On Sunday morning, Trump reignited the diplomatic spat with China when during an interview with Chris Wallace on Fox News Sunday the President-elect said that his support for the "One China" policy which has underpinned U.S. behavior toward Taiwan since the 1970s, will hinge on cutting a better deal on trade, in other words it will be a "barter chip" to extract future concessions from Beijing.
"I fully understand the 'one China' policy, but I don't know why we have to be bound by a 'one China' policy unless we make a deal with China having to do with other things, including trade."
As the FT noted, Trump's remarks dramatically raised the stakes with Beijing just a week after he broke diplomatic precedent by accepting a phone call from Taiwan’s leader, Tsai Ying-wen. Both incidents have tested the Chinese government’s diplomatic patience.
Predictably, overnight China responded and expressed "serious concern" on Monday after U.S. President-elect Donald Trump said the United States did not necessarily have to stick to its long-held stance that Taiwan is part of "one China", calling it the basis for relations. Beijing warned Donald Trump that the two countries will have “nothing to discuss” if the US president-elect’s incoming administration decides to discard the four-decade old “One China” policy.
“Adherence to the One China policy is the political bedrock for development of [bilateral] relations,” Geng Shuang, a foreign ministry spokesman, said on Monday. If it is compromised or disrupted, the sound and steady growth of the China-U.S. relationship as well as bilateral cooperation in major fields would be out of the question.”
He added that "the China-U.S. relationship has global and strategic significance. This not only concerns the happiness of both countries and their people, it concerns the peace, stability, development and prosperity of the Asia Pacific (region) and internationally."
“We urge the new [US] leadership to recognise the sensitivity of the Taiwan question and to deal with it in a prudent manner,” Geng added. “Upholding the One China policy was America’s promise and we want them to fulfil this promise.”
The statement is a marked escalation by China. Beijing policymakers initially had a more subdued response after Trump departed from diplomatic convention earlier this month and spoke by phone with Taiwan’s president. Now things are getting more serious: the official Xinhua News Agency warned that world peace hinges on close and friendly ties between the U.S. and China.
“For China, there is no balancing of trade and Taiwan,” said Wang Tao, head of China economic research at UBS AG in Hong Kong. “Taiwan is considered the utmost core interest of China, not for bargaining.”
Earlier on Monday, a stinging editorial in the Global Times, offshoot of the official People’s Daily, urged Mr Trump to “listen clearly, the One China policy cannot be traded”. “China needs to wage resolute struggle against [Mr Trump],” it added, warning the president-elect that China “cannot be bullied easily”.
Last week the Chinese government lodged an official protest over the call with Ms Tsai but was otherwise restrained, urging the incoming administration to respect principles that have guided Sino-US relations since diplomatic ties were formally re-established in 1979.
As a result of the growing diplomatic confronation, Chinese markets were hit with the Shanghai Composite Index sinking 2.5% on Monday, the yuan fell toward an eight-year low and Chinese government bonds tumbled. Analysts cited Trump’s comments on the One-China policy amonga long list of reasons for the selloff. Taiwan’s benchmark Taiex index slipped 0.5% on Monday.
“The fundamental assumption in Sino-US bilateral relations has always been that there can be tensions, there can be friction, but no one makes a sudden move,” said Yanmei Xie at Gavekal Dragonomics, a Beijing consultancy. “Right now that paradigm is in doubt.”
In his remarks on Sunday, Trump suggested the One China policy could in fact be treated as a bargaining chip, rather than as the bedrock of relations between the world’s two largest economies, however China disagrees. The Global Times warned of severe consequences if the incoming US administration dispensed with the one China policy. In that case, the paper asked, “why should the Chinese government prioritise ‘peaceful reunification’ [with Taiwan] over ‘reunification by force’?”
Quoted by the FT, Shen Dingli, professor of international relations at Fudan University in Shanghai, said “Trump’s position is you can trade anything”, adding that the One China policy was often ambiguous. “We keep open trade ties with Taiwan even though we don’t recognise them and even though the US sells arms to them.”
According to Mr Trump, “other things” could include currency policy, Beijing’s military build-up in the South China Sea and improved co-operation in containing North Korea.
“Look, we’re being hurt very badly by China with [currency] devaluation, with taxing us heavy at the borders when we don’t tax them, and building a massive fortress in the middle of the South China Sea,” Trump said. “And frankly, they’re not helping us at all with North Korea.”
China’s currency, the renminbi, strengthened by 30% against the dollar in the decade to 2014, but has since lost about 15 per cent of its value against the greenback. Ironically, instead of actively devaluing its currency as Trump claims, in recent years the PBOC has been propping up the renminbi’s value to prevent an accelerate in capital outflows from China.