Ever since Congress passed and the president signed the Taiwan Relations Act in March 1979, the United States has, from time to time, sold defensive arms to the government of the Republic of China on Taiwan. This and other provisions of the Act were intended to deter the Communist-led government in Beijing from invading Taiwan.
For 31 years, this has worked. Beijing's armed forces continue to add missile batteries on the shoreline facing Taiwan. They now number more than 1,000. No one thinks Taiwan could withstand for long a full-scale invasion. The purpose of updating their defensive arms, however, is to make the cost of an invasion too steep for Beijing.
Usually when the U.S. announces the sale of a new arms package to Taiwan, Beijing denounces it as interference in its "internal" affairs that will damage relations with the U,S. The U.S. ambassador is called in to the Foreign Ministry for a scolding. Among China watchers this is known as "gong banging."
Two weeks ago, the Obama Administration announced the latest sale to Taiwan (it did not include the requested F-16 fighter jets). Beijing's gong-bangers went into overdrive. There were the usual denunciations, but something new -- and ominous was added: an announcement that Beijing would impose sanctions on U.S. companies involved in the Taiwan arms sales.
This could hit Boeing, whose aircraft make up 53 percent of China's fleet. Also, there is United Technologies, which makes Sikorsky helicopters and Otis elevators. Its Otis division employs 16,000 workers in China. Less affected would be Lockheed-Martin and Raytheon, because they have a very small presence in China.
The threatened sanctions would make a large dent in the revenue of U.S. companies with large sales to China. For a few days this had the effect of making financial markets nervous, but it didn't take long for a reaction to set in.
Discrimination against foreign suppliers of civilian equipment (which these companies sell in China) is forbidden by the World Trade Organization, of which China is a member. Beijing soon understood that if it went forward with trade sanctions, the U.S. would very likely bring a case against it in the WTO. Such a challenge, if successful, could result in sanctions against Chinese exports in the amount of business estimated to have been lost by the sanctioned U.S. companies.
President Obama has been criticized for appearing to kowtow Beijing during his visit to China. He agreed to censorship of his "town hall" event in Shanghai and put aside a request from the Dalai Lama for a meeting in Washington.
Now, after banging very loudly, China's sanctions gong has gone quiet. China's authorities have realized they have more to lose than gain by imposing trade sanctions.
Meanwhile, the Obama Administration now seems to have learned that in dealing with China, it is best to use subtlety when sending signals. This last week, the White House announced, without fanfare, that the president would receive the Dalai Lama in March. And, it has maintained judicious silence over the sanctions gong-banging, reasoning that this is the best way to get China to back off its overplayed hand without losing "face."
Like a moss and a fungus that join forces to make a lichen, China and the U.S. have a symbiotic relationship. Our government is deeply indebted to China for all the U.S. Treasury notes it has purchased, and China could not maintain its GDP or standard of living without the flow of export goods to Americans.
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