Amid Trade Friction, Taiwan Tensions Are Rising

All eyes are on trade war, but the real flashpoint might be Taiwan.

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Last week, the Trump Administration threatened to impose tariffs on up to $60 billion worth of Chinese imports. The announcement, like a similar one earlier in March on steel and aluminum, sent Predata's digital volatility index for U.S.-China trade relations skyrocketing. It appears online observers fear a trade war is on. 

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Still, despite threatening retaliatory tariffs against a handful of U.S. goods, China's response to the tariff threat has been relatively measured. Where Beijing has shown less restraint is over Taiwan. Two weeks ago, President Trump signed a law that encourages U.S. officials to meet with Taiwanese counterparts. Xi Jinping reacted angrily. In a bellicose speech, he said Taiwan would face "the punishment of history" for any attempted "separatism". He ordered a carrier group into the Taiwan Strait, and drilling Chinese warplanes buzzed the southern edge of the island. 

In the digital realm, concern over the cross-strait relationship has been mounting. Our volatility index hit its highest level since October 2017, when Xi used forceful rhetoric against Taiwan in his speech at the Chinese Communist Party's 19th Congress.

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It's an open secret that one of Xi's great foreign policy ambitions is to unify Taiwan with the mainland. Among observers in China and Taiwan, attention to that goal appears to be increasing. Traffic on Chinese-language web pages related to China-Taiwan unification has spiked three times this year.

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Should Xi push forward with an aggressive policy toward Taiwan, a tit-for-tat over trade may prove to be the lesser risk to U.S.-China relations.