One China Policy the Elephant in the Room As Britain Abandons Single Market and Potential “Nexit” Looms

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The forty year old relationship between the United States and China entered a chilling new era this past week as the pro-independence President of Taiwan made good on her threats to land in the U.S. and conduct important government meetings with American leaders inside the Lone Star state. Britain acknowledged they will work to forge the best possible trade ties with the United States as their upcoming Brexit plans will likely cost them access to the single market in what is now likely to be a “hard Brexit” policy. The first of four critical elections in continental Europe polls showed that the Netherlands will likely be the first original, core member of the EU to elect an anti-European Union Prime Minister. This entails the very real possibility of an imminent “Nexit” referendum and withdrawal from the block. In troubled, unstable times like these, there is plenty of evidence to suggest that owning physical gold will protect the value of your retirement portfolio.

China Threatens Revenge if Trump Abandons One China Policy

Relations between China and the United States continued to deteriorate this past week as the President of Taiwan Tsai Ing-wen touched down in Houston, Texas to several important government-sanctioned and Congressional representative-attended meetings. The madame president may be on her way to Central America in an effort to outflank Beijing with her long time allies Honduras, Guatemala, Nicaragua, and El Salvador, but her two stopovers in the United State have already stolen the spotlight from the official ally-bolstering trip to the region. The Chinese had pleaded with Washington to not permit President Tsai to officially enter the territory of the U.S. Their consulate strongly requested that the government leaders not conduct any formal meetings as part of the four decades old One-China Policy. These requests fell on defiant ears within the U.S. as President-Elect Donald Trump barreled full speed ahead towards a nasty confrontation with the Red Communists and a potential reset of the relationship to officially recognize Taiwan's government and drive towards independence.

China is not simply calmly taking this insult lying down. The officially state-run Chinese newspaper Global Times officially warned incoming President Trump that China will “take revenge” if he abandons the central pillar in the Sino-U.S. relations known as the “One-China Policy.” This did not stop the governor of Texas Greg Abbott and Texas Senator Ted Cruz from taking photo opps in front of Texan flags and the Taiwanese national flag after their high-level meetings with President Tsai. The Global Times Sunday editorial reacted forcefully with, “Sticking to the one China principle is not a capricious request by China upon U.S. presidents, but an obligation of U.S. presidents to maintain China-U.S. relations and respect the existing order of the Asia-Pacific.” This influential magazine is a product of the ruling Communist Party and its official People's Daily.

Trump had already aggravated the situation last month with his acceptance of the congratulatory phone call from President Tsai and his open questioning of the Chinese concept which states that Taiwan is a core part of inviolate Chinese territorial integrity. The Global Times ended with its ominous warning and threat to President-to-be Trump. “If Trump reneges on the one-China policy after taking office, the Chinese people will demand the government to take revenge. There is no room for bargaining.” Officially, Tsai is only looking to build up further trade, investment, and procurement deals with Washington. Yet China remains deeply troubled by Tsai, since it believes she will eventually move towards the full independence of de-facto independent Taiwan in a gesture that would wreck the Beijing belief in Taiwan as only a self-governing island and province which is therefore unable to conduct state to state policies.

British Prime Minister Threatens to Quit Single Market in “Hard Brexit” Showdown

This past week, British Prime Minister Theresa May declared that the priorities of retaking full control of their own supreme lawmaking and immigration policies are greater for her than remaining a part of the European single market. This statement crushed the staggering Pound Sterling, which collapsed to a new ten week low on the news. Prime Minster May explained to Sky News Sunday that departing from the EU will be more about, “getting the right relationship, not about keeping bits of membership. We are leaving. We are coming out. We are not going to be a member of the EU any longer, so the question is what is the right relationship for the U.K. to have with the European Union when we are outside. We will be able to have control of our borders, control of our laws, but we still want the best possible deal for U.K. companies to be able to trade in and within the EU and European companies to operate and trade in the U.K.”

May has clearly staked out her continuing position that she is prepared to gamble away the British trading ties with its largest market in exchange for full sovereignty. This is because remaining a part of the European Union means that the British would have to permit free movement of labor as well as to consent to the continuing overlordship of the European Court of Justice, something that has long rankled the British electorate and population.

British Pound Sterling Performance Courtesy of Bloomberg

As you can clearly see from the above chart, this caused the market to pound the British pound yet again. The Prime Minister's comments make it clear that the United Kingdom is rapidly on a collision course with a “hard Brexit.” This is because the leaders of Germany, France, and other important EU members have stated repeatedly that she will not get the benefit of “cherry picking” the parts of the EU membership rules that she likes. Continuing membership of the no-tariff single market means that the British would have to allow the unrestricted movements of goods, services, labor, and capital. May continues to privately harbor hopes that the U.K. will ultimately prevail in securing a free-trade concession with the E.U. because the member states will be worried about protecting their own economies and trade with Great Britain. The pound was not convinced of the chances for this to happen, as Sterling plunged by .9 percent down to $1.2178 on the news.

First of Dangerous EU Member State Elections Imminent in Netherlands

With a slate of four different important European Union member state elections coming up this year 2017, the Dutch will have the questionable honor of being the ones to signal whether the populism of 2016 has more still more room to run. In March, the Dutch electorate will be the first one to be consulted on its choice for either a pro- or anti-EU prime minister and government. This March 15th poll is already fast looking like the anti-European Union “Party for Freedom” led by Geert Wilders will win. The question becomes will it be capable of forming a governing coalition if it wins only a plurality of the vote count, as appears increasingly likely from the polls.

The problem for the populists in the Netherlands is that the Dutch political environment is incredibly fragmented. If Geert Wilders is unable to obtain a majority and form the government, “We expect further fragmentation of the political landscape, and, as a result, difficulties in forming a new government coalition,” per Rabobank economists. Should Wilders in fact become the next Dutch Prime Minister, he will immediately push for a Dutch withdrawal from both the single currency euro and the overall European Union in an action sometimes referred to as “Nexit.” Whether or not he succeeded, even his victory could have important knock-on effects in other EU elections and on their policies going forward.

Despite this electoral urgency, the E.U. has more problems to deal with than simply the outcomes of the general elections in the Netherlands March 15th, in France for May, in Germany following the summer, and in Italy sometime this year. They will be trying to put out the two fires surrounding both the United Kingdom Brexit and the Greeks trying to wiggle out of the bailout rescue terms. Do not let any sarcastic analysts or financial advisors talk you out of your retirement account IRA approved gold hedge protection in the meanwhile.

David Crowder
David Crowder

W.D. Crowder is an American published author. His background and areas of expertise include history, economics, expatriate living, international relations, investments and personal finance. A widely read and top of his class graduate of Stetson University, he obtained his bachelor of arts degree in History with minors in Latin American Studies and International Relations and a special emphasis in Economics. He was President of his Phi Alpha Theta (National History Honors Fraternity) Stetson University chapter and a Phi Beta Kappa (National Honors Fraternity) member.

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