Military Pressure in the Taiwan Strait — The Structure of "Gray
China's military exercises around Taiwan are not mere intimidation but a structural consequence of the US-China hegemonic competition. The expansion of exercises in 2026 aims to normalize the "gray zone" in the Taiwan Strait as a fait accompli and rewrite the international order, directly impacting global security and economy.
── Understand in 3 Points ─────────
- • The Chinese People's Liberation Army (PLA) conducted multiple large-scale military exercises around Taiwan from January to March 2026. In addition to joint sea and air exercises, simulated blockade drills by the Rocket Force were confirmed.
- • The aircraft carrier "Fujian" and its carrier strike group participated for the first time, demonstrating deployment capabilities in the waters east of Taiwan.
- • According to Taiwan's Ministry of National Defense, Chinese military aircraft entered Taiwan's Air Defense Identification Zone (ADIZ) a cumulative total of over 380 times from January to February 2026, an increase of approximately 40% compared to the same period last year.
── NOW PATTERN ─────────
In the Taiwan Strait, a "spiral of conflict" between the US and China is forming a self-reinforcing loop, with structural escalation progressing as each side's military actions provoke countermeasures from the other. Simultaneously, China's "overextension of power" risk and "alliance strain" within the US's alliance network are interacting in complex ways.
── Probability and Response ──────
• Base case 60% — ADIZ entries remain at a monthly average of 150-200, maintenance of US-China diplomatic channels, gradual stabilization of the Chinese economy, increase in Taiwan's defense budget (over 3% of GDP), standardization of Taiwan mentions in Japan-US joint statements.
• Bull case 15% — US-China summit meeting and joint statement, significant decrease in frequency of Chinese military exercises (over 30% month-on-month), reports of frozen US-Taiwan arms sales, large-scale Chinese economic stimulus measures, Trump's "great deal with China" remarks.
• Bear case 25% — Abnormal military activity around Taiwan (over 50 ADIZ entries per day), Chinese military entry into Taiwan's territorial waters, suspension of US-China military hotline, imposition of Chinese economic sanctions on Taiwan, commencement of merchant vessel rerouting in the Taiwan Strait.
📡 THE SIGNAL — What Happened
Why it matters: China's military exercises around Taiwan are not mere intimidation but a structural consequence of the US-China hegemonic competition. The expansion of exercises in 2026 aims to normalize the "gray zone" in the Taiwan Strait as a fait accompli and rewrite the international order, directly impacting global security and economy.
- Military — The Chinese People's Liberation Army (PLA) conducted multiple large-scale military exercises around Taiwan from January to March 2026. In addition to joint sea and air exercises, simulated blockade drills by the Rocket Force were confirmed.
- Military — The aircraft carrier "Fujian" and its carrier strike group participated for the first time, demonstrating deployment capabilities in the waters east of Taiwan.
- Military — According to Taiwan's Ministry of National Defense, Chinese military aircraft entered Taiwan's Air Defense Identification Zone (ADIZ) a cumulative total of over 380 times from January to February 2026, an increase of approximately 40% compared to the same period last year.
- Diplomacy — In February 2026, the United States approved a new arms sales package to Taiwan (estimated at $1.8 billion). China strongly protested, calling it a "serious infringement on its core interests."
- Diplomacy — In a parliamentary response in February 2026, Japanese Foreign Minister Iwao clearly stated that "peace and stability in the Taiwan Strait are directly linked to Japan's security." Mentions of the Taiwan Strait were also strengthened in the Japan-US joint statement.
- Economy — Taiwan's leading semiconductor contract manufacturer TSMC is accelerating the expansion of its production bases in Japan, the United States, and Europe due to geopolitical risks. The ratio of overseas capital investment is expected to reach 35% of the total in 2026.
- Military — The US Navy maintained a three-carrier presence in the Indo-Pacific region in early 2026. In addition to the USS Ronald Reagan stationed in Yokosuka, the USS Carl Vinson and USS Abraham Lincoln were deployed on rotation in the Western Pacific.
