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Sino-American War Games

The United States has an interest in the defense of Taiwan that spans many decades and has changed according to main political themes since the 1940s. In 1949, the Republic of China retreated from the mainland and formed a new government headquarters in the island of Taiwan, while the Communist Party of China proclaimed de-facto victory and founded the People’s Republic of China. Ever since, the United States has made it their primary interest to maintain the Republic of China’s sovereignty over Taiwan. Full military aid and diplomatic recognition for Taiwan was maintained until 1971, when a UN Resolution fully recognized the People’s Republic of China, and removed Taiwan’s government from the general assembly. However, the United States has maintained an obligation by congressional mandate to sell arms to Taiwan in name of the nation’s defense.
The meteoric rise of China’s economic power has resulted in a change of tone in the U.S. policy on arms sales to Taiwan. CBS reported that a tentative agreement to sell new F-16 fighter planes to Taiwan was downgraded today to upgrades on Taiwan’s existing F-16 fleet, in light of China’s strong disapproval to the sale. As with many situations in international diplomacy, an examination of possible outcomes through the lens of game theory is appropriate in determining the best strategy.
The best strategies in this situation can be weighed in terms of diplomatic payoffs. Diplomatically, the United States and China have opposing interests. The U.S. would ideally increase the defense of Taiwan to a high degree in order to trivialize China’s growing military clout in East Asia, while simultaneously bolstering confidence in the diplomatic status quo of nearby East Asian countries. As China grows economically and militarily, countries around the world will feel inclined to improve diplomatic relations with China, and if necessary, decrease ties to the U.S. Therefore, if the U.S. makes the arms sale to Taiwan, it will itself improve diplomatically while hindering China’s diplomatic power. For China, an arms sale to Taiwan would weaken its diplomatic strength in East Asia. However, China will significantly improve its diplomatic presence if the U.S. were to back away from the arms deal to Taiwan. If China were to impose a trade sanction against the U.S. or sell off U.S. debt, whether or not an arms sale is made, the action could be seen as a somewhat excessive action from the perspective of other countries, and would most likely have a slight negative impact on China’s diplomatic relations.
If we were to give China the responses “Impose trade sanctions/sell off U.S. debt (ITS)” and “Do not impose trade sanctions (ITS’)”, and give the U.S. the responses “Make arms Sale (MAS)” and “Do not make arms sale (MAS’)”, based on the discussed interests and possible consequences, a diplomatic payoff chart can be produced:

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In the Diplomatic chart, MAS’ is a strictly dominant strategy for the U.S, while ITS’ is a strictly dominant strategy for China. It becomes clear that diplomatically, not making an arms sale will definitely give a smaller or no loss in power, while not imposing a trade sanction will maintain or boost the payoff to China.

Ultimately, the U.S. decided to forego both options, and sought for a compromise by agreeing to upgrades. This would damage diplomatic ties to China slightly, but would improve relations with other East Asian nations. For China, the diplomatic loss is less than if the U.S. makes an arms sale. Adding in this third choice to the payoff chart helps to visualize the advantage in this option (Upgrade F-16 Planes – UFP)

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China’s strictly dominant strategy is still ITS’, while the U.S. no longer has a dominant strategy. However, since we can assume that China will choose ITS’, UFP would be a best response.

The U.S. strategy in this situation has allowed it to accomplish a number of its goals: upholding its congressional mandate to aid the Taiwan military, and maintenance of military presence in East Asia. Though there was a slight souring between U.S.-China relations due to the U.S. continued support of what China perceives as a rebellious territory, the setback in the rise of China’s military dominance in Asia resulted in a net diplomatic gain.

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