A New York Times op-ed suggested late last week how Barack Obama might secure America's economic future and his own re-election: "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." The piece has suffered a sustained mauling since its publication, with critics questioning both the practicality and morality of the proposed course, as well as whether it would even be desirable for China, Obama or the US as a whole.
The Taipei Times saw the article as the low point of a wider trend, and questioned its author's claimed academic and military credentials:
Earlier this year, a handful of articles were published in journals, including Foreign Affairs, making the case that realist US foreign policy required the abandonment of Taiwan to clear the way for a full relationship with China in difficult economic times. Reactions to those pieces then showed beyond doubt that the arguments advanced by those academics failed on several grounds, including moral.
As this newspaper argued in response to the previous articles, the 23 million people who inhabit this nation are not mere commodities who can be traded by larger nations on a diplomatic chessboard. Not only is the commodification of human beings morally bankrupt, it is also a recipe for disaster, as the subjects — treated as pawns in the machinations of great power politics — are unlikely to regard such decisions with equanimity.
A still more frank appraisal came from Taiwan's Next Media Animation, which called Kane "a real nut job":
To be sure Washington, despite its rhetoric, could give a rat's ass about the moral implications of abandoning the only democratic country in the Chinese-speaking world. But selling out Taiwan to shed 10% of the national debt will not change the political and economic dysfunction that got the US into trouble in the first place. It will only strengthen China's hand.
Patrick Chovanec, a professor at Tsinghua University's School of Economics and Management, argued that China would in any case be unable to fulfil its side of the proposed bargain:
A Chinese decision to ”forgive” the U.S. Treasuries it holds as part of its FX reserves, in exchange for the U.S. abandoning its defense commitments to Taiwan, would render the PBOC hopelessly bankrupt. The central bank would lose RMB 7.2 trillion worth of assets, against only RMB 22 billion in capital, leaving a massive hole in its balance sheet. That, in turn, would hopelessly bankrupt the entire Chinese banking system, wiping out nearly half of the RMB 16 trillion cash reserve deposits they hold at the central bank (which are essentially claims on its FX reserve assets), against just RMB 2.8 trillion in paid-in capital standing behind the entire system.
If Taiwan is inevitably moving closer to China, as Kane says, why should the PRC give up all that money just to, possibly, shorten the process? In other words, why pay for something they already have …?
Does China necessarily want to slash its military? Some folks in the government probably do, but others may not. Think of the U.S. military-industrial complex and its defenders. Moreover, nationalism is a great arrow for the government to have in its quiver. The Taiwan issue can be a headache sometimes, but it can also be useful on occasion. Kane is making sweeping generalizations on this complex issue.
How exactly will this help Obama's reelection chances? I've always thought the argument that Obama is "selling out" U.S. allies was overblown, but it would be a bit hard to refute if he literally sold a U.S. ally.
Even if this deal magically resolved the Taiwan situation, what does that have to do with Iran, North Korea, Syria, or Pakistan -- countries where China has completely different interests at stake? If anything, it takes a bargaining chip off the table.
Flawed as it is, the idea got me thinking. Canada holds about $90 billion in U.S. debt. Maybe they'd take a Dakota or two for it.