- Domestic Politics — According to internal documents of the Chinese Communist Party (leaked by overseas media), Xi Jinping reportedly stated in a cadre meeting that "the timetable for Taiwan's unification is not indefinite."
- Economy — Due to tensions in the Taiwan Strait, war risk insurance premiums for merchant vessels transiting the strait have risen by approximately 2.5 times compared to 2025. This has begun to impact energy transport costs for Japan and South Korea.
- Technology — China is advancing the military accuracy of its BeiDou satellite system and the operational deployment of AI-integrated command systems, indicating a qualitative improvement in its A2/AD (Anti-Access/Area Denial) capabilities.
- Diplomacy — While ASEAN nations officially espouse "neutrality," the Philippines has agreed to expand the scope of the US-Philippines Mutual Defense Treaty, while Indonesia maintains its stance of prioritizing deeper economic ties with China.
- International Organizations — The Taiwan issue has not been brought before the UN Security Council, and international arbitration mechanisms are effectively non-functional due to China's veto power.
Tensions surrounding the Taiwan Strait did not suddenly begin in 2026. Their structural roots trace back to the founding of the People's Republic of China in 1949 and the relocation of the Republic of China to Taiwan. For over 75 years since, the contradiction between the "One China" principle and Taiwan's de facto independence has remained the greatest destabilizing factor in East Asian security order.
During the Cold War, two Taiwan Strait Crises occurred in 1954-55 and 1958, bringing the US and China to the brink of direct military conflict. However, China at the time was significantly inferior militarily to the US, and the asymmetry of deterrence prevented escalation of the crisis. With Nixon's visit to China in 1972 and the normalization of US-China diplomatic relations in 1979, the Taiwan issue came to be managed by the diplomatic invention of "strategic ambiguity." The US acknowledged the "One China" policy while continuing defensive arms sales to Taiwan under the Taiwan Relations Act, a contradictory equilibrium that was maintained for over 40 years.
This equilibrium began to fundamentally waver due to structural changes from the late 2010s. Firstly, China's military capabilities improved dramatically in both quality and quantity. As of 2025, the number of Chinese naval vessels exceeds 370, surpassing the US Navy in sheer numbers. The mass deployment of anti-ship ballistic missiles like the DF-21D and DF-26 (the so-called "carrier killers"), Type 055 destroyers, and J-20 stealth fighters has brought A2/AD capabilities, which make US military operations difficult within the first island chain, to an operational level.
Secondly, under Xi Jinping's administration, Taiwan's unification was elevated from a mere long-term goal to a concrete political agenda. At the 20th Party Congress in 2022, Xi Jinping explicitly stated that he would "not renounce the use of force," and at the Plenary Session of the Party Central Committee in 2024, he positioned Taiwan's unification as an inseparable element of the "great rejuvenation of the Chinese nation." There is a structure where the slowdown of the domestic economy (real estate bubble collapse, persistently high youth unemployment rate) further strengthens reliance on nationalism.
Thirdly, there are changes within Taiwan itself. In the January 2024 presidential election, Lai Ching-te (Democratic Progressive Party) was elected, inheriting Tsai Ing-wen's policies while articulating a clearer Taiwanese identity. Public opinion polls in Taiwan show that over 80% of citizens consider themselves "Taiwanese," while the percentage who also consider themselves "Chinese" is less than 10%. This irreversible shift in identity creates a sense of urgency in Beijing that "time is not on its side."
Fourthly, there is a structural intensification of US-China rivalry. Since the return of the Trump administration (January 2025), there has been a re-strengthening of tariffs on China, an expansion of semiconductor export controls, and an acceleration of arms sales to Taiwan. Following the trend of the Biden administration's four mentions of "Taiwan defense," strategic ambiguity is effectively being eroded. China views this as "salami-slicing (gradual change to the status quo)" and uses it as a pretext to justify its military responses.
