Nelson Report on China/Taiwan/US in wake of Tsai's visit to Houston

Couple selfies at the broken railroad viaduct in Miaoli

The Nelson Report with some of the debate over what Trump means for Tsai and Taiwan. Some of these commentators, like Bob Manning, appear to be getting their Taiwan information from China/KMT sources and are wrong about Tsai but dead right on the way many of us see the coming series of hegemonic wars in Asia as inevitable  Others are quite sharp... like Richard Bush's and Mike Fonte's and Michael Swaine. Click on READ MORE to read....

I've removed non-Taiwan/China stuff and newspaper articles.

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IS TAIWAN INADVERTENTLY IN PERIL FROM TRUMP (and MAYBE ALSO TSAI?)
...some Trump advisors think Asia allies will follow Taiwan upgrading if a crisis
...experts disagree (Bush, McDevitt, Swaine, Manning, Przystup, Fonte, Keith)

SUMMARY: we want to lead with US-China business issues today before getting down to two major concerns...

Whether pro-Taiwan players in the Trump Administration will inadvertently put the island and its people in mortal risk, not to mention kicking off WW3;

....

Given all of the Trump/Navarro et al blasts at China for IPR theft, cheating US business, and generally being bad actors on the world economic stage, Your Editor will frankly confess to being gobsmacked by Trump's latest bromance...with China's Jack Ma, he of Alibaba, one of the world's worst IPR thieves in a very tough league.

Maybe we're just not sophisticated enough to grasp the mind of billionaires, but to take Kellyanne Conway's injunction to read Trump's heart, and not just his tweets...

More than one stunned observer argues yesterday's meeting sure looked like a perfect opportunity for the President-elect to send a very public message to the Chinese government that serial IP violators and their enablers-like Alibaba-won't be tolerated.

Moreover, it was an even better opportunity to highlight that Chinese instruments of the Party/state-which are precisely what Jack Ma and Alibaba are-won't be tolerated in the United States if U.S. companies aren't provided the same opportunities in China that Chinese companies are in the United States.

Reciprocity, anyone? And, post Carrier and the auto industry tweets...surely this was an opportunity to highlight that the president-elect cares about U.S. manufacturing jobs?

For anyone who has checked, China is quadrupling down not only on discriminatory cyber measures targeting U.S. ICT hardware companies, but also on measures to block any provision by U.S. companies of domestic/cross-border cloud services unless the companies are controlled by a Chinese joint venture partner. A friend who has checked, argues:

This is an abomination, and it is very much part and parcel not only of Chinese information control policies, but also a very carefully developed plan to dominate the future of all manufacturing (it's called smart manufacturing or in Germany, manufacturing 4.0) in the 21st century by controlling data flows.

Together with China's 21st century infrastructure and economies of scale, China is working overtime to use data control measures/cloud restrictions to leave companies around the world with little choice but to conduct all their smart manufacturing across sectors in China--with all the consequences for IP loss, job loss, etc.

In addition to being a company that helps the Chinese government to "legitimize" so-called innovative companies, many of which are serial IP violators and sell into the U.S. market (through AliExpress), Alibaba provides cloud services in the United States and other markets, and wants to grow its presence exponentially.

Might it have been wise for Trump to PUBLICLY put Jack Ma on notice that he expects the Chinese government to provide the same opportunities in sectors like cloud that the U.S. government is providing to Alibaba? Where's his Twitter when you actually need it?

Instead the President-elect engaged in 40 minutes of frivolous billionaire banter about creating a million jobs (HUGE LOL), which Jack Ma will gladly do by taking over the entire U.S. cloud sector and continuing to serve as the principal e-platform providing counterfeit and pirated goods to U.S. consumers and the world.

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US-CHINA MANAGEMENT...important report out today from the US-China Business Council. An expert Loyal Reader comments in advance of the release, which follows...

ANON:
Chris, on the report today on the jobs that Chinese investment supports in the United States... there is no question that China has engaged in a fair amount of M and A that supports U.S. jobs. Much less greenfield, however, which unfortunately is a giant loophole in CFIUS.

The question we need to address is how many jobs, on a net basis, is Chinese investment really creating over a realistic time horizon (as China takes technologies out of the U.S. market that it is acquiring).

What is the medium/long-term nature of Chinese investment? Is it job-creating in the sectors we care about, extractive, or both? Honestly, it's some of both, but in critical sectors tied to 'Made in China 2025' (the manufacturing guts of our, the German, and the Japanese economies) , it's almost unquestionably mostly extractive.

