November 13, 2011

How Low Can You Go: Selling Out Taiwan To Settle U.S. Debt With China? (Guest Post)

By Static Chaos


Post-Lehman and after the Too Big To Fail Wall Street banks were ultimately bailed out by the American taxpayer, Moral Hazard was cited as a major systemic risk to the global financial system. Three years later, a NYT OpEd piece has managed to potentially take Moral Hazard to the next level -- the fiscal and ethical system of the U.S. government.

From NYT written by Paul V. Kane (emphasis mine):
"With a single bold act, President Obama could correct the country’s course, help assure his re-election, and preserve our children’s future.....He should enter into closed-door negotiations with Chinese leaders to write off the $1.14 trillion of American debt currently held by China in exchange for a deal to end American military assistance and arms sales to Taiwan and terminate the current United States-Taiwan defense arrangement by 2015."
Kane then went on to pat himself on the back that
"This would be a most precious prize to the cautious men in Beijing, one they would give dearly to achieve."

Chart Source: RealTruth.org (Added by EconMatters)

For those unfamiliar with this part of U.S. foreign policy history, here is a quick rundown excerpted mostly from Wikipedia:
The Taiwan Relations Act (the TRA) is an act of the United States Congress passed in 1979 under President Jimmy Carter after breaking the relations with the Republic of China (ROC) - Taiwan to establish diplomatic relations with the People's Republic of China (PRC).
While not recognized as "the Republic of China (ROC)", Taiwan is to be treated under U.S. laws the same as "foreign countries, nations, states, governments, or similar entities" under the TRA. The TRA also requires the United States "to provide Taiwan with arms of a defensive character", and "to maintain the capacity of the United States to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people on Taiwan."
U.S. administrations have since sold arms to Taiwan in compliance with the Taiwan Relations Act despite protests from Beijing. The TRA does not require the U.S. to intervene militarily if the PRC attacks or invades Taiwan, and the U.S. has maintained a "strategic ambiguity" in that scenario. However, a July 2007 Congressional Research Service Report confirmed that US policy has not recognized the PRC's sovereignty over Taiwan.
From the bio at NYT, Kane is "a former international security fellow at the Harvard Kennedy School, is a Marine who served in Iraq." As leaned as Kane might be, it is a serious stretch even for him to have come up with such a "creative solution" to America's debt problem, by selling out another government, which has very little to do with the debt agreement between China and the U.S. to begin with, breaking enacted U.S. laws all through "closed-door negotiation" with Beijing, without a single regard and consult to Taiwan.

Furthermore, Kane's proposal is essentially the epitome of Imperialism much despised by the West in that using Taiwan as a leverage to settle the U.S. debt owed to China, thus implying Taiwan as a piece of property owned and could be "traded" by the United States in a debt settlement negotiation.

Inter-country courtesy and decency to Taiwan aside, Kane's suggestion is just plain wrong on so many levels. It is ironic how the Arab Spring is overthrowing autocratic governments and leaders left and right, yet Kane has regressed to the opposite as to recommend President Obama basically bowing, symbolically as well as physically, to China, which is still largely autocratic despite recent progress, all for a quick trillion bucks.

Chart Source: http://sperglord.wordpress.com
(Added by EconMatters)

Kane has also worked out the math for China:
"A deal for the resolution of Taiwan’s status could save China $500 billion in defense spending by 2020 and allow Beijing to break even by 2030, while reducing America’s debt and serving our broader economic interests."
Where do you think China would put the $500 billion saving in Taiwan defense? Hint: Beefing up the defense (think nuclear) against the U.S. would be a good guess!

Kane's conclusion:
"....By tackling the issue of Taiwan, Mr. Obama could address much of what ails him today, sending a message of bold foreign policy thinking and fiscal responsibility that would benefit every citizen and be understood by every voter."
I'm sure the world community would be thrilled to learn that Obama's "bold foreign policy thinking", "fiscal responsibility", and his re-election all hinge on a tiny island with a population of mere 23 million. Jimmy Carter sold Taiwan out some 30 years ago, conceivably it would not be hard for the U.S. to do it again.  But seriously,  how low can you go?

About The Author - Static Chaos, a private investor writing at Static Chaos

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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