East Asia's Cheap Peace Is Over
Get the Geopolitics newsletter
Daily geopolitics — wars, elections, sanctions, the diplomatic moves that move markets. Free.
- Chinese and Japanese coastguard vessels squared off near the Senkaku/Diaoyu Islands earlier this month; each government claimed to have driven the other away, and nothing escalated.
- TSMC accounts for more than 90% of the world's most advanced chipmaking capacity, and CEO C.C. Wei said each construction step in Arizona takes at least twice as long as in Taiwan, citing permitting, labor shortages, and supply gaps.
- Beijing's rare earth export controls on Japan, tightened in January, have doubled mentions of rare-earth risk in Tokyo Stock Exchange filings; two-thirds of roughly 200 recent filings said the curbs are already hurting business or pose a credible risk.
- The Taiwan Strait carried US$2.4 trillion in goods in 2024—more than a fifth of global maritime trade—and the Red Sea showed war-risk premiums can jump from 0.05% to 1% of hull value per seven-day passage within months of Houthi attacks.
- Global military spending hit US$2.887 trillion in 2025, with Asia and Oceania recording the fastest annual rise since 2009; Japan pledged to hit its 2%-of-GDP defense target two years early, and Taiwan's defense budget grew 14% last year.
- Taiwan's equity market rose more than 60% in the first half on AI demand even as foreign investors pulled a record US$137 billion from emerging Asian equities, with Taiwan and South Korea bearing the brunt.
Why it matters: Companies and governments in East Asia now pay for security on top of efficiency: TSMC's Arizona fabs take twice as long per construction step, Japanese manufacturers cite rare-earth risk in stock filings, and global insurers can no longer exclude a Taiwan Strait scenario from stress tests. The 'trade brings stability' bargain is splitting into two separate bills.
