Executive Summary
This report evaluates geopolitical risks in Asia-Pacific in 2026, focusing on the rivalry between the United States and China.
Washington and Beijing compete to control maritime routes, secure energy resources, and militarise strategic areas, including the Senkaku, Spratly, and Paracel Islands, Korea, Taiwan, and the Straits of Malacca and Luzon.
China, Japan, and South Korea maintain strong economic interdependence, which stabilises the region and reduces the risk of conflict, even as the three countries expand military operations in specific areas of the Asia-Pacific.
Key Takeaways Japan: Sanae Takaichi strengthens Japan’s partnership with the United States. Washington treats Tokyo as a key partner in containing China within the First Island Chain. Meanwhile, China and Japan militarise the East China Sea and contend for fossil resources in the Sea of Japan/East Sea, which reduces their trade cooperation. Korean Peninsula: Lee Jae-myung ends the South Korean political and institutional crisis, which Yoon Suk-yeol triggered by declaring martial law on 14 December 2024. South Korea relies on US military support to defend itself against North Korea’s nuclear threat. Southeast Asia: China views the Thailand-Cambodia conflict as a risk to regional stability. The United States designates Bangkok as a key partner in retaliating Chinese influence in Southeast Asia. Beijing increases investments in Thailand, Vietnam, Cambodia, and Myanmar to mitigate the Malacca Dilemma. US Policy: The United States blames China for instability in the Asia-Pacific because of Beijing’s increasing militarisation of the area. Therefore, Washington seeks to strengthen its cooperation with Taiwan and expand its military presence in Japan, South Korea, and the Philippines to contrast China within the First Island Chain and secure maritime trade routes, primarily the Malacca Strait. Geopolitical Context
In 2026, US–PRC rivalry drives the political and strategic dynamics of the Asia-Pacific and determines regional security priorities and economic governance. Geography remains central: countries that control major SLOCs and maritime choke points (Malacca, Luzon, and Taiwan) supervise trade flows connecting OPEC countries to East Asia economies. China, Japan, and the United States compete in the South China Sea for oil and natural gas fields, and this competition fuels territorial disputes and militarisation in the region.
Southeast Asia, rich in rare earths such as nickel, attracts Chinese and Western foreign direct investment aimed at controlling the full extraction and refining chain. The Thailand-Cambodia conflict threatens China’s regional interests and strengthens US influence. Meanwhile, Taiwan maintains its role as a critical industrial hub, and North Korea remains a potential hotspot because of Pyongyang’s nuclear and missile programme.
Political Risk
It remains difficult to identify a single political risk for the Asia-Pacific region in 2026 because the major states maintain stable governments and preserve institutional continuity. In Japan, Sanae Takaichi’s administration continues the political line of previous governments and considers revising Article 9 of the Constitution to strengthen the capabilities of the Japan Self-Defence Forces.
Political risk on the Korean Peninsula remains relatively medium-low because of two key factors. First, South Korea maintains internal stability, as Lee Jae-myung’s election restores institutional continuity and reinforces the strategic alliance with the United States. Second, China and Russia manage North Korea’s missile and nuclear programme carefully, which allows North Korea to preserve its role as a buffer state and resolve crises triggered by Pyongyang through diplomacy.
China targets Taiwan as its primary strategic objective, but direct military action would impose extremely high economic and military costs, given the island’s central role in global value chains and the involvement of the United States and its allies (Japan and South Korea). Consequently, Beijing continues to apply a strategy of graduated pressure, combining military, economic, and diplomatic levers. China also faces internal vulnerabilities concentrated in the autonomous regions of Tibet and Xinjiang. Tibet, known as the ‘Third Pole of the Earth,’ supports national water management, sustains transboundary rivers such as the Mekong and Salween, and enables China to project influence in Central Asia.
Xinjiang serves as a strategic energy and mining hub. In 2023, China produced 32.7 million tonnes of oil, 41.7 billion cubic metres of natural gas, and over 2.4 million tonnes of iron in the region. China also operates critical infrastructure, including the Central Asia–China Gas Pipeline, which supplies approximately 15% of domestic gas demand. The PRC combats threats related to Uyghur terrorism through its ‘three evil forces’ strategy, which it coordinates within the Shanghai Cooperation Organisation (SCO).
Economic Risk
In 2026, industrial connections between China, Japan, and South Korea drive the main economic risks in the Asia-Pacific region. China, Japan, and South Korea have gradually merged these connections since Beijing joined the World Trade Organisation (WTO) in 2001.
In 2025, the countries of the Regional Comprehensive Economic Partnership (RCEP) accounted for approximately 27.7% of global GDP (~£30.65 trillion), with China contributing 61.2%, Japan 13.1%, and South Korea 6.1% of total RCEP GDP. These figures highlight the region’s economic importance and demonstrate how industrial relations shape diplomatic dialogue between Beijing, Tokyo, and Seoul.
