BEIJING, Aug 18 (Reuters) - China strongly reacted to remarks made by U.S. President Donald Trump regarding Taiwan, with a Chinese Foreign Ministry spokesperson stating on August 18 that Taiwan is an inalienable part of China and that the Taiwan issue is purely China's internal affair. This statement reaffirms China's firm stance on its sovereignty over the island amidst ongoing tensions between the United States and China.

Chinese Foreign Ministry spokesperson Mao Ning stated at the press conference, "The Taiwan issue is purely China's internal affair, and resolving the Taiwan issue is the affair of the Chinese people." She further added, "We will make our utmost efforts to achieve peaceful reunification. However, we will never allow any person or force to attempt to separate Taiwan from China." This declaration reflects Beijing's resolve to uphold the 'One China' principle and reject any challenges to its sovereignty.

In response, Taiwan's Ministry of Foreign Affairs stated on August 17 that it "always closely monitors the dialogue between senior U.S. and Chinese officials." It noted that Taiwan will continue to cooperate with countries that have "important interests" in the Indo-Pacific region to maintain peace and stability in the Taiwan Strait. This increasing interaction between major powers on the Taiwan issue highlights the significant impact of these developments on regional and international stability.

Market Signals

Geopolitical Risk Premium: This statement, coupled with ongoing US-China tensions, will likely increase the geopolitical risk premium in markets sensitive to cross-strait relations, particularly in technology and manufacturing sectors.
Semiconductor Industry Volatility: Taiwan is a critical hub for the global semiconductor industry. Any escalation of tensions or perceived instability in Taiwan could lead to significant volatility in semiconductor stocks and related industries worldwide.
Supply Chain Disruptions: The statement reinforces the fragility of global supply chains that rely on Taiwan. Companies with operations or suppliers in Taiwan may face increased uncertainty and potential disruptions, especially in electronics and advanced manufacturing.

Stakeholder Impact

Winners: Competitors in Southeast Asia (e.g., Vietnam, India) and Mexico, and companies with diversified operations. Losers: Taiwanese tech companies, global consumers potentially facing price hikes, and companies with high China exposure.

Action Timeline

Immediate: Assess the impact of Trump's and China's statements on supply chains and markets.
Short-term: Accelerate supply chain diversification plans, evaluate investment opportunities in resilient technologies.
Long-term: Monitor geopolitical developments to shape long-term investment and manufacturing strategies.

Risk Assessment

Geopolitical Escalation: The primary risk is an escalation of tensions between China and Taiwan, potentially leading to military conflict or significant economic sanctions.
Trade War Intensification: Renewed or intensified trade disputes between the US and China could further destabilize global markets and supply chains.
Supply Chain Vulnerability: The concentration of critical manufacturing in Taiwan makes the global economy highly vulnerable to any disruption in the region.

Key Indicators

US-China Diplomatic Exchanges: Monitor future statements and actions from both the US and China regarding Taiwan.
Semiconductor Market Performance: Track the stock performance of major semiconductor companies, particularly TSMC, as a bellwether for market sentiment regarding Taiwan's stability.

Regional Perspective

Beijing's firm stance underscores its unwavering commitment to the 'One China' principle and its intention to counter any perceived challenges to its sovereignty over Taiwan. This indicates a continued assertive foreign policy approach from China.

Immediate Implications

Increased Uncertainty: Trump's remarks have triggered a strong response from China, increasing uncertainty for companies operating in the region or with business ties to Taiwan.
Market Volatility: Short-term volatility in financial markets, particularly in the technology and semiconductor sectors, is expected.

What to Watch

Diplomatic Exchanges: Any direct engagement or escalation between US and China leaders on Taiwan will be a critical indicator.
Military Posturing: Increased military exercises or deployments by China around Taiwan would signal heightened tensions.
Taiwanese Government Response: Observe official responses and policy adjustments from Taiwan.

Analysis

This situation highlights the interconnectedness of geopolitics and global business, especially in strategic sectors like semiconductors. Businesses should proactively manage their exposure to these evolving risks.