Biden Promises U.S. Military Will Defend Taiwan if Attacked

Surprising even his own staff, the U.S. president overshadowed the launch of the Indo-Pacific Economic Framework for Prosperity.

The response from U.S. President Joe Biden came firm and clear. Would the United States get involved militarily to defend Taiwan, a move it has avoided so carefully in Ukraine?

“Yes,” Biden said bluntly in Tokyo on Monday. The reporter who asked the question, not quite believing her ears, says “You are?”

“That’s the commitment we made. That’s the commitment we made,” he repeated.

With that statement, Biden ensured that today’s unveiling of the Indo-Pacific Economic Framework, his signature commercial pact in Asia, would be overshadowed by defense. A country accused of presenting “all guns and no butter” delivered a large shipment of both.

This story first appeared on TheStreet.com and its subscription service, Real Money. Click here to see the original story.

It’s the second time recently that Biden has spoken off the cuff about a U.S. military response to an invasion of Taiwan and replied in much the same way. During a town hall event last October, he was asked if the United States would come to Taiwan’s defense if it was attacked by China. “Yes,” Biden replied. “We have a commitment to that.”

It is a change in tack. U.S. presidents always dodge the question of whether the U.S. military would defend Taiwan. They hide behind “strategic ambiguity,” fudging that they uphold the “One China policy,” which is deliberately vague.

China insists on the “One China principle,” one key word of difference, stating that the Beijing government is the only legitimate government in China, which includes Taiwan. On the U.S. side, the “One China policy” recognizes the Beijing government as the legal government of China, but only “acknowledges” China’s position that China also includes Taiwan, without agreeing that it’s true.

Confused? You should be. It allows the United States to keep Beijing sweet while maintaining unofficial relations with Taiwan. The U.S. stance was first stipulated in 1972, when then-president Richard Nixon used the “One China policy” as a way to say “You sort this one out” to the Chinese on both sides of the Taiwan Strait while doing business with both.

But Biden was very clear. The United States military would defend Taiwan if China invades it. Or in diplomat-speak, “any unilateral effort to change the status quo using force.”

It has become a more pressing issue after Russia invaded Ukraine, which Russian President Vladimir Putin says should be part of Russian soil. White House officials scurried today just as they did back in October to walk back Biden’s comments on Taiwan, asserting that there’s no change in U.S. policy. But you could say that under Biden, it is becoming more clear. A Chinese military invasion would be met with a U.S. military response.

China bristles

Not surprisingly, Beijing was furious in its response to Biden’s statement. “The Taiwan question is purely China’s affair,” a foreign affairs spokesman said. “There is no room for compromise or concession.”

China urges the United States to stand by the “One China principle,” using that word of difference again, and to “refrain from sending wrong signals to Taiwan separatist forces to avoid causing grave damage to bilateral relations.”

Biden first hinted at this change last August, when the United States withdrew from Afghanistan. He promised “we would respond” to an attack against a fellow member of NATO, adding “same with Japan, same with South Korea, same with Taiwan.” Taiwan had never before been presented with the same kind of promise of defense as those other allies.

Japanese Prime Minister Fumio Kishida, speaking alongside Biden today, was also asked how his country would respond if China invades Taiwan. He beat around the bush, like leaders always do. Japan is equally ambiguous on the status of Taiwan.

“We asserted the importance of peace and stability of the Taiwan Strait, and the peaceful resolution of the Taiwan issue,” Kishida said, adding that there is no change in the “fundamental position” of the United States and Japan.

“In Asia, we are against any unilateral effort to change the status quo using force,” Kishida added. “In Asia, peace and stability must be upheld and defended.”

That last word, “defended,” may also represent a very subtle shift by Japan, since we are parsing sentences today. Japan is increasing its “self-defense” forces, having agreed to a pacifist constitution after World War II that forbids it fighting a war. But it has 105 U.S. fighter jets on order, the F-35 Lightning, and in March launched the first of 22 new Mogami class stealth frigate ships as it beefs up its capability to respond to threats overseas.

Kishida told Biden that Tokyo is ready to take a more robust defensive stance, including the ability to retaliate. That will include a “considerable increase” in the Japanese defense budget, Kishida said.

As for the Framework…

Today was supposed to be the big unveiling of the Indo-Pacific Economic Framework for Prosperity. It’s a kind of Trans-Pacific Partnership-lite, after the U.S. withdrawal from the TPP trade deal in 2017.

The exact roster of the 13 participating nations was a secret until today. They are the United States and Japan, together with Australia, Brunei, India, Indonesia, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Thailand and Vietnam.