And that's where the MERICS report that you flagged some weeks back (see https://www.merics.org/en/merics-analysis/papers-on-china/made-in-china-2025/) and the President's Council of Advisors on Science and Technology (PCAST) report on semiconductors (see PCAST report), issued on a Friday (as the Obama Administration is prone to do), come in.

To quote Bob Manning from last night's Nelson Report: "They [CHINA] want(s) to be a world leader in advanced manufacturing by any means necessary. That's an area where we have to figure out how to respond. The White House report lays out some ideas."

Press Release from the US-China Business Council:

USCBC and Oxford Economics Release Study on US Jobs and Trade with China

Today, trade with China supports roughly 2.6 million US jobs

Jan. 10, 2017 - Today, the US-China Business Council and Oxford Economics announced the release of a new report, "Understanding the US-China Trade Relationship." This research sheds light on an important question: what role does trade with China play in the health of the US economy?

The recent election campaign was flooded with hyperbolic language about trade and trade with China. A common assertion is that trade with China is bad for workers and US growth. This study presents balanced data highlighting the positives and negatives of trade with China and its impact on the U.S. economy and employment.

Studio recording of the call is available on the USCBC website. USCBC president John Frisbie and senior vice president Erin Ennis, and Oxford Economics leads Michael Zielenziger and Scott Livermore, are available for interviews and booking.

USCBC president John Frisbie said, "The overall impact of the commercial relationship with China on the US economy remains positive. Jobs have been lost in some areas, but jobs have been created and supported in other areas. Policymakers in the United States need to recognize that technology has had a far bigger impact on US manufacturing employment than China, and take appropriate actions to support growth and impacted workers.

"At the same time, the American business community's confidence in China's business environment and policy direction is sagging. China needs to move forward with reforming its economy to reduce market access barriers, create a level playing field, and restore American business confidence.

"China's rise has had a significant - and positive-- impact on the US," said Scott Livermore, Managing Director, Macro and Industry Services for Oxford Economics, which produced the report. "US exports to China and bilateral investment has supported 2.6 million new jobs and $216 billion in GDP in 2015 alone and the continued growth of China's middle class should further boost the US service industry in the next decade."

Key findings:
Today, trade with China supports roughly 2.6 million US jobs, across many industries.

China purchased 7.3 percent of all US exports ($165 billion in goods and services) from the United States in 2015, and the United States actually has a surplus with China of 0.2 percent of GDP on trade in services.

China is expected to continue to be one of world's fastest, if not the fastest, growing major economies, fueling more market opportunities for US businesses. By 2030, Oxford Economics expect US exports to China to rise to more than $520 billion.

China is the "Great Assembler;" about one-third of the content that China exports is foreign. Adjusting the trade balance for the value-added content cuts the US trade deficit with China in half, to about 1 percent of GDP. This is broadly equivalent to the US trade deficit with the European Union.

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CHINA MARITIME...today's St. Dept. brief...a not entirely satisfactory performance, alas:

QUESTION: And over 10 of Chinese military aircraft infiltrated the Air Defense Identification Zone of South Korea and Japan yesterday on violation of Chinese Government [promises?]. How do you comment on this?

MR TONER: Yeah, I think we've seen reports about this. I don't have any particular comment on it. Obviously, we'd have to look more into the incident and to determine who was at fault.

QUESTION: Do you think, yeah, this is a Chinese military demonstration against the United States and Japan?

MR TONER: Again, I'd have to look more into the incident to find out what exactly happened. Again, I'm aware of reports. Look, I mean, I would hope not. As we've been very clear about our operations in the Pacific, we believe in freedom of navigation, we believe in the right for any government to fly, sail, whatever, in international waters, but we also don't want to see any kind of escalation of tensions in the region. In fact, just the opposite; we want to work with all parties and all governments in the region to try to de-escalate and create mechanisms by which any kind of assertion of territorial aggression or whatever would be determined through a diplomatic process.
QUESTION: Why United States didn't look at it clearly? Because this is very serious issue because China is actually --

MR TONER: Again, I just don't have - I apologize, I just don't have details in front of me. I'm aware of it; I just don't have any reaction for you. If we do, I'll let you know, okay?

QUESTION: Yeah. There's also another report said that the Chinese aircraft carrier is heading back to its base, but sailing through, passing through, the Taiwan Strait. Are you aware of it? the Liaoning.

