American manufacturers of weapons and aerospace systems could face a backlash over a $6.4 billion defense systems deal between the U.S. and Taiwan, which the China claims could hurt its national security. Chinese Foreign Minister Yang Jiechi went so far as to say the U.S. should "truly respect China's core interests and major concerns, and immediately rescind the mistaken decision ... in order to avoid damaging broader China-U.S. relations," according to the Xinhua news agency. The Chinese consider Taiwan a rogue province of China with no national standing of its own.The Obama administration believes that the weapons sale will help maintain the military balance of power between Taiwan and China, according to a number of reports of the administration's comments. The State Department has also noted that the sales are permitted under a number of agreements and memos of understanding between America and China.
The Wall Street Journal writes that "the package includes some of the U.S.'s most sophisticated weaponry, including 114 advanced Patriot anti-missile systems, valued at $2.8 billion. The largest element is 60 Blackhawk helicopters, costing $3.1 billion. Two mine-hunting ships; 10 Harpoon missiles; and 25 advanced command-and-control systems are included." China says the size and scope of the weapons sale will cause it to suspend military cooperation with U.S. armed forces, as well as visits by U.S. military personnel.
Google and More
The weapons package for Taiwan comprises primarily products manufactured by Boeing (BA), United Technologies (UTX), Lockheed Martin (LMT) and Ratheon. To punish those companies, China has said it will impose sanctions on them.
The news obviously escalates the level of friction between the U.S. and China, which most recently manifested itself in the conflict between Google (GOOG) and Beijing over cyber-attacks on the search company's servers and issues of censorship. Google is still in negotiations with the Chinese government to see if their issues can be resolved. If not, Google has threatened to leave China altogether.
But if the Google spat has been the U.S.-China trade issue with the highest profile, it hasn't been the only one recently. In September, the U.S. imposed tariffs on some tires that Chinese rubber companies ship to America.
Only a Matter of Time?
Friction between the two nations may be inevitable and is likely to get worse. The U.S. economy is still the largest in the world with a GDP of over $14 trillion per year. But China, with a GDP close to $5 trillion, has probably moved ahead of Japan as the world's No. 2 economy. One significant difference between the two is that China is expected to grow at a 10% rate this year. By contrast, the Congressional Budget Office predicts that U.S. GDP growth in 2010 will be between 2% and 3%.
As China moves, perhaps inexorably, toward passing America as the world's largest economy perhas as soon as 20 or 30 years from now, the conflicts between the two countries are likely to worsen.
What are Penny Stocks
The lucrative and dangerous world of penny stocks.View Course »