The IPEF is so far light on trade, and light on detail. The framework looks to build on four pillars: the Connected Economy, concentrating on digitization, including cross-border standards for data flows; the Resilient Economy, improving supply chains; the Clean Economy focusing on clean energy and decarbonization; and the Fair Economy, to enact and enforce standards on taxation and transparency and against money laundering and bribery.

We will see where it heads. National Security Advisor Jake Sullivan says not having trade in the agreement at all “is a feature of IPEF, not a bug.” It’s a deal intended to reflect a services-dominant, data-driven world.

While the United States says the IPEF is an open framework that other nations can join, it is presented as an alternative to Chinese interests in the region. It’s also an attempt at economic reintegration with Asia after a period of withdrawal.

“Especially as businesses are beginning to increasingly look for alternatives to China, the countries in the Indo-Pacific Framework will be more reliable partners for U.S. businesses,” U.S. Secretary of Commerce Gina Raimondo said in outlining the deal. She calls it a “turning point in restoring U.S. economic leadership in the region, and presenting Indo-Pacific countries an alternative to China’s approach to these critical issues.”

For now, though, negotiations are only just launching for the IPEF. There are no firm commitments or agreements, with today only the “starting gate,” in the words of Raimondo.

Taiwan, pointedly, is not part of IPEF. The United States says it will deepen bilateral trade ties with the island instead.

Next up: The Quad Squad

There will also be a meeting on Tuesday in Tokyo of the leaders of the Quad, the “Asia Pacific democracies” partnership consisting of the United States, Japan, India and Australia. Biden will also meet one-on-one with Indian Prime Minister Narendra Modi and the new Aussie leader.

New Australian Prime Minister Anthony Albanese, from the center-left Labor Party, has been swiftly sworn in so that he can fly to Japan to take part. It looks likely that Albanese will gain the 76 parliamentary seats necessary – the party is ahead in 78 races – for him to govern without forming a coalition. If not, he must make a deal with climate-minded independents and/or members of the Green Party for support.

Outgoing Liberal leader Scott Morrison had accused Albanese of being weak on China. Albanese will be accompanied in Tokyo by new Australian foreign minister Penny Wong, who is Malaysian Chinese by background. All eyes will be on how Albanese handles Australia’s current antagonistic relationship with China and what he has called a Chinese Communist Party that is more “forward-leaning” and “aggressive.”

“Butter and guns” were also both on display in Biden’s two-day trip to South Korea, where he visited both a Samsung Electronics factory and the Osan Air Base. It was at Osan, now a U.S. Air Force base, where U.S. troops were first deployed in the Korean War, with “Task Force Smith” fighting the Battle of Osan in 1950 as their first engagement with North Korean troops.

New South Korean President Yoon Suk-yeol has agreed with Biden to explore ways to expand joint military exercises that always infuriate North Korea. The two presidents appear to be taking a tougher stance on North Korea, with Biden saying at the air base that they pledged “our readiness to take on all threats together.”

Would Biden meet with the North Korean leader, Kim Jong-un? “That would depend on whether he is sincere, and whether he is serious,” Biden said. We’ll have to take the U.S. president at his word.

Biden Visits Korea and Japan With Rare Opportunity

On his first Asia spin as president, Joe Biden will find a surprisingly warm welcome, and is due to launch an economic framework for US-Asia relations.

Joe Biden is today starting his first Asia trip as U.S. president, visiting South Korea and Japan with an unusual opportunity to cement alliances with these key Asia Pacific democracies. He will be mindful all the time of the threats presented by a nuclearized North Korea and by China, with its promise to conquer Taiwan, by force if necessary.

I’m watching Biden’s first steps in Korea, where he has made a Samsung Electronics chip factory in Pyeongtaek his first stop. Samsung chief Jay Lee has been excused from attending his accounting-fraud trial to take Biden on a tour, where they’re joined by new South Korean President Yoon Suk-yeol. Samsung in November announced a US$17 billion chip factory near Austin, Texas, and is showing off its advanced 3-nanometer chips for the first time on Biden’s visit.

This story first appeared on TheStreet.com and its subscription service Real Money. Click here to see the original story.

During his five-day Asia stay, Biden will find fertile ground to forge friendships with new U.S.-friendly leaders in both Tokyo and Seoul, arguably the best opportunity in two decades to do so. Rivals China and North Korea, meanwhile, are both battling Covid-19 outbreaks that undermine domestic popularity for the leadership in Beijing and Pyongyang.

Still, U.S. and South Korean intelligence suggests that North Korea may well test another long-range intercontinental ballistic missile during Biden’s visit, or possibly even conduct its first nuclear-bomb test since 2017. Biden cancelled an intended trip to the demilitarized zone between the two Koreas, and there’s been no progress on denuclearization talks since he became president.

