US-China Summit Stokes Taiwan Tensions; Trump’s Arms Sale Hesitation Raises Concerns

Following the US-China summit, concerns have grown over a potential Chinese action against Taiwan, fueled by President Trump's hesitation on a major arms sale.

This situation stems from a pattern of China emphasizing its 'red line' on Taiwan, while the US signals a more transactional approach to its security commitments.

Markets have reacted with a slight downturn, and future stability now hinges on the final decision on the arms package and signals from the upcoming G7 summit.

A recent report has highlighted growing concerns among Washington insiders about China's potential actions toward Taiwan. This anxiety follows the recent US-China summit, where the delicate balance of power in the Taiwan Strait was thrown into question.

At the heart of the issue are mixed signals from Washington. First, during the summit, Chinese President Xi Jinping issued a stark warning, framing Taiwan as a non-negotiable 'red line'. Shortly after, President Trump expressed hesitation over a $14 billion arms sale to Taiwan, a package seen as critical for the island's defense. This sequence of events has led to speculation that the US commitment to Taiwan's security might be becoming a bargaining chip in broader negotiations with Beijing.

This situation, however, did not develop overnight. It's the result of a longer trend. For months, China has been ratcheting up pressure through persistent 'gray-zone' activities, such as flying military aircraft near Taiwan. In response, US allies have conducted freedom of navigation operations, and the US Congress has been pressuring the White House to expedite the arms sale. This created a tense backdrop for the summit.

Furthermore, the groundwork for this transactional dynamic may have been laid at the Busan summit in October 2025. That meeting focused heavily on securing an economic 'big deal,' which created a precedent that even critical security commitments could be negotiable. The recent hesitation on arms sales seems to be a continuation of this 'deal-first' approach, increasing uncertainty about US deterrence.

The financial markets have taken notice, pricing in this new layer of geopolitical risk. The Taiwanese stock index (TAIEX) and key stocks like TSMC saw a decline, while the Taiwan dollar weakened against the US dollar. This reflects investors' concerns that the risk of miscalculation has risen. Ultimately, the ambiguity in US policy has shaken the long-standing interpretation of its deterrence strategy, leaving allies and markets to guess what comes next.

Gray-zone activities: Coercive actions by a state that are harmful to another, but are below the threshold of conventional warfare.
Foreign Military Sales (FMS): A US government program for transferring defense articles, services, and training to foreign governments.
Deterrence: The strategy of discouraging an attack or other aggressive action through the threat of retaliation.

US-China Summit Stokes Taiwan Tensions; Trump’s Arms Sale Hesitation Raises Concerns

Following the US-China summit, concerns have grown over a potential Chinese action against Taiwan, fueled by President Trump's hesitation on a major arms sale.

This situation stems from a pattern of China emphasizing its 'red line' on Taiwan, while the US signals a more transactional approach to its security commitments.

Markets have reacted with a slight downturn, and future stability now hinges on the final decision on the arms package and signals from the upcoming G7 summit.

Gray-zone activities: Coercive actions by a state that are harmful to another, but are below the threshold of conventional warfare.
Foreign Military Sales (FMS): A US government program for transferring defense articles, services, and training to foreign governments.
Deterrence: The strategy of discouraging an attack or other aggressive action through the threat of retaliation.