The expansion of exercises in early 2026 is an inevitable consequence of these converging structural factors. What is noteworthy is that China's actions aim not so much at being a "prelude to invasion" but rather at the "normalization of gray zone operations." By making frequent military exercises, ADIZ entries, and the deployment of maritime militias commonplace, China seeks to raise the response threshold for Taiwan and neighboring countries and induce "crisis fatigue" in the international community. This is a Taiwan version of the strategy China has executed in the South China Sea over the past decade, an approach of "victory without war" that establishes strategic superiority while avoiding military conflict.
The delta: The essence of the change in early 2026 lies in the fact that China's military exercises are shifting from an "abnormal situation" to a "new normal." The state where large-scale exercises around Taiwan become regular events a few times a year, and ADIZ entries occur daily in dozens, is no longer being treated as a "crisis" but as a "normal state." This "normalization of the gray zone" is precisely China's strategic objective and the most effective method for gradually altering the status quo without resorting to force.
🔍 Between the Lines — What the News Isn't Saying
The true purpose of China's expanded military exercises is not preparation for a Taiwan "invasion," but rather the de facto alteration of the Taiwan Strait's legal status. Through repeated exercises and navigation, China is attempting to substantiate its claim that "the Taiwan Strait is not international waters but China's internal sea." The US's counter with "freedom of navigation operations" is precisely to prevent this change in legal status. Beneath the surface of military confrontation, what is actually being contested is the right to interpret maritime law—that is, the fundamental issue of hegemony: "who sets the rules?"
NOW PATTERN
Spiral of Conflict × Overextension of Power × Alliance Strain
In the Taiwan Strait, a "spiral of conflict" between the US and China is forming a self-reinforcing loop, with structural escalation progressing as each side's military actions provoke countermeasures from the other. Simultaneously, China's "overextension of power" risk and "alliance strain" within the US's alliance network are interacting in complex ways.
Intersection of Dynamics
The three dynamics of "spiral of conflict," "overextension of power," and "alliance strain" are interconnected, shaping the strategic environment of the Taiwan Strait. Understanding the structure of their interaction is key to predicting future developments.
The more the spiral of conflict accelerates, the greater China's risk of overextension of power. Continuously expanding the frequency and scale of military exercises incurs enormous costs, and maintaining them amidst economic slowdown is financially unsustainable. However, due to the nature of the spiral, reducing military pressure once it has begun is interpreted as a "signal of weakness," trapping China in a situation where it cannot stop escalation despite recognizing the risk of overextension. This pattern is similar to the Soviet Union in the 1980s, which exhausted its economy through intervention in Afghanistan and military buildup to counter SDI (Strategic Defense Initiative).
Simultaneously, the spiral of conflict acts as a catalyst, bringing alliance strains to the surface. In peacetime, agreeing to "peace and stability in Taiwan" is politically low-cost. However, as the spiral escalates and specific military commitments or participation in economic sanctions are demanded, differences in national interests become apparent. In the 2022 Russia-Ukraine war, Western unity was observed at the outset, but over time, fissures deepened regarding energy policy and the scope of sanctions. A similar pattern is expected in a Taiwan contingency.
Furthermore, alliance strain indirectly mitigates the overextension of power. For China, the perception that the "unified Western alliance" it must counter is actually divided strengthens its willingness to bear the costs of overextension. In other words, the calculation that "the opponent is not united, so a little more pressure will make them collapse" comes into play, ultimately leading to further escalation. This interaction among the three forms a negative feedback loop, and unless there are external shocks (accidental military conflict, political changes in Taiwan, US regime change, etc.), the current trend is structured to continue autonomously.
📚 Pattern History
1995-1996: Third Taiwan Strait Crisis
China conducted missile launch exercises to pressure Taiwan's presidential election. The US dispatched two aircraft carriers for deterrence.
Structural similarity with the present: Military intimidation backfired, strengthening Taiwan's democracy. Lee Teng-hui was elected with 54% of the vote. China learned the "paradox of intimidation" and subsequently shifted to a more gradual approach.
2014-: Construction of Artificial Islands in the South China Sea
China built up faits accomplis through low-intensity gray zone operations, ignoring the ruling of the Permanent Court of Arbitration (2016) and completing militarization.
