For decades, the USA pretended it didn’t have a close relationship with Taiwan, and for decades China pretended not to notice that in fact it did. Donald Trump’s ten-minute phone call with Taiwanese President Tsai put paid to that. Why?TM

The easy answer is that the president elect doesn’t have the first clue about international relations. A more nuanced explanation is that he’s played a classic Trump card as part of the ‘Art of the deal.’

The 1972 visit by US President Nixon to China led to the 1979 agreement between the two countries. The deal was that the USA accepted Beijing’s one-China policy and so did not diplomatically recognize Taiwan as a sovereign state. China would in return agree not to invade Taiwan but continue to insist it was the legitimate ruler of the island. No American President has spoken directly to his opposite number in Taiwan since.

This was an easy deal for both sides once they could get past their Communist/Capitalist ideology. Beijing and Washington were more concerned about the Soviet Union than each other and, if Beijing made cosy with Washington, Moscow had to concentrate on both, thus dividing its attention, and military.  The Chinese could pretend they had forced a massive compromise from Washington, while the Americans could quietly close their embassy in Taiwan then re-open it calling it the American Institute in Taiwan, an NGO which just happened to be stuffed full of American diplomats from the State Dept. Arms and trade agreements between Taiwan and the USA continued.

So that was the deal then, and it has worked. But this is now.

Now the Soviet Union has gone, Taiwan is the USA’s 9th largest trading partner, and, most importantly Chinese exports have undercut American industry leading to job losses in the USA causing a social crisis and a political backlash. America needs to alter the trade part of the deal. Furthermore, China’s economy is struggling and it desperately needs the Americans to keep buying its goods.

In one unpredictable phone call Donald Trump has unnerved the Chinese leadership. If he’s prepared to upset forty years of a basic diplomatic tenet, who knows what else he might do?  Raise tariffs? Go full protectionist?

The Chinese could threaten to pull their massive deposits from American banks, but what would they do with the money? – buy Euros? That doesn’t look too clever at the moment.

China does have cards to play. But a phone call to Taiwan from Mr Trump is not worth showing a hand. Instead Beijing sought to put the blame on Taiwan calling it a ‘trick’ that Tsai had called Trump. This feels like they are buying time while they wait for Trump’s next move to see where he’s taking this.

That ‘The Donald’ was surprised by the communication from Tsai seems unlikely despite his tweet that he had ‘taken’ the congratulatory call. Tsai’s office now says it was arranged in advance. At this point it’s worth noting that the incoming chief of staff Reince Priebus is hawkish on the China/Taiwan issue, and another adviser, Edward J. Feulner, has had ties to Taiwan for decades.

Another piece of the jigsaw is that Tsai is from the Democratic Progressive Party which takes a harder line on independence from China than the Kuomintang party from which she took power earlier this year. New Presidents, new economic times may now equal new policies.

What the phone call seems to signal is – ‘What Nixon gave, Trump can take away’. Beijing is concentrating hard as to what the terms will be to keep the Nixon deal intact, and the goods flowing out.

 

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4 Comments on "Taiwan and the Trump Card"

  1. Donald Trump is shooting himself in the foot. He should have consulted with the State Departm ent before speaking to Taiwan’s president on the phone. The most obvious implication of Trump’s anti-Chinese sentiments is to reduce the US influence in Southeast Asia and enhance Chinese influence in that important region. China holds over $1.2 trillion of US Treasury bonds (IOUs) which means it is lending money to the USA to enable the latter to buy Chinese goods, import foreign materials and build its infrastructure. The fact that 18% of China’s exports go to the American market, gives Donald Trump a strong card to play. But he must play it carefully, perhaps by selective targeting of companies that break the anti-dumping regulations or by raising US concerns with the World Trade Organization WTO. When Chinese president Xi Jinping visited the US in 2015, the visit coincided with China placing orders worth nearly $40bn of aircraft from Boeing, which is one of the biggest employers in the US (the firm employs nearly 160,000 American workers). Also China is a big buyer of American agricultural products. By way of example China buys $10bn a year of soybeans. Being a tough bully is easy for Trump, but costs jobs and exports, being smart the US stands to benefit enormously from a good working relationship with China.

  2. The Chinese economy is in trouble and perhaps it seems a good time to apply additional pressure. China has sold $100bn of it’s US treasury holdings since last September and spent the money trying to prop things up at home. The financial co-dependence of the countries is obvious, the repercussions of US protectionism and a Chinese debt sell off hard to predict beyond an obvious rise in US interest rates and slump in the Chinese economy. It would probably lead to massive dumping of Chinese goods on the world market, a drop in oil and raw material prices and resulting deflation. Would it spark another global economic crisis?, who knows. It would also remove a huge current disincentive for Beijing to flex it’s muscles more aggressively in the region.

    An awkward question for you Tim, on balance do you think we will see a military conflict between the USA and China in the next 20 years?.

  3. Tim, I can’t help thinking Trump may be pretty easy to manipulate … all men who thinks they are smartest have the same weakness. BTW almost every new President/PM in the western world tried to gain something from the Chinese by pulling the Dalai lama/human rights stun and somehow the Chinese almost always settled with money. Trump may be seeking more by playing the much more sensitive Taiwan card. The Chinese may concede a little if it could buy its way out but what Trump may be getting his advice from the Russians. He may be working with Putin to go after some of the Chinese’s massive reserves. Perhaps … Trump is waiting for the Chinese to build some Trump Towers in Beijing and Shanghai … he is a greedy, deal making businessman after all. Geopolitics may not be what’s in Trump’s mind.

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