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When Pete Hegseth, America’s new defence secretary, warned a Chinese assault on Taiwan could be “imminent”, it was a striking pivot. Washington has always preferred strategic ambiguity to alarmism. No longer. Speaking in Singapore ahead of the Shangri-La Dialogue, Hegseth declared the United States “will not be pushed out” of Asia, and any attempt by China to redraw the region’s geography by force would be “unacceptable”. This toughened tone has rattled allies and adversaries alike—though perhaps none more than the countries that sit on Asia’s periphery, close enough to feel the tremors, yet too small to control the quake.
The immediate implications are clearest in the Taiwan Strait. Taiwan produces more than 60% of the world’s semiconductors and an astonishing 90% of its most advanced chips. A conflict there would rupture global supply chains, freeze high-tech manufacturing and send inflationary shockwaves through the digital economy. The world’s largest firms—from Apple to Nvidia—would see production lines stall, their logistical lifelines severed.
But this is not only about microchips and missile ranges. A war over Taiwan would ripple through the corridors of global commerce, destabilise fragile economies and force fence-sitting nations into dangerous contortions. It would, in effect, test the world’s appetite for great-power confrontation in ways not seen since the Cold War. And as Hegseth’s blunt warnings clash with Chinese denials and European hedging, a second-order question looms ever larger: what happens to the countries caught in the middle?
Start with the Indo-Pacific itself. The South China Sea—through which 30% of global trade flows—would become a war zone. Insurance costs would skyrocket. Ships might be rerouted but not easily: the Strait of Malacca, already a chokepoint, would choke further. Oil prices could surpass $150 a barrel, and food inflation would follow as grain and fertiliser exports hit logistical bottlenecks.
Markets would not wait for the first missile. Investors, always jittery, would flee equities and pile into gold, U.S. Treasuries, Swiss francs. Stock exchanges in New York, Tokyo and Hong Kong would tumble. Even before a bullet is fired, the anticipation of conflict would freeze capital; slash tourism; and put a chill on foreign direct investment.
And yet the most precarious states may not be those with navies in the region, but those with no navies at all—small, indebted countries that trade heavily with China, host thousands of citizens in vulnerable jobs abroad and rely on diplomatic neutrality for economic survival. Countries like Nepal.
Tucked between two giants, Nepal has preferred to play both sides. It trades heavily with India but depends on China for infrastructure investment including airports and hydropower stations. In recent years Beijing’s largesse—often wrapped in Belt and Road branding—has extended deep into Nepal’s economy. But in the event of war, those commitments could vanish overnight. With China preoccupied or sanctioned, Nepal would see projects paused and promises deferred. A trade deficit of some $2bn with China could widen as border routes tighten or close.
The human toll would be just as brutal. Though exact data is hard to confirm, some estimates suggest some 50,000 Nepalis work in Taiwan, mostly in manufacturing and caregiving sectors. A conflict would leave them stranded or jobless with remittance losses likely to outstrip $150–200m a year. Many more work in South Korea and Japan, whose involvement in the war would endanger both their lives and livelihoods. Remittances, which make up nearly a quarter of Nepal’s GDP, would come under pressure. Foreign reserves could buckle.
Tourism, another mainstay of Nepal’s economy, would nosedive. Chinese tourists, one of the fastest-growing groups, would vanish. Global travel disruptions would make Himalayan trekking seem a luxury few could afford. A projected 1.2 million tourist arrivals in 2025 could shrink by half. Meanwhile foreign direct investment, already tepid, would dry up altogether as global risk appetite collapses.
The political ramifications would be no less severe. Nepal’s cherished non-alignment doctrine—a shield against choosing sides—would come under strain. America may press Kathmandu to tilt westward, perhaps by expanding military cooperation under existing compacts like the MCC. China, likely to see such moves as hostile, could respond with diplomatic rebukes or economic leverage. Domestic divisions would sharpen. Parties with Maoist or nationalist leanings would cry foul. Congress-led moderates would seek to hedge. No path would be free of cost.
Elsewhere in South Asia, the pressures would mount. India would likely place its northern borders on high alert, even as it juggles entanglement in the Quad and fears of antagonising China further. New Delhi would face a grim choice: deepen its partnership with the West or risk being seen as an unreliable balancer. Meanwhile countries like Bangladesh and Sri Lanka—heavily indebted to China—would be caught in a diplomatic tug-of-war. Hambantota port, leased to China, could become a strategic liability overnight.
The war in Ukraine provides a troubling precedent. It exposed the limits of the United Nations, the divisions in Europe and the enduring pull of nationalist isolationism. Taiwan could do the same for Asia—but with greater risk and less predictability. Macron’s recent warnings reflect this ambivalence. Europe, he argues, should resist being dragged into an Asian conflict. But such caution only sharpens doubts about America’s staying power. Hegseth insists Taiwan will not fall “on Trump’s watch”, a phrase that carries the whiff of campaign bluster not strategic clarity.
Indeed, America’s credibility is the question that dare not speak its name. Trump-era flip-flops—from praising Xi Jinping to reversing tariffs—undermine deterrence. Allies fear Washington might talk tough but hesitate when costs rise. If strategic ambiguity defined past policy, strategic inconsistency now defines the present.
All of which raises a bleak possibility: that the world is drifting into a major-power war without consensus, preparation or coherent alliances. And that when the cannons fire, it is not only the Pacific Rim that will burn. The shockwaves will climb the mountains, cross the deserts, reach even those who thought themselves safely out of range.
In the Himalayas neutrality may no longer be an option. ■