Structural similarity with the present: The "salami-slicing" strategy, which involves accumulating small steps below the international community's reaction threshold rather than making large moves at once, proved to be the most effective method for achieving status quo change without military conflict. The normalization of the gray zone in the Taiwan Strait is an application of this strategy.
1962: Cuban Missile Crisis
The spiral of conflict over nuclear capabilities between the US and Soviet Union reached the brink of nuclear war but was averted through secret diplomatic channels.
Structural similarity with the present: When the spiral of conflict reaches its most dangerous stage, secret back-channel diplomacy, rather than official channels, becomes key to crisis avoidance. The question is whether such effective back-channels exist between the current US and China.
1930s: Nazi Germany's Gradual Expansion (Rhineland → Austria → Czechoslovakia)
A revisionist state challenging the existing international order gradually expanded its territory and sphere of influence while testing the opponent's reactions.
Structural similarity with the present: A historical lesson that "appeasement policies" cannot stop aggression. However, at the same time, overreaction that "treats every challenge as a military conflict" also provokes war. A proper balance of deterrence is crucial.
2008-2014: Russia's Path to the Annexation of Crimea
Confirmation of weak Western response in the Georgian War (2008) → Annexation of Crimea (2014) → Donbas intervention → Full-scale invasion (2022), escalating gradually.
Structural similarity with the present: Insufficient response to gray zone operations leads to the next stage of escalation. There is a risk that China will take the same gradual approach towards Taiwan, but the geographical barrier of the Taiwan Strait and the strategic importance of the semiconductor industry create a different deterrence environment than in Ukraine.
Patterns Revealed by History
The most important lesson revealed by historical patterns is that "gray zone operations are low-cost in the short term but lay the groundwork for escalation in the long term." The artificial islands in the South China Sea were overlooked as "not a big deal" in 2014, but today in 2026, they are a fully militarized reality. Russia's annexation of Crimea was treated as a "localized incident" in 2014, but it was the first step on the staircase to the full-scale invasion eight years later.
At the same time, the 1996 Taiwan Strait Crisis and the 1962 Cuban Missile Crisis also show that conflict avoidance is possible if deterrence and diplomatic channels function at the peak of escalation. The problem is that such effective crisis management mechanisms have deteriorated in current US-China relations. Military hotlines exist, but there is a risk they will not function when most needed, as China temporarily suspended them after Pelosi's visit to Taiwan in 2022. History teaches that "unintended escalation" is far more common than "intentional war." The increase in routine military activities in the Taiwan Strait structurally raises the probability of accidental incidents, which is the greatest risk factor.
🔮 Next Scenarios
China will continue military exercises around Taiwan with high frequency throughout 2026, but without direct military conflict. The "normalization of the gray zone" will progress, with ADIZ entries exceeding 2,000 annually, but new red lines such as live-fire drills or territorial water incursions will be avoided. The US will continue arms sales to Taiwan and maintain a 2-3 carrier presence in the Western Pacific throughout the year. Japan-US joint exercises will increase in frequency and scale, with missile defense drills in the Nansei Islands (Sakishima Islands) drawing particular attention. However, diplomatic channels between the US and China will not be completely severed, with high-level dialogues maintained a few times a year. Tensions in the Taiwan Strait will become entrenched as "managed conflict," and the international community will gradually accept it as a "new normal." Merchant vessel insurance premiums will remain high, but maritime traffic will be maintained. TSMC's overseas diversification will accelerate, but its advanced manufacturing capabilities based in Taiwan will be preserved. Domestically, Xi Jinping will claim achievements, stating that China is "steadily advancing on the path to Taiwan's unification," gaining sufficient political effect for the domestic audience. In this scenario, the absolute risk of military conflict is low, but it carries the long-term risk that the "floor" of the gray zone is raised annually, lowering the threshold for future escalation.
Implications for Investment/Action: ADIZ entries remain at a monthly average of 150-200, maintenance of US-China diplomatic channels, gradual stabilization of the Chinese economy, increase in Taiwan's defense budget (over 3% of GDP), standardization of Taiwan mentions in Japan-US joint statements.
