By Mauldin Economics
Donald Trump spoke on the telephone with the president of Taiwan, causing deep upset.
It was counter to an understanding in place since Richard Nixon opened the door with China in 1972.
This understanding included an American endorsement of the one-China policy.
This understanding included an American endorsement of the one-China policy.
This policy held that Taiwan is part of China, but would continue to behave as if it weren’t.
The US agreed not to have diplomatic relations with Taiwan and pretend it isn’t a close ally.
The agreement was a fairly meaningless concession.
The agreement was a fairly meaningless concession.
It allowed the Chinese to domestically claim they had forced the US to capitulate on an important issue.
By speaking with the Taiwanese president, Trump undermined that agreement.
When Nixon went to China, the Vietnam War was still being fought.
It was unclear if the US could resist Soviet military action in Europe.
The Chinese fought a major battle in 1969 with the Russians along the Siberian-Chinese border.
Sino-Soviet relations plummeted in the 1960s.
China was worried about a Soviet attack, including a nuclear strike.
The Soviets seemed to be in a position to confront either China or the US in Europe, but not both simultaneously.
The Soviets seemed to be in a position to confront either China or the US in Europe, but not both simultaneously.
The US needed to tie the Soviets down by posing a counterthreat in Europe and Asia, simultaneously. Soviet transport didn’t allow for rapid force movement.
Coercing the Soviets to divide those forces between two fronts notably reduced their ability to mass strategically overwhelming power.
Coercing the Soviets to divide those forces between two fronts notably reduced their ability to mass strategically overwhelming power.
Coordination between the US and China in the 1970s led to China permitting US intelligence listening posts to intercept Soviet trafficking.
This was the context in which the agreement on Taiwan was made.
This was the context in which the agreement on Taiwan was made.
Geopolitics trumped ideology, as it often does.
The two powers reached an understanding that achieved vital strategic goals for both.
China’s Domestic Cover
The Chinese asked for something incredibly trivial.
They asked the US to acknowledge there is only one China.
China agreed not to invade Taiwan. Given the stakes, the US readily agreed.
Taiwan was independent of China and a close US ally.
China was too weak to invade Taiwan, but China needed domestic political cover.
Its ability to claim an American capitulation on Taiwan was important.
The US didn’t want to expose the Chinese politically.
Nixon would capitulate.
He knew there would be posturing in Congress, but he could weather it.
He knew there would be posturing in Congress, but he could weather it.
The US closed its embassy in Taiwan and reopened it as the American Institute in Taiwan, manned by US diplomats.
Travel, trade, investment, and arms sales continued as if nothing had happened.
Much time has passed since that deal, and a few things have happened.
Much time has passed since that deal, and a few things have happened.
The Soviet Union collapsed. The Vietnam War ended.
Vietnam is the US’ partner and is hostile to China.
China has surged economically as the last generation’s low-wage, high-growth economy.
The foundations of the agreement on Taiwan have evaporated, but the reality is the same.
The foundations of the agreement on Taiwan have evaporated, but the reality is the same.
Taiwan is an independent country despite what anyone—including Taiwan—says. And it is a close US ally.
Trump’s Bargaining Chip
Chinese exports have undercut American industry.
The movement of the US industrial sector to China, among other countries, created an economic and social crisis in the US.
Trump won the election because of that crisis.
One of his major commitments was to restructure the US-China relationship.
Hence the phone call.
Hence the phone call.
By making the call, Trump signaled to China he could act unilaterally if China isn’t prepared to renegotiate the relationship.
Everything is on the table.
Trump selected a high-visibility, low-content issue—Taiwan—to demonstrate his indifference to prior understandings.
Critics say Trump attacked the foundations of US-Chinese relations.
Critics say Trump attacked the foundations of US-Chinese relations.
It’s true in a way, but Trump pledged to change the foundations of that relationship.
Trump’s move could alter the US-Chinese relationship.
Trump’s move could alter the US-Chinese relationship.
That relationship was established during the Nixon administration.
It is important to note, the common tendency to assume observers are smarter than political leaders whose behavior they are analyzing.
It is important to note, the common tendency to assume observers are smarter than political leaders whose behavior they are analyzing.
This attitude prevents one from realizing that Trump is clear on what he is doing and what it means.
While the rest of society enjoys belittling political leaders as sport, becoming president of the United States is an enormous struggle the brightest professors can’t navigate.
While the rest of society enjoys belittling political leaders as sport, becoming president of the United States is an enormous struggle the brightest professors can’t navigate.
There is no reason to assume Trump didn’t know what he was doing.
China’s ability to counter is limited.
China’s ability to counter is limited.
It has money in American banks, and if China wants to redeposit that money in European banks, it’s their risk.
Their military capabilities remain limited.
Their navy remains no match for the US Navy, and they can’t afford a war whose outcome they can’t predict.
The US is 25 percent of the world’s economy. China can’t walk away from the US without enormous pain.
The US can’t afford to leave the relationship unchanged.
And China may not be able to stonewall Trump as they did other presidents.
Taiwan is no more important in 2016 than it was in 1972.
Taiwan is no more important in 2016 than it was in 1972.
Accepting the one-China policy never shifted the fundamental reality of Taiwan-US relations.
But it gave cover for the Chinese in a strategic context that has long disappeared.
This puts China in a difficult situation.
This puts China in a difficult situation.
China desperately needs access to American markets to avoid slipping deeper into economic stagnation.
Xi Jinping needs to appear strong and intimidating in the world to bolster his position in China.
Trump signaled to China that he can take away what Nixon gave them.
Trump signaled to China that he can take away what Nixon gave them.
By doing what Nixon did—using volatility and unpredictability to intimidate—Trump set the stage for a negotiation China can’t refuse.
Previous presidents were prepared to posture but did nothing substantial about China.
With a single phone call, Trump did what he seems to do best—baffle and unnerve a negotiating partner.
With a single phone call, Trump did what he seems to do best—baffle and unnerve a negotiating partner.
He has shifted the issue from what China is willing to do, to how far Trump is prepared to go.