Although Taiwan does not participate in the RCEP, it plays a central role in the Asia-Pacific industrial chains and serves the US and European markets. In 2025, Taiwan recorded a GDP of USD 884.39 billion, growing 3.7%, driven by technology-intensive sectors, primarily semiconductors, which represent approximately 15% of national GDP and cover over 60% of global advanced wafer capacity.
Taiwan, a prominent high-tech player, collaborates with the industrial sectors of Japan, South Korea, and China, supplying essential components to the European automotive and defence industries. Conflict on the Korean Peninsula or in the Taiwan Strait could disrupt production flows and global supply chains, causing significant economic impacts at regional and systemic levels. Meanwhile, Beijing strengthened trade and production links with Seoul and Tokyo after joining the WTO, creating deep economic interdependence that makes military escalation or prolonged trade disruption extremely costly for all parties.
This dynamic appears clearly in China-Japan economic relations, where high trade cooperation reached a total value of $292.6 billion in 2024.
In October 2025, Beijing exported goods worth £13 billion to Japan and imported goods worth £14.4 billion, recording a deficit of £1.35 billion. Beyond trade, China and Japan depend heavily on Asia-Pacific sea routes to import fossil fuels from OPEC countries, which also exist in the seabed of the Sea of Japan/East Sea—estimated at up to 1.7 billion barrels of oil and over 7 trillion cubic feet of natural gas. In 2024, trade between Japan and South Korea exceeded 11.7 trillion yen, confirming their status as strategic partners. In October 2025, South Korea exported £579.1 billion, while Japan exported £606.1 billion, narrowing the historical gap and showing Seoul’s growing industrial and commercial competitiveness.
South Korea, while maintaining agreements with Japan, expands trade with China, particularly since the China–South Korea Free Trade Agreement reduced tariffs across a wide range of goods, increasing bilateral trade from USD 227.4 billion in 2015 to USD 272.9 billion in 2024.
In October 2025, China exported integrated circuits, electric batteries, and computers to Seoul, while South Korea exported integrated circuits, transmission accessories, and cyclic hydrocarbons to China.
Security Risk
In 2026, strategic heterogeneity creates security risks in the Asia-Pacific region, driven by two areas of great geo-economic value: the China Sea and Southeast Asia. Beijing and Washington compete for control over the China Sea and its main geo-maritime hubs, including Taiwan, the Straits of Malacca, Korea, Miyako, Luzon, and the Spratly and Paracel archipelagos. Control over these hubs enables the two powers to supervise the region’s main SLOCs and secure fossil fuel deposits beneath the Sea of Japan/East Sea and the South China Sea.
Beijing prioritises Southeast Asia to protect its economic and strategic security and mitigate the Malacca Dilemma. Thailand and Indonesia serve as priorities for access to the Strait of Malacca, while Vietnam gains strategic value because of its proximity to Hainan Island and the Longpo naval base, which hosts part of China’s nuclear submarine fleet. The conflict between Cambodia and Thailand threatens regional stability and undermines China’s 21 Maritime Silk Road strategy.
In 2026, China strengthens its military capabilities near Korea and in the South China Sea, and it continues conducting exercises, as it did last year with Justice Mission 2025 and Peace and Friendship-2025. The United States maintains a military presence in Japan and on the Korean Peninsula, exercising maritime control over key regional chokepoints, including Taiwan, Miyako, Malacca, and Korea, and increasing deterrence against China and North Korea.
The Russian Federation maintains a military presence in the Sea of Japan/East Sea and the Kamchatka Peninsula, and it supports growing convergence with Beijing, primarily to stabilise the Korean Peninsula and monitor Kim Jong-Un’s regime.
Assessment
In 2026, Washington and Beijing increase competition in the Asia-Pacific, while instability persists on the Korean Peninsula, and China addresses its internal vulnerabilities. Japan and South Korea maintain stable governments and consolidate their alliances with the United States. North Korea, with its nuclear and missile programme, forces China and Russia to monitor Pyongyang closely to preserve its role as a buffer state. Taiwan remains a critical point for regional security because its industrial and technological centrality anchors the involvement of the United States and its allies.
Economically, the interdependence between China, Japan, South Korea, and Taiwan provides a stabilising factor, but it also creates vulnerability. Conflicts on the Korean Peninsula or in the Taiwan Strait could disrupt global supply chains, particularly in semiconductors and critical resources such as oil, gas, and nickel.
On the security front, controlling key SLOCs and choke points, along with militarising strategic nodes such as the South China Sea, Southeast Asia, and the Korean Peninsula, remains central. Sino-Russian military cooperation strengthens Pyongyang as a buffer state, while the United States and its allies maintain advanced deterrence capabilities in Japan, South Korea, and the Philippines.
Overall, major power competition, regional political vulnerabilities, and critical economic interdependencies drive geopolitical risk in the Asia-Pacific in 2026. These factors create a dense and potentially unstable environment, but systemic escalation remains constrained by its high costs.
