James McKee

China Demands US Abandons Taiwan Weapon Sales



Posted: Monday, March 07, 2011

by James McKee
http://www.forex.tradingcharts.com

The United States and China have enjoyed close political and economic ties for some time now however China is asking the US for something it may not be willing to accommodate.  Taiwan broke away from China over 30 years ago after the country declared itself a communist nation.  The United States signed a treaty to help Taiwan defend itself against China in the event of military aggression after the country’s leaders defected from China’s foreign government.  These defectors, their families and other followers all fled to the island of Taiwan where they have sought out freedom from China ever since.

The importance of maintaining their word where foreign relations are concerned is crucial for the US’s appearance on the global stage and without maintaining their obligations the United States would find itself with few friends.  If the US continues to upset China however it could find itself on the wrong end of a trade war or even a currency war.  This is a particularly scary situation for the US since China holds obscenely large amounts of US debt and can send the country into bankruptcy at any time.  The USD and much of the stability of the US government hinge on China’s continued purchasing of US debt and their continued patience where US monetary policy is concerned.

The Federal Reserve Bank’s quantitative easing program that sent the value of the USD down abruptly also sent the value of all China’s US holdings downs as well.  China was very vocal about this move saying it was devaluing their investments and that the US needed to re-examine its policies.  Such words were a warning to US fiscal policy makers that they needed to take China’s interests to heart in addition to those of US citizens.  The USD could experience serious losses if China decides to ever use its fiscal relationship with the US to garner influence and power where Taiwan is concerned.
Author is a Forex trader and financial analyst residing in Denver, Colorado. To stay up to date on all the latest developments in the financial world and beyond be sure to check out the forex exchange rates regularly.
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