The Pacific Prize | Armstrong Economics

The Taiwan issue is not simply about reunification. That has always been far too simplistic. If Taiwan were merely a political dispute, China would not be spending trillions of yuan to build one of the largest navies on Earth. It would not be launching aircraft carriers into the Pacific. It would not be conducting large-scale naval exercises beyond the first island chain. What we are witnessing is something much larger.

Japan is reporting that China’s aircraft carrier Liaoning and its accompanying strike group recently conducted extensive operations east of the Philippines. Carrier aircraft reportedly carried out roughly 170 takeoffs and landings as the fleet operated throughout the western Pacific. These were not coastal defense exercises. These were blue-water naval operations designed to demonstrate that China intends to project military power far beyond its own shores.

Taiwan sits at the center of what military planners call the First Island Chain, a series of islands stretching from Japan through Taiwan and the Philippines. Since the end of World War II, this chain has effectively limited China’s direct access to the broader Pacific. Control of Taiwan would fundamentally alter that equation. Military analysts have openly acknowledged that China’s navy is steadily expanding beyond the First Island Chain and increasingly operating in waters once dominated almost exclusively by the United States and its allies.

This is why military planners throughout Asia are becoming increasingly concerned. China is not simply building ships. It is building the capability to operate far from home for extended periods of time. In 2025, Chinese carriers reportedly spent a record amount of time operating beyond the First Island Chain, launching thousands of aircraft sorties as operational experience rapidly increased. These are the actions of a nation preparing for regional power projection, not merely coastal defense.

Japan is expanding defense spending. The Philippines is increasing military cooperation with the United States. Taiwan is rapidly expanding missile production. China continues building carriers, destroyers, submarines, and long-range missile capabilities. Every nation claims it is acting defensively. History shows that when everyone is preparing for war defensively, the risk of conflict rises dramatically.

Our models have warned that 2026 would be a panic-cycle year characterized by rising volatility and escalating geopolitical tensions. We are now watching multiple theaters move simultaneously. Ukraine continues to expand. The Middle East remains unstable. Europe is openly discussing military vulnerability windows extending into 2028 and 2029. Meanwhile, China is steadily pushing farther into the Pacific. None of these events exist in isolation.