MR TONER: Yeah. Again, I'm not particularly aware of that. I would just almost say the same thing, which is that the United States recognizes the rights, freedoms, and lawful uses of the sea and the airspace that's guaranteed to all countries in accordance with international law. So provided they're in accordance with those laws and operating within international waters, we wouldn't have a problem.

QUESTION: Do you see this operation as escalating or de-escalating tensions?

MR TONER: As I said, I hope not. Part of our overall strategy within that area of the Pacific and Asia is to try to de-escalate, is to - we want to, as I said, create mechanisms for governments, for countries, to talk through some of these issues that they have with - regarding claims and whatever, and to try to create, as I said, diplomatic mechanisms to deal with these issues. We certainly don't want to see shows of force or any kind of escalation.

QUESTION: Is Taiwan Strait sort of the international sea, from your perspective?

MR TONER: I'm not sure...
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SPEAKING OF TAIWAN...

Hummm...maybe State need to be sure when it comes to Cross-Strait issues in the future! Especially given the Trump Tweet penchant, reinforced by the incredibly dangerous, yet often insouciant suggestions by conservative thinkers associated with Trump advisors like NTC chief-designate Peter Navarro that not only should the US increase the level of official relations with Taiwan, but that in a crisis, US allies and trading partners would support Taiwan over their relations with China.

This argument was laid out in great detail at yesterday's fascinating lunch discussion at the Center for the National Interest (formerly the Nixon Center) by a dear friend and long-time Loyal Reader, Gordon Chang, with commentary by former A/S Asia DOD Gen. Chip Gregson, now CNI, and former A/S Asia St. Kurt Campbell, moderated by CNI's Harry Kazianis.

Gordon's "case" is basically an extended "if/then" proposition, the "indictment" parts of which are not particularly in dispute, indeed both Chip and Kurt more or less echoed and/or agreed with Chang's detailed list of China's various trade and maritime actions, its declining human rights situation, IPR and cyber etc., etc. No real debate there...and in that sense, including the need for stronger trade enforcement, and a more focused FON policy...genuine agreement.

Where it gets dicey is Gordon's argument, or, rather, his conclusion, that because of this long, long list, not only should the Trump Administration seek to enhance official relations with Taiwan as part of a more forceful statement of US interests (especially on human rights) , but that in the event of Trump going after the very heart of Beijing's "one China" catechism, possibly even to the point of risking actual conflict between the US and China, that many if not most US allies (and Taiwan's trading partners) would go along with the US.

When Loyal Reader Joe Bosco made this argument a few weeks back (going further than Gordon, and saying Trump should actually grant Taiwan formal diplomatic recognition) Your Editor not-so-gently suggested "the missiles would be in the air before Trump had finished the speech", and we chided the argument for its apparent indifference to the risk being assumed by the people on Taiwan, but imposed by US policy-makers.

We reiterated that concern yesterday, and a lively discussion ensued. In the audience were folks from the official TECRO office, and the DPP's Mike Fonte (see his comments below).

Both made the very clear point, reinforced by Gregson and Campbell, and agreed to by Chang, that whatever Trump might seek to do on questions of sovereignty, he can only do so in full consultation with the government in Taipei, and with the consent of the people of Taiwan. Some of you might argue that's too obvious to have to say, but do you really think so, given the uncertainties created by Trump's post phone-call tweet which sounded to many in both DC and Taipei that actually, he sees Taiwan as part of a transaction with China to get better behavior on trade and N. Korea?

Anyhow, pending clarification, this morning we contacted folks at the lunch with the following question:

PLS send me your pithy thoughts on what China means by "core interest" and how it and our Asia allies can be expected to react if Trump decides to push the envelope on higher levels of officiality, and that includes how Tsai/DPP can go about working with the Administration to make sure that they don't end up killing those whom they would help. My Tsai comment is based on the decision to make the phone call, and now some of what she's said to kick-off her Central America tour...I think we MUST nip this "Asia will follow" nonsense in the bud before it's too late, and the only way now is sunshine...


BOB MANNING, Atlantic Council, former ONI:

Tsai is playing a dangerous game (e.g. meeting with Cruz in Houston)) somewhat akin to antics of her DPP predecessor and of Lee Teng-hui, I guess my question is where does this pulling of the dragon's tail go? I understand her domestic political imperatives, but I think China's response will cost her big time. In regard to all the brilliant ideas of discarding the foundations of current policy - 3 communiques, TRA and the Six Assurances - that is more dangerous still. Taiwan, and recovering lost sovereignty goes to the core of what remains of CCP legitimacy. It feeds into the worst populist nationalist "century of humiliation', US containment and color revolution promotion narrative.