Biden arrives in Asia at a time that leaders have newly taken office who have pledged to improve relations with the United States. Japanese Prime Minister Fumio Kishida moved into the Kantei on October 4, while Yoon was inaugurated on May 10. Yoon may push for South Korea to join “the Quad,” the alliance of Pacific democracies that currently consists of the United States, Japan, Australia and India.

The U.S. president is due for a summit with Yoon on Saturday, then will fly to Tokyo on the next day, where he is set to launch the Indo-Pacific Economic Framework on Monday, May 23. The framework is a U.S.-led initiative designed to counter criticism that the United States has focused only on security issues in Asia. China champions the Regional Comprehensive Economic Partnership free-trade deal that went into effect with 14 other Asia Pacific nations on January 1. But the United States has been accused of an “all guns and no butter” approach.

The “IPEF” is very vague and in its early days. An early draft obtained by the Financial Times shows that member nations have agreed only to “launch negotiations” on trade. But even that assertion may be watered down in a planned two-page statement simply to say the countries are starting consultations that could lead to negotiations that might amount to something. Phew. The language was literally being finalized on the Air Force One flight to Seoul.

Biden is attempting to undo some of the damage done when former president Donald Trump pulled out of the Trans-Pacific Partnership, an executive order Trump literally signed on Day 1 when he took office in January 2017. Kishida in Tokyo will likely nudge Biden to consider rejoining the recast 11-nation partnership, which Japan had championed, although there’s been no indication the United States is considering that.

The IPEF will be a weak TPP substitute. It does not include any improved access to U.S. markets for Asian nations, whereas the TPP promised free-market access for many goods. But the IPEF will attempt to address infrastructure, supply-chain resilience, clean energy, and digital trade. Kishida will join Biden at the unveiling, with South Korea, Australia, New Zealand, the Philippines and Singapore likely to join Japan and the United States in the deal.

Biden will then attend a Quad summit in Tokyo on May 24. The four-way partnership has risen in profile since it was rebooted in 2017, having been on hiatus since Australia withdrew in 2008 in a bid to improve Aussie relations with China. How things have changed. Australia is once again “all-in” on the Quad, and is now instead embroiled in trade disputes with China, which it has also accused of meddling in domestic politics to the extent of attempting to get a Beijing “agent” elected to national office.

The Quad, whose leaders met in person in September at the White House, has made progress on public health with the Quad Vaccine Partnership, pledging 1.2 billion vaccine doses globally, and on infrastructure. It has also formed a coordination group to “deliver transparent, high-standards infrastructure” in the region, a response to China’s Belt and Road Initiative. It is also working on green energy, lower-emissions shipping and high-tech supply chains for goods like semiconductors.

But it has yet to make much obvious headway in handling the military threat China poses in the Pacific. Beijing has basically gotten away with its island-building program to construct missile, naval and air-force bases on islands in the South China Sea. There’s been deadly conflict on the Himalayan border between Indian and Chinese troops, where China has again built structures in contested no-man’s land.

Most recently, Australia in particular has been alarmed by a security pact China has struck with the Solomon Islands, which could see Chinese troops based in the island nation. U.S. officials have said they would need to respond to any deployment of Chinese paramilitary troops to a country that saw heavy fighting on Guadalcanal during World War II, after Japan built naval and air bases there. Aussie defense minister Peter Dutton said in response to the China-Solomon security pact agreed in April that “Australia should prepare for war,” claiming China is “on a very deliberate course at the moment.”

The leadership in Canberra is in question. Australia holds national elections on Saturday, in which it is mandatory to vote. The opposition, left-leaning Labor Party holds a very slight edge over the conservative Liberal Party, and its unpopular Prime Minister Scott Morrison, or “ScoMo.” If there’s a change in leadership, it’ll be a scurry to take part in the IPEF signing and the Quad summit, with Biden due to meet the leaders of India and Australia on the sidelines.

Unusually, a group of around 25 independent candidates known as the “teals,” almost all women with successful careers, may hold the balance of power in Australia. Inaction on climate change has fueled frustration with the “gray-haired men fighting for power,” as Damien Cave put it in The New York Times, in a country that produces the world’s highest levels of coal-generated greenhouse gas per person, and that faces devastating now-annual bushfires and floods.

