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China retaliated with a slew of reprisals on Saturday after the United States announced a US$6.4-billion arms package for Taiwan. This has prompted the most serious Sino-American crisis to date under President Barack Obama's administration. Lashing out at the one-year-old Democratic administration for "crude interference" in its affairs, China has warned of "serious harm" to bilateral relations. It says that it is suspending military and security contacts with the United States, and imposing sanctions on U.S. firms involved in the transaction. There are no details so far about the proposed sanctions, however.

The tirade came one day after the U.S. administration notified Congress of its intention to sell Patriot missiles, Black Hawk helicopters, mine-hunting ships, and communications equipment for Taiwan's fleet of F-16 fighter jets, among other weaponry. U.S. State Department spokesperson, Laura Tischler, told Agence-France Presse (AFP) that the deal "contributes to maintaining security and stability across the Taiwan Strait", adding that it met an "urgent requirement" for Taiwan. Meanwhile, Taiwan welcomed the U.S. move, with the Central News Agency quoting President Ma Ying-jeou as saying that it allows "Taiwan to feel more confident and secure so we can have more interactions with China".

China's Renewed Confidence

The cancellation of military discussions has been a standard Chinese response to previous arms sales by the United States to Taiwan. However, this is the first time that Beijing has moved to penalise the Chinese operations of U.S. firms engaged in commercial arms transactions.

China's forceful reaction reflects increasing sensitivity over security issues following major outbreaks of unrest in Tibet in March 2008 and in Xinjiang in July 2009. It also reflects China's growing self-confidence and willingness to flex its muscles towards the United States and its major corporations. China has emerged from the global financial crisis in a stronger position than most, while the United States is being forced to trim its ambitions in the face of a colossal fiscal deficit. The ongoing shift in the balance of power between China and the United States has already found expression in Chinese leaders' attitudes towards issues ranging from climate change to trade policy. Over the past year, China has criticised U.S. officials for their alleged role in triggering the global financial slowdown, has charted its own course on countering climate change at the Copenhagen summit, and has refused to budge on U.S. demands for new Security Council sanctions against Iran.

Obama Pushes Back

The hard-line Chinese riposte comes as the United States is on the back foot and concerned at China's role as both its banker and primary global competitor. In the past, incoming U.S. administrations have tended to take a tough stance towards the Chinese government immediately upon coming to office, before backing off. Former president Bill Clinton incurred Chinese anger with strong criticism of China's human rights situation, before reversing this in 1994 with the argument that Sino-American ties would not improve if China was isolated. Similarly, initial interaction between the George W. Bush's administration and the Chinese leadership was also fraught, before concerted efforts were made to reach out, particularly on the economy. After some fiery campaign rhetoric the new Democratic administration was expected to toughen the approach towards China once more, but in the event Obama elected for pragmatism in the realisation that the United States was heavily reliant on China to reverse the global economic downturn and to advance other key international goals. The focus instead over the first year was generally about building trust, and the thorniest issues were generally skirted around by both sides.

However, in recent weeks, there have been signs that the Obama administration has decided to push back. It can have been in no doubt that the arms sales package would be regarded as highly provocative by China. Relations with Taiwan are a key preoccupation at the heart of mainland Chinese governmental politics. Tensions were already building last week after U.S. Secretary of State Hillary Clinton angered China with a call to investigate cyber attacks on internet search giant Google. The firm had said that the email accounts of human rights activists had been hacked, and had threatened to pull out of China. Hours before the arms deal was announced, Clinton also urged China to help curb Iran's nuclear programme, showing frustration at China's reluctance to support United Nations sanctions. There will be concerns among Chinese officials that the U.S. administration is now taking greater note of tough domestic pressure to take on China more vigorously. This is generally a popular strategy among voters, in a year when the Democrats need to regain the initiative and avoid a rout at the November mid-term elections. Ratcheting up the pressure further, Obama will soon be meeting with Tibetan spiritual leader, the Dalai Lama. This highly sensitive encounter was postponed last summer to avoid alienating China in advance of Obama's visit to the country in November.

The View from Taiwan

For Taiwan, the U.S. arms deal is likely to boost the flagging popularity of Taiwan's President Ma Ying-jeou by making him appear steadfast in the face of a rising China. Ma's popularity ratings have fallen in recent months over his perceived poor handling of humanitarian efforts in the wake of typhoon Morakot, which hit the island in August last year, as well as the recent lifting of a ban on U.S. beef imports. The fact there had been little concrete evidence of U.S. support in recent months raised questions over Ma's ability to successfully manage the all-important bilateral relationship. In general, Ma has worked to improve relations with China since his election to power in 2008. However, his desire to purchase billions of dollars worth of weaponry from the United States suggests he wants to maintain leverage during future negotiations with China. The weapons certainly give Taiwan bargaining chips, but the military balance clearly remains strongly weighted towards China.

Outlook and Implications

Impact on Sino-U.S. Relations

With suspended military co-operation, the most significant risk is that wider bilateral relations will become more vulnerable to occasional spats. Spikes in Sino-U.S. tensions are frequent—it was only last March that there was a tense standoff between Chinese vessels and a U.S. surveillance ship in the South China Sea but the current war of words is more serious. At the same time, it is worth noting that China's reaction would probably have been sharper still had the arms package included the new fighter jets that Taiwan has been seeking. How far the situation escalates will in large part be determined by the severity of any sanctions that China imposes on U.S. firms. If recent trade disputes are a guide, the fallout could be more symbolic than substantive. After the United States imposed tariffs on Chinese tyres, the Beijing administration responded by launching probes into U.S. auto and poultry imports, but the actual impact on the countries' commerce was limited. There is also a limit to how far Obama will want to push China—he is reliant upon Chinese co-operation on a wide range of problems, including nuclear issues in Iran and North Korea. In his State of the Union address last week, he said that he hoped to double U.S. exports over the next five years, an ambitious target that would be greatly assisted if China bowed to pressure on foreign-exchange policy. Thus, one should not rush to interpret the current spat as a sign of a fundamentally new approach from the United States. It is worth noting here that the United States is obliged under the Taiwan Relations Act (TRA) to provide the island with arms of a defensive nature. The arms deal was moreover already approved under President Bush. Still, relations are likely to get worse before there is any improvement.

Impact on Cross-Straits Thaw

In the realm of cross-Straits relations, the arms sale plan is unlikely to have a major impact on warming relations. Importantly the deal does not include the most sensitive items Taiwan covets: F-16 fighter jets and U.S. help with submarine upgrades. These items would have a bigger impact on narrowing the widening defence gap between mainland China and Taiwan. In a worst-case scenario, there could be a delay in the contentious Economic Cooperation Framework Agreement (ECFA), which mainland and Taiwanese officials are hoping to sign during the first half of this year. But even on this, it is highly unlikely that it would be scrapped altogether. In general, China has chosen to focus its wrath on the United States while pulling its punches with regards to Taiwan. It seems therefore that the mainland Chinese government is willing to limit the fall-out of the transaction. Fearing the resurgence of the more independence-leaning Democratic Progressive Party in Taiwan's 2012 or 2016 elections, China does not want to undermine the island's current, more China-friendly leadership.

Global Insight (Reino Unido)