Taiwan is something China WILL go to war over. And by the way, they could coerce Taiwan into their preferred outcome without firing a shot. What if they did a naval embargo to block trade to and from Taiwan? That would force the issue for the US: will we trade Los Angeles for Taipei? Risk nuclear war? Especially if Beijing was provoked and did not initiate tensions.

And it would also force the worst possible choice for all in the region - having to choose between the US and China. And anyone who thinks geography won't prevail and any (Japan, possible exception) will choose us is really deluding themselves. This is a choice we want to avoid.

RICHARD BUSH, a long-time Taiwan hand, both inside and outside the US government:

Tsai is not the problem here. She understands full well that she needs good relations with both the US and China, and has tried in her own way and given her political context to do that. The problem is with people in Washington who think that they understand Taiwan's interests better than it does and that they have a better sense of the possible than Tsai does. They need to have a full conversation with her and LISTEN CAREFULLY!


MIKE FONTE, DPP rep in DC, hopes to put the Tsai part of this to rest:

Chris,

Let me repeat what I said yesterday at the CNI meeting:

I've known Tsai ing-wen for 20 years. She is as sophisticated an analyst as you will find anywhere and, at the same time, a cautious, careful President. She is fully committed to maintenance of the status quo: Taiwan as a fully functioning democracy ready and willing to dialogue with the other side of the Taiwan Strait about the future of relations between both sides.

President Tsai made the call to President-elect Trump because the United States is the sole guarantor of Taiwan's freedom from coercion and she wanted to insure that the President-elect was fully aware of Taiwan's intent to be a responsible partner working for peace, prosperity and stability in the region.

President Tsai did not make the call to push for a change in the US' one China policy. The US one China policy leaves room for Taiwan's democratic polity to give assent, or not, to decisions about Taiwan's future. US policy does not recognize Taiwan as part of China but leaves it to both sides to mutually, peacefully come to a resolution.

This is the status quo President Tsai and the DPP Administration wish to maintain.

Mike

JIM PRZYSTUP, NDU, notes the long-standing sympathy for Taiwan in Japanese political elites:

Chris et al,
As much as some in Japan would consider diplomatic recognition of Taiwan, the Chinese have made clear repeatedly that Taiwan is a "core interest" (have to go back and check to see if it is referenced in the normalization agreement and the Friendship Treaty), I can't envisage the Abe government, already with enough problems with Beijing; what's left of the Park government or any Korean government with its recognized need for China in any unification scenario, or Australia with its huge economic dependence on China, government taking a "what the hell" flyer and following the US in supporting recognition of Taiwan. That's just plain fantasy. Jim

MICHAEL SWAINE, Carnegie:

Chris,

In the case of Taiwan, what China means by declaring it a "core" interest is that the political status of Taiwan as an "indisputable" part of China is a non-negotiable element of Chinese national identity and hence a vital pillar of the legitimacy of ANY Chinese government. Therefore, any acquiescence in or acceptance by any Chinese government of perceived moves by the U.S. to establish the permanent separation of Taiwan from the Mainland would be a Casus Belli.

To not resist such an action would ensure the downfall of the government, or at the very least throw Chinese state and society into an unpredictable period of chaos. Every U.S. administration since at least 1979 has clearly understood this fact, and no amount of reinterpreting of the Six Assurances or the Taiwan Relations Act can change it.

This view is also shared by most Asian nations. Why would they support a U.S.-led effort to separate Taiwan from the Mainland, given its likely adverse impact on regional stability and prosperity? The only conditions under which they might even contemplate supporting such a move would be if they believed that China was embarked on an unambiguous, military/political campaign to push the U.S. out of Asia and dominate them through coercion or worse. Where is the evidence that they believe this?

Certainly, many of them are concerned about China's growing military reach and its more assertive policies in the South China Sea and elsewhere in Asia. But they also believe that China at root requires a peaceful and prosperous Asia to remain itself stable and prosperous. Moreover, while most Asian nations want a strong U.S. Asian presence, they most certainly do not want Washington to miscalculate by provoking Beijing into a severe political-military crisis over Taiwan. It's like, duh.