One of Biden’s key differences from his predecessor on the foreign-policy front is his ability to forge multinational diplomatic alliances. He held a summit at the White House on May 12-13 for the leaders of the nine Southeast Asian nations in ASEAN, at which they agreed to strengthen economic ties, improve health security, collaborate on smart manufacturing and develop renewable energy. Most pointedly, they pledged maritime cooperation and to maintain “the South China Sea as a sea of peace, stability and prosperity,” noteworthy since China claims almost all of that sea as its own territory.

Biden noted a joint desire to see an Indo-Pacific that is “free and open, stable and prosperous, and resilient and secure.” The United States committed US$150 million in infrastructure initiatives with ASEAN op top of support of US$100 million made after Vice President Kamala Harris visited Southeast Asia in August.

Former president Donald Trump alienated just about everyone, and championed an isolationist policy of the United States going it alone. He opted to skip ASEAN meetings when he was in power. Given Trump’s antagonism toward NATO, which he repeatedly hit up for money, it is hard to imagine him having any success calling on Europe to present a united diplomatic front against Russia after its invasion of Ukraine. Then-German chancellor Angela Merkel was pretty upfront with her disdain for Trump; French President Emanuel Macron backed off their early “bromance,” saying the lack of U.S. leadership under Trump had led to NATO’s “brain death.”

Trump saved his warmest words for hardmen dictators like Russian President Vladimir Putin, describing Putin’s early moves in Ukraine as “genius.” Putin “was a friend of mine,” Trump told the golfer John Daly in March. “I got along great with him.” His attempts to curry favor with North Korean leader Kim Jong-un led to a great photo op as Trump became the first U.S. president to step across onto North Korean soil, but ultimately produced no progress on the diplomatic front.

Trump also criticized the “horrible” terms of trade with South Korea. He took Japan to task for not buying enough U.S. autos, while ignoring that many American models are way too big for Japanese streets. That informed a decision to impose higher tariffs on Japanese steel. Trump criticized Japan and South Korea, too, for failing to pay enough for the U.S. troops stationed on their soil.

The Biden administration rolled back the Trump-era tariffs on Japanese steel as of April 1. With this first Asia spin, Biden will be hoping to strengthen U.S. influence across the Pacific, both in terms of the economy and the security of the region. These first small steps may help improve the direction of U.S.-Asia policy, after many Asian nations began to sense that Washington was retreating from Asia. The United States, and its leader, are back here in Asia again.

Australia and India Lead Mid-Week Selling for an Asia in Recession

There are country-specific reasons why Australia, India and Thailand are leading Asia’s plunge, but the whole region is in recession, S&P correctly says.

The wildly unpredictable movements of equity markets continued apace on Wednesday. Despite the strong rally on U.S. markets the day before, when the S&P 500 rose 6%, almost all Asian markets again posted sizable losses here on Wednesday.

The biggest losers are in Australia and India. I’ll briefly explore why each of those two markets is performing particularly poorly.

In Australia, there are massive daily moves in either direction, sometimes even intraday. The S&P/ASX 200 was down 6.4% at the close Wednesday after posting its biggest single-day gain in 20 years on Tuesday. Now that gain has been wiped out! Since hitting a record high on Feb. 20, the index has corrected 31.2%.

Australian equities are dominated by the Big Four banks – Commonwealth Bank CMWAY, Westpac Banking (WBK) , ANZ ANZBY and NAB NABZY – all of which are seeing their shares oscillate as central banks shift policy globally. The Oz market also has a healthy dose of commodity stocks such as the gold miners BHP Group (BHP) and Rio Tinto (RIO) , and commodities are getting crushed, even gold. There’s also a hefty listed real estate sector and renters are going to start struggling to pay up. Oh, and let’s not forget that Australia’s main customer is China, which isn’t buying.

India follows suit

Indian shares again sold off hard on Wednesday, with the Sensex down 5.6% at the close. Indian shares have now corrected 30.1% in the month since Feb. 19, one of the worst performances in Asia. Foreign institutional investors have been heavy sellers, placing a higher risk premium on Indian stocks than before the outbreak.

India only has 137 declared Covid-19 cases so far, and it’s a bit of a mystery why the world’s second-largest country by population has been spared so far. It may be that only a few people are being tested. While ultraviolet light does kill viruses in general, there has been no scientific proof that hot weather deters Covid-19, so it may be that developing markets that often are hot either haven’t been hit yet or tested well. Of course, developing nations will struggle the most in a health care sense if the disease sets in.

Here in Hong Kong, we’ve had virus cases confirmed among Hong Kong tourists returning from India trips. State governments in India are starting to shutter schools, malls, movie theaters and so on, an economic danger because domestic consumption accounts for around 60% of the economy. Travel and tourism, around 7.5% of GDP, will suffer immensely with tourism visas being cancelled.