A scenario where tensions in the Taiwan Strait ease due to an unexpected diplomatic breakthrough. The most likely trigger is a case where an implicit "freeze agreement" on the Taiwan issue is reached in exchange for a large-scale economic deal between the US and China (a partial truce in the trade war). President Trump has a political style that favors "deals," and there is a non-zero possibility that he might use the Taiwan card as leverage for a comprehensive deal with China. For example, a scenario where China reduces military exercises for a certain period in exchange for the US temporarily halting arms sales to Taiwan is conceivable. Alternatively, China's domestic economic crisis could deepen, leading Xi Jinping to choose the easing of diplomatic tensions as a prerequisite for stabilizing the domestic economy. Furthermore, ahead of the US midterm elections in November 2026, a scenario where the Trump administration sets up a US-China summit to showcase diplomatic achievements and reconstructs a comprehensive dialogue framework, including the Taiwan issue, is also conceivable. In this case, the frequency of military exercises would decrease, maritime insurance premiums would stabilize, and overall regional tensions would subside. However, since the fundamental structural issues of Taiwan (China's sovereignty claims and Taiwan's irreversible identity change) would not be resolved, any easing is likely to be temporary.
Implications for Investment/Action: US-China summit meeting and joint statement, significant decrease in frequency of Chinese military exercises (over 30% month-on-month), reports of frozen US-Taiwan arms sales, large-scale Chinese economic stimulus measures, Trump's "great deal with China" remarks.
A scenario where tensions in the Taiwan Strait reach an unmanageable level due to an accidental military incident or escalation. The most probable trigger is an aerial contact incident between a Chinese military aircraft and a Taiwanese military aircraft (or one of them and a US military aircraft) within Taiwan's ADIZ. The probability of an accidental collision, similar to the 2001 Hainan Island incident (EP-3 incident), structurally increases under the current high frequency of military activities. Should an accident occur, nationalism on both sides would make control difficult. On Chinese social media, calls for "retaliation" would explode, and it would be politically difficult for the government to suppress them. In the US, anger over "China's aggressive actions" would mobilize Congress, increasing pressure for new sanctions and military responses. In this scenario, the possibility of full-scale military conflict (Taiwan invasion) remains low (below 10%), but limited maritime clashes, large-scale economic sanctions, and severe disruption to the semiconductor supply chain would occur. Merchant vessel transit through the Taiwan Strait would be temporarily halted, affecting over 20% of global container shipping. Stock markets would plummet, with Asian markets potentially seeing a 10-20% correction. Gold prices would hit all-time highs, and crude oil prices would surge due to supply concerns. TSMC's stock price would crash, leading to serious concerns about global semiconductor supply. While the probability of this scenario is low, its impact if it occurs is immense, and it must be constantly monitored as a tail risk.
Implications for Investment/Action: Abnormal military activity around Taiwan (over 50 ADIZ entries per day), Chinese military entry into Taiwan's territorial waters, suspension of US-China military hotline, imposition of Chinese economic sanctions on Taiwan, commencement of merchant vessel rerouting in the Taiwan Strait.
Key Triggers to Watch
- Whether a US-China summit is held and if the Taiwan issue is on the agenda: April-June 2026 (bilateral opportunities after G7 Hiroshima)
- Scale and scope of China's summer large-scale military exercises: July-August 2026 (traditional exercise season)
- Hardening/softening of China policy towards the US midterm elections (November 2026): September-November 2026
- Occurrence of aerial near-miss or maritime contact incident within Taiwan's ADIZ: Year-round (probability increases proportionally with military activity)
- Taiwan-related decisions at the Plenary Session of the Chinese Communist Party Central Committee: October-November 2026 (usual timing)
🔄 Tracking Loop
Next Trigger: China's summer large-scale military exercises (scheduled for July-August 2026) — The redeployment of the aircraft carrier "Fujian" and the scope of the exercise area are the most important indicators for the next stage of gray zone normalization.
Continuation of this Pattern: Tracking Theme: Taiwan Strait Gray Zone Normalization — The next milestones are the scale of the 2026 summer exercises and the operational status of US-China crisis management channels (military hotline).
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