Investing.com -- BCA Research has raised the probability of a military escalation between China and Taiwan to 35% over the next 12 months, pointing to a sharp deterioration in U.S.-China economic ties under President Trump’s second term.
The new estimate includes a 10% chance of a full-scale conflict and a 25% chance of a limited or proxy war, up from a combined 30% previously.
“The probability that Beijing uses military force to absorb its wayward province of Taiwan has doubled from 5% to 10%,” BCA strategists led by Matt Gertken said in a note, adding that the overall risk of military conflict has risen to 35%.
The escalation reflects what BCA calls a “Reckoning” scenario—where the U.S. seeks to permanently impair China’s economic growth and block tariff circumvention, resulting in severe geopolitical strain.
But this also means that China may no longer maintain “strategic patience” if it views recent U.S. actions as a shift from containment to outright economic sabotage.
“President Trump has just raised tariffs to levels that, if sustained, will halt U.S.-China trade,” strategists continued.
“Combined with export controls, looming investment restrictions, and various other existing or threatened sanctions, the U.S. strategy will start to look like an all-out economic war against Beijing.
This would give Chinese policymakers “significant domestic cover for retaliation that goes beyond trade.”
In such a context, Beijing could pursue actions short of a full-scale invasion. BCA’s Geopolitical Strategy team estimates a 25% chance of a limited or proxy conflict in the next year, pointing to the possibility that China could seize a small outlying island to signal its readiness to use force.
The macro research firm also explains that there is a timing aspect to the forecast. “If Beijing does not use its military to unite with Taiwan in the next 12 months, it may not do so for a very long time afterwards,” it wrote.
In other words, according to BCA, Beijing may view the current trade war as an opportune window. “President Trump’s maximalist tariffs give Beijing an excuse and a window of opportunity,” the report said.
If China chooses not to respond within this period, its leadership is likely to resume efforts to stabilize the economy, expand regional influence—including over Taiwan—and pursue long-term competition with the U.S.
Despite the heightened risk, BCA noted that the base case remains one of continued status quo, assigned a 65% probability. Still, it advised investors to consider hedging against tail risks, pointing to bets on “large double-digit declines in Taiwanese stocks, or TSMC or NVDA share prices,” as cost-effective insurance in the current environment.