi came amid deepening U.S.-China strategic competition. According to Trump, Xi assured him that China would refrain from taking action toward unifying Taiwan during his administration — a claim that underscores Beijing’s delicate balancing act. On the other side, Trump also met with Takaichi in Japan, receiving strong affirmations of U.S.-Japan alignment. Takaichi has made forceful statements suggesting that a Chinese military move on Taiwan could constitute an existential threat to Japan, potentially justifying collective self-defense. That rhetoric has prompted fierce warnings from Beijing, with no sign of diplomatic backdown.

Why the Taiwan Issue Remains Unresolved

Although communication lines are open, experts argue that any near-term deal over Taiwan is unlikely. Analysts note that Taiwan represents not just a political flashpoint, but a core strategic asset — especially in the semiconductor supply chain. Given Taiwan’s importance in producing advanced chips and its growing economic integration with both the U.S. and China, both Beijing and Washington lack strong incentives for a quick deal. Deep-seated mistrust and conflicting visions for Taiwan’s future make concessions difficult. Institutional investors and policymakers in the region remain skeptical that a breakthrough will emerge without significant geopolitical shifts.

Market and Economic Implications

The diplomatic tension is already influencing markets. Equity markets in China and Japan are reacting to the risk of broader geopolitical escalation, especially with regard to trade, technology, and supply chains. For instance, tensions over Taiwan could undermine global semiconductor supply, given Taiwan’s centrality in that sector. Investor caution is growing, with many adjusting their risk models to account for potential disruptions. Moreover, companies dependent on East Asia — particularly those in high-tech manufacturing — face elevated uncertainty. Capital is likely to flow more cautiously in the region while markets digest the potential macro and structural risks.

Looking ahead, the Taiwan issue will remain a critical watchpoint. Investors and policymakers should closely monitor any substantive follow-up from the Xi and Takaichi conversations, particularly around military signaling and economic measures. Key risks include escalated economic retaliation, stricter supply chain controls, or military miscalculations. On the other hand, any diplomatic breakthrough could realign regional trade dynamics and reduce geopolitical risk premiums in markets. For now, the status quo seems to persist: high-stakes diplomacy without a clear path to resolution.