U.S. House Speaker Nancy Pelosi (D-CA) addresses reporters during a news conference at the U.S. Capitol in Washington, U.S., July 29, 2022. Register now for FREE unlimited access to Reuters.comHONG KONG, Aug 2 (Reuters Breakingviews) - China’s financial constraints raise the risk of a showdown with the United States. Nancy Pelosi, the speaker of the U.S. House of Representatives, landed in Taiwan on Tuesday despite warnings from Beijing not to visit the island it has vowed to reunify by force, if necessary. Economic volatility and vital supply chains make it hard for Chinese President Xi Jinping to retaliate against U.S. and Taiwanese companies. Oddly, that might make a military confrontation more likely.Pelosi has a record of grandstanding on China; in 1991 she unrolled a banner in Beijing’s Tiananmen Square in support of democracy protesters. Now she’s become the second speaker to visit Taiwan, following Newt Gingrich in 1997, when relations were warmer, and China was weaker. Though U.S. President Joe Biden has distanced his administration from the visit, Chinese state media is warning of a military response.For American and Taiwanese businesses, the question is whether Beijing will retaliate against them. Taiwan is vulnerable. Its exports to the mainland and Hong Kong topped $188 billion last year, accounting for over 40% of the total. For agriculture, the proportion is higher. Mainland officials banned imports of some 100 Taiwanese food products on Monday night, local media reported.Register now for FREE unlimited access to Reuters.comHowever, Beijing has little choice but to keep importing higher-value goods, like the semiconductors Taiwan specialises in. Cutting off chip supplies to Chinese manufacturers would rebound on exports; Taiwanese giants like TSMC (2330.TW) and Foxconn (2317.TW) are also huge employers on the mainland. The same applies to many American companies.China also has cause not to go overboard on choking off investment. Punishing U.S. and Taiwanese firms operating in the People’s Republic would validate those who argue that foreigners should vacate the market, as carmaker Stellantis (STLA.MI) did in July.With nearly every economic indicator headed south except for exports, Xi is under pressure as he prepares to seek a third term in office. Capital flight or trade disruption would not help his position. However, Xi may also feel obliged to placate enraged nationalists at home. That raises the chances of a military show of strength, and an accidental clash between nuclear-armed states in one of the world’s busiest sea lanes. Business peace is no substitute for the real thing.(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)Follow @petesweeneypro on TwitterCONTEXT NEWSU.S. House of Representatives Speaker Nancy Pelosi arrived in Taiwan on Aug. 2.Chinese Foreign Minister Wang Yi said on Aug. 2 that U.S. politicians who “play with fire” on the Taiwan issue will “come to no good end”.Chinese warplanes buzzed the line dividing the Taiwan Strait before Pelosi’s visit.U.S. President Joe Biden has publicly distanced himself from Pelosi’s decision.Register now for FREE unlimited access to Reuters.comEditing by Peter Thal Larsen and Oliver TaslicOur Standards: The Thomson Reuters Trust Principles.Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.Pete SweeneyThomson ReutersAsia Economics Editor Pete Sweeney joined Reuters Breakingviews in Hong Kong in September 2016. Previously he served as Reuters' chief correspondent for China Economy and Markets, running teams in Shanghai and Beijing; before that he was editor of China Economic Review, a monthly magazine focused on providing news and analysis on the mainland economy. Sweeney came to China as a Fulbright scholar in 2008, and in that role conducted research on the Chinese aviation industry and outbound M&A. In prior incarnations he helped resettle refugees in Atlanta, covered the European Union out of Brussels, and took a poorly timed swing at craft-beer entrepreneurship in Quito even as the Ecuadorean currency collapsed (not his fault). He speaks Mandarin Chinese, at the expense of his Spanish.
China’s economic plight ups Pelosi visit risks.