You really have to read this if you have an interest in American or Chinese economy. From the NY Times.
If Donald Trump Pushes on Taiwan, How China Could Push Back
President-elect Donald J. Trump has made it clear that he views the central basis for diplomatic relations between Washington and Beijing — known as the “One China” policy — as ripe for review.
Under that decades-old policy, the United States severed diplomatic ties with Taiwan as part of its recognition of the People’s Republic of China. But in early December, Mr. Trump stunned officials across the globe by becoming the first president or president-elect to speak to a Taiwanese leader since at least 1979.
Then on Sunday, he suggested that adhering to the One China policy could be used as a bargaining chip on contentious issues like China’s currency and its activity in the South China Sea. “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,” he said in an interview.
In trying to use Taiwan that way, Mr. Trump hit the most sensitive of what the Chinese Communist Party calls its “core interests.” If Washington formally recognizes Taiwan, the Chinese are expected to break off diplomatic relations.
Though the United States officially ended relations with Taiwan in 1979, it maintains an unofficial embassy there called the American Institute in Taiwan. It has also sold Taiwan advanced military equipment and has worked to promote its democracy.
Josh Earnest, the White House press secretary, rejected Mr. Trump’s suggestion that American support for Taiwan was negotiable. “Taiwan is not a source of leverage,” Mr. Earnest said Monday. “It’s a close partner of the United States.”
The Global Times, a Chinese state-run tabloid, put the matter more bluntly, saying Mr. Trump was “like a child in his ignorance of foreign policy.” It added: “The One China policy cannot be bought and sold. Trump, it seems, only understands business and believes that everything has a price.”
Here are five ways the Chinese could make life difficult for a Trump administration:
Trade and Investment
Chinese analysts say China has plenty of leverage to retaliate against Mr. Trump. One prominent target is Boeing, whose Seattle plant Xi Jinping, China’s president, visited in September 2015.
In 2016, Boeing is expected to complete plane deliveries to China worth $11 billion, mostly 737s that have become the workhorse of China’s rapidly expanding airlines. The Global Times warned that it would be easy for China to switch orders to Boeing’s European competitor, Airbus.
“On economic issues, China has more and more leverage,” said Wu Xinbo, the director of the Center for American Studies at Fudan University. “If we feel he is still pushing the Taiwan issue, we will take action. If he wants to keep it up on Taiwan, it will only backfire.”
American trade officials worry that China could intensify its discrimination against American technology firms by using the country’s antimonopoly laws. Last year, the Chinese government slapped a $975 million fine on Qualcomm, a San Diego-based chip maker, for what it said were licensing infractions.
A few years ago, there were worries that China might suddenly dump a large portion of its holdings of Treasuries, pushing up interest rates in the United States. Those fears ebbed as China pared its holdings gradually. Its holdings of Treasuries peaked at $1.65 trillion in March 2014, declining to about $1.3 trillion, said Brad Setser at the Council on Foreign Relations.
Experts say that even if the country sold more, it may not have much effect because interest rates are already low, global demand for Treasuries has been strong, and the Federal Reserve could buy more bonds if needed to offset action by China.
China could also weaken its currency, something Mr. Trump has argued it already does to make its products cheaper. But that could also result in more Chinese taking their money out of the country, as well as inflation for a nation that increasingly buys what it needs from abroad, like oil, because a weak currency means China must pay more for imported goods.
Finally, China could order its state-owned companies and private enterprises to slow their investments in the United States. A recent study by the Rhodium Group, a New York-based economic policy outfit, showed that since 2015, the amount of Chinese direct investment in the United States has outweighed the amount of American investment in China.
Mr. Trump said on Sunday, “And frankly, they’re not helping us at all with North Korea.”
China has in fact cooperated with some American initiatives on curbing North Korea’s nuclear program, specifically backing United Nations economic sanctions last month aimed at checking the North’s foreign exchange earnings from coal, its biggest export earner.
China could switch from being a reluctant ally of North Korea to a friendly neighbor. China is already angry at Washington for the recent decision to deploy a defense shield in South Korea, the Terminal High Altitude Area Defense system, known as THAAD, which China argues is aimed at limiting its military capabilities.
Among the tools China could use would be improved trade, aid and investment to strengthen the North’s rudimentary economy, said John Delury, an American analyst in Seoul, South Korea. As a longstanding ally, China could conduct joint military exercises with the North, he said.
In return for promises by North Korea not to proliferate, Mr. Delury said, China could go beyond improved trade, and provide substantial economic backing in a Marshall Plan-style initiative.
President Obama spent much of his political capital with China ensuring that Beijing would agree to the international climate change agreement that committed the world’s two biggest carbon emitters to lower greenhouse gases.
Critics of Mr. Obama say he failed to force China to open up its markets, stood by while China fortified islands in the South China Sea and remained largely silent while Mr. Xi carried out repressive human rights policies in order to save the climate change accord.
Moreover, China’s agreement to the international deal was less a concession to American pressure than a restatement of its own goals.
It was relatively easy for Mr. Xi to agree to a reduction in emissions given the outcry among the Chinese public about air pollution and contaminated food. The accord calls for China’s carbon emissions to reach a plateau or decline “around 2030” but without any specific target for reductions like those Mr. Obama pledged for the United States.
Mr. Xi would be unlikely to touch the climate accord because of the popularity of the prospect of cleaner air among the Chinese public.
But if he did decide to ignore it, Mr. Trump would probably not care. At one point, Mr. Trump said climate change was a “hoax” invented by China to hurt American trade. Later, he said he was joking.
If Mr. Trump supports Taiwan, China’s first response may be to punish Taiwan rather than the United States, in an attempt to diminish its value to Washington.
It could begin by intensifying efforts to persuade the 22 small sovereignties around the world, including the Vatican, that still maintain diplomatic relations with Taiwan to sever them and recognize China instead.
China might then take aim at Taiwan’s economy by restricting Chinese investments and limiting the number of Chinese tourists to Taiwan.
Taiwan already has de facto independence, but China has warned that it will go to war to prevent it a formal separation from the mainland.
From Beijing’s perspective, the fear is that Mr. Trump’s moves could encourage Taiwan to declare independence or that other nations might follow the United States in recognizing Taiwan.
If President Tsai Ing-wen of Taiwan declared independence, “and the whole world says Taiwan is independent,” then China “will take military action,” said Shi Yinhong, professor of international relations at Renmin University. “But I don’t believe that is Tsai’s intention,” he added.
China was a signatory to the nuclear accord reached with Iran in 2015 that lifted sanctions in return for Iran’s getting rid of 98 percent of its nuclear material. China now has unfettered access to its longtime friend’s economy. Through Iran, Beijing will seek to enhance its influence in the Middle East, with the goal of weakening American prestige in the region.
But if the deal is scrapped and renegotiated, as Mr. Trump has called for, China would keep trading with Iran, isolating the United States, said Edward C. Chow, senior fellow for energy and national security at the Center for Strategic and International Studies in Washington.
About one-third of Iran’s oil exports go to China, and China is Iran’s top importer of goods. Thus China is Iran’s top trading partner, a position that would not change in the event of Mr. Trump’s renouncing Washington’s participation in the nuclear deal.
“If anything, China would redouble trading and investment in Iran now that Trump has started on the Taiwan front,” Mr. Chow said.