Best,
m

MANNING:

Pretty much agree. I think the question for all these brilliant Trumpkin strategists wanting to rip up our solemn commitments on Taiwan is simple: If you believe war with China is inevitable, better to have it ASAP - they'll only get stronger. That would at least explain these rollback ideas on Taiwan.


SWAINE:

That is part of it, but I actually think that many of them believe that Beijing ultimately will accept an independent Taiwan because it has more to lose by not doing so. That kind of "pragmatic" utilitarian logic is both erroneous on factual grounds and fails to account for the more emotional aspects of Chinese thinking.

m

ADM. MIKE McDEVITT, C N A...let' give Mike the last word on this for now, since he is so thorough, and we totally agree with his conclusion:

Chris-

FWIW I have always equated 'core" interest, when the Chinese are speaking or writing as meaning "vital" interest. When the Obama Administration has used it, it seems to connate the full range of interests we have in Asia, most especially our treaty obligations, some of which might be considered vital and some as merely important. Freedom of navigation is normally considered a vital US interest but it its "vitalness" is conditioned by the individual circumstances and scenario one is speaking about.

Regarding friends and allies throughout Asia rallying to Washington in a fight against China; as a general strategic assumption the thought is nonsense. It really does depend. If Japan is attacked the US can consider them in, if Taiwan is attacked, active Japanese participation, such as sinking Chinese submarines, is at best only a maybe. I personally think they would not actively participate. Surveillance, intelligence probably. I would expect them to allow continued access to bases in Japan but that too could be very conditional.

Regarding the ROK, in the past decade the Blue House made clear to not expect to use ROK bases in a conflict over Taiwan. They shot down the notion that they would permit US forces in the ROK to have the "strategic flexibility" to be involved in conflicts elsewhere in NE Asia while operating from ROK bases. What they would do if China attacks Japan, is an interesting question, and would very much depend on the level of tension with the NORKS, having them in is not a sure thing. I don't foresee any replay of the multi-year ROK expeditionary force sent to South Vietnam.

Would the Philippines permit the use of its bases and facilities in a defense of Taiwan? I suspect US planners hope so, but even if a Duterte like character is not in power it would very difficult choice for Manila since their bases are well within the Chinese missile and aircraft range. Would they allow the US to strike Chinese Spratly bases using Philippine bases. Under the current government probably not, in the future it would depend upon the state of Sino-Philippine political and economic relations. Unless Filipino blood is spilled I suspect not.

Thailand is almost certainly out unless they are attacked by China. Australia is justifiably seem seen as our most reliable Asian ally, but the political debate in Australia regarding growing Chinese power suggests to me that counting the Aussie's as automatically in on our side is an artifact of a bygone era. It would depend upon what Australian interests are involved.

The idea of Vietnam, Malaysia, Singapore or Indonesia joining an anti-China alliance seems farfetched to me-it is not in their long term interests, short of a blatant act of Chinese aggression against them, in which case the shoe would be on the other foot-ours-would we intervene and go to war against China in defense on Vietnam for instance? I don't think so. The same arguments apply to our strategic partnership with India.

In short, in a fight with China, I would expect a lot of cheering from the sidelines. There is a lot of happy talk about China driving Asian into our arms, but the Chinese realize, as do their neighbors, that the nations around China are always going to live in the shadow of China, and for the foreseeable future China has the ability to ruin their economies. They need China far more than China needs them. As a result there is almost no chance they to take up arms, join us and shed blood in a conflict with China.

Any US policy maker who builds a strategy around the assumption that "our friends and allies" will be with us in shooting war with China is a fool.

Mike

PS from Amb. KIM KEITH:

Chris, Mike's point is critical. The U.S. cannot aggrandize Taiwan's intent; the call was one thing, but the call plus tweets and interview comments was entirely another.

The U.S. does not seek to dictate to either Taiwan or the mainland, but rather to stand for non-coercive resolution by citizens on both sides of the Strait. One hopes that interlocutors have now been sensitized to the notion that U.S. declarations have direct consequences for Taiwanese citizens, and therefore ought to be thoughtful, deliberate, considered, and careful to take into account 2nd and 3rd order consequences.

It is late in the game, thanks to the forced pace pre-January 20, for cross-Strait ties over the next five years or so. My fear is that cross-Strait dialogue has become zero-sum, and that is on us, not on Taiwan. Let us hope going forward it is evident that ambiguity on questions that are dispositive for war or peace is not a virtue.

Taiwan Pres. Tsai Meets Sen. Cruz and China Objects [NYTimes report removed]
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