There are some India-specific issues that add an extra layer of worry. Yes Bank, a private bank established in 2004 as an alternative to state-backed institutions, has collapsed and is being bailed out by the Reserve Bank of India, the nation’s central bank. Also, violent attacks against Muslim minority by radical Hindu nationalists have left scores dead. Those ethnic tensions are not going to be helped by any downward spiral in the economy.

It isn’t pretty elsewhere, either

While Australia and India have fared worst here on Wednesday, other markets alternate to outdo each other in poor performance. Japan was one of the only sources of green on screens, with the Topix up a narrow 0.2% on Wednesday after the Bank of Japan announced it will support the market by buying ETFs. But the Topix, a broad measure of all big Japanese stocks, is down 26.2% this year.

Thailand’s SET index has fallen 33.7% in 2020, by a small margin the worst year-to-date performance in Asia. Thailand gets 11% of its GDP from tourism, and that’s dead – technically, down 44% and getting worse. The Philippines, where stocks are down almost as much, 31.7% in 2020, has simply shut down its stock exchange, saying it couldn’t guarantee the health of folks on the floor. The blood pressure of investors is another health disaster altogether.

It’s going to take a coordinated global response when it comes to fiscal and monetary stimulus to get everyone on the same page. It also will take cooperation among medical bodies and addressing transportation links if we’re going to get out of the coronavirus mess. The unilateral, single-nation responses are firing buckshot when we need a .458 Winchester Magnum, the kind of Big Game rifle the ranger carries when I’ve been on walking safaris in South Africa.

Investors are sensibly responding to economic disruption rather than simply rates of infection. Korean stocks lost 4.9% in a market dominated by big exporters and heavy industry.

Hong Kong’s Hang Seng index closed down 4.2% on Wednesday, even though the rate of new infections is now slow in East Asia. Most of Hong Kong’s new cases are coming from abroad as Hong Kongers hurry home ahead of travel shutdowns around the globe. The Hang Seng hadn’t risen as high as other Asian indexes due to the pro-democracy protests here last year, so the benchmark is down “only” 20.9% in 2020.

Mainland China, where this all started, is seeing its stocks spared the worst of the selling. The CSI 300 index of the largest shares in Shanghai and Shenzhen fell 2.0% on Wednesday, and the whole index is down only 11.2% this year. That’s half the size of the general selloff around Asia. But treat Chinese share movements with skepticism. Domestic retail investors drive the trading and don’t have many other places to put their money. They are also notorious momentum traders. Mainland stocks are also essentially options on companies rather than genuine holdings, because Communist Party policy can change literally overnight without warning and shut your favorite company down. The party also has cash to spend on stimulus.

Recession is here

I was a guest on RTHK Radio 3’s drive-time business show “Money Talk” Tuesday morning, talking about the disastrous economic figures out of China on Monday. The jobless rate is at a record high, manufacturing has slowed a record amount, and retail sales cratered by a record margin.

One point I made is that, given the shutdowns already under way in Italy and Spain, we can expect similar figures out of those economies in the next month or two. And as more countries corral movement and stop public gatherings, we will see that economic pain spread.

So I chuckle a wry laugh when I hear forecasters predicting that we’re heading for recession. We are in recession, people! It’s here now.

The backward-looking economic output figures will confirm that assessment in the future. I hate the new piece of business jargon that an analyst is attempting to “nowcast” activity. But real-time assessments and common-sense assessments are what we need right now.

I’m digesting a particularly gloomy set of reports from Standard & Poor’s. The rating agency isn’t pulling any punches.

“Asia-Pacific Recession Guaranteed” is my light reading right now. It’s a quick hit. The “enormous first-quarter shock” in China means its growth will shudder to 2.9% in 2020, S&P says, a gutsy call because the Communist Party was keen on “predicting” growth of “around 6%.”

S&P is using the traditional definition of two down quarters in a row to define recession. By other measures, countries such as India and China need to achieve outsize growth just to keep the floods of people moving from the countryside to the city gainfully employed.

This new report says the “rising scale of the shock will leave permanent scars on balance sheets and in labor markets” in Asia. I concur. The rating agency believes US$400 billion in permanent income losses is going to be wiped off profit-and-loss statements.

S&P forecasts aggregate growth will fall by more than half in Asia to under 3% for all of 2020. It envisions a U-shaped recovery.

V-shaped, U-shaped, it’s all a question of how deep and how long this recession is going to last. All downturns are temporary unless you think the world economy is going to zero, which it’s not. But how bad will this get? We don’t know. The costs are continuing to add up, meaning we can’t count the final tab yet.