As the new year dawns, Taiwan faces a range of external uncertainties that could impact the safety and prosperity of its people and reverberate in its politics. Here are a few key questions that could spill over into Taiwan in the year ahead.
WILL THE AI BUBBLE POP?
The global AI boom supported Taiwan’s significant economic expansion in 2025. Taiwan’s economy grew over 7 percent and set records for exports, imports, and trade surplus. There is a brewing debate among investors about whether the AI boom will carry forward into 2026. Skeptics warn that AI-led global equity markets are overvalued and overleveraged and predict that an AI bubble will soon burst.
Financial Times columnist Ruchir Sharma and others provide a counterpoint, though. Historically, bubbles do not pop under their own weight. They pop when central banks tighten monetary conditions and alter the risk/reward calculus for investors to speculate on continuing growth. The US Federal Reserve will transition to a new chair this May. If the new leader causes a crisis in the Federal Reserve’s credibility or if capital flows into the United States dry up, then this will be a space to watch. Otherwise, I expect the AI boom to continue through 2026.
WILL THE UNITED STATES AND CHINA EXTEND THEIR PERIOD OF STRATEGIC CALM?
President Trump and President Xi Jinping (習近平) agreed at their October 30, 2025, meeting in South Korea to call a truce on their trade war for one year. They announced that President Trump would visit China in April and there are expectations that President Xi will reciprocate by visiting the United States later in 2026, likely around the time of the G20 Summit. These planned summits will have a disciplining effect in both capitals against taking actions that could undermine presidential trips.
At the same time, expectations are low that either side will offer any significant concessions to the other in service of improving relations. Most likely, both sides will work to avoid escalation and keep tensions within manageable levels while they each use this period of relative calm to strengthen their capacity to compete against the other over the longer term. The risk of an accidental or unplanned event (a wayward spy satellite comes to mind) could upset the best-laid plans, though.
WILL THE INTERNATIONAL SYSTEM DRIFT FROM A “RULES-BASED INTERNATIONAL ORDER” TO “SPHERES OF INFLUENCE?”
Following America’s military operation to capture Venezuelan leader Nicholas Maduro and Trump’s subsequent declaration that “American dominance in the western hemisphere will never be questioned again,” there has been speculation that Trump may be laying the groundwork to establish spheres of influence whereby major powers assert control over their peripheries. According to this logic, Russia would dominate its periphery, America would dominate the western hemisphere, Israel would assert control over events in the Middle East, and China would establish hegemony over Asia.
This argument rests on several dubious assumptions. First, that Trump possesses a conceptual view of the world and would be guided by a coherence of logic in his approach to foreign affairs. Second, that Putin and Xi would accept Trump’s conception of spheres of influence and curb their ambitions to their regional periphery. And third, that other countries would tolerate becoming vassalized under the leading powers in their regions and would cede any independent foreign policy out of subservience to the hegemon.
The world certainly is becoming more Hobbesian. International rules and norms are crumbling. Disorder is rising. That said, China will not establish a sphere of influence over Asia in 2026. Instead, Trump will seek to assert American dominance in the western hemisphere while maintaining American leadership and influence in Asia. The more that China attempts to impose its will along its periphery, the more countries across Asia will push back.
WILL AMERICA SIGNIFICANTLY SHIFT ITS POLICY TOWARD TAIWAN IN 2026?
There has been speculation about whether Trump might modify America’s policy on Taiwan in exchange for Chinese concessions on his economic priorities. This speculation rests on the assumption that Trump is purely transactional and indifferent to Taiwan’s security. While it is a fool’s errand to try to predict everything Trump might do or say in the year ahead, there are several factors arguing against Trump making any enduring concessions to Xi on Taiwan.
First, Trump has said consistently that he does not expect China to take military action against Taiwan during his time as president. In his own way, Trump has signaled he wants to maintain the status quo. Second, the Trump administration recently approved an US$11 billion arms package to Taiwan. This demonstrates continuity with longstanding policy of providing arms and services to support Taiwan’s maintenance of a credible self-defense capability. All that said, there is a possibility that Trump could make a statement on Taiwan during his planned state visit to China to please his hosts. Even if he does so, China’s leaders will have to accept the fluidity of Trump’s rhetoric, his tendency to change his mind, and the American security establishment’s steadfast views on preserving peace and stability in the Taiwan Strait. At a conceptual level, Trump has taken on a lot of challenges simultaneously at home and around the world. He likely will prefer not to add to his problems with any volatility in the Taiwan Strait in the year ahead.
WILL CHINA’S ECONOMY WOBBLE IN 2026?
China’s economy is imbalanced. Overall growth is being sustained by exports and China’s stock market is being buoyed by its technology sector. Domestically, the economy is sputtering. The combination of deflation and a weak currency are good for export competitiveness, but bad for corporate earnings and quality of life for China’s citizens.
I do not see grounds for optimism that China’s economy will improve substantially in the year ahead, particularly given China’s leaders’ determination to promote self-reliance and direct capital to support national priorities in technology and advanced manufacturing. At the same time, I also do not see signs that China’s economy is at risk of falling off a cliff, absent some type of exogenous shock.
These five questions represent some of the major external issues that could impact Taiwan’s economy and security. Taiwan also faces its own internal questions, such as whether the competing political parties will be able to forge a compromise to pass the special defense budget, how Taiwan will meet its energy requirements, and the outcome of Taiwan’s local elections later this year. I will explore some of these internal questions in a future column.
Ryan Hass is a senior fellow, the Chen-Fu and Cecilia Yen Koo Chair in Taiwan Studies, and the Director of the China Center at the Brookings Institution.
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