For decades the Taiwanese question has put a strain on diplomatic relations between Washington and Beijing. The latter has long insisted that Taiwan is part of its sovereign territory. However the Taiwan Relations Act, which passed through Congress in 1979, obliges the US to "to provide Taiwan with arms of a defensive character".
This latest arms deal should come as no surprise to Beijing - it was struck during George W. Bush's presidency. Washington has not approved the sale of F-16 fighter jets, which was in the original agreement. This did not deter China from threatening to impose sanctions on those US firms selling arms to Taiwan, which include the aeronautical giant, Boeing. There's some doubt as to whether China can afford to back up this threat. More than half the aircraft owned by China were made by Boeing. These aircraft need to be serviced and so a relationship with the US firm must be maintained to make sure they remain airworthy. In the long run, China could begin to favour the European company, Airbus. However, if contracts with Boeing are terminated for purely political reasons, European firms will be more wary of dealing with China and will demand higher prices.
This latest diplomatic incident is part of a trend in US-Chinese relations. Following the recriminations of Copenhagen, the alleged cyberattacks on Google and and China's reluctance to support sanctions on Iran, it's fair to say that the two countries are going through a rough patch. Chinese officials have publicly stated that, should Barack Obama fulfil his promise to meet with the Dalai Lama, it would further "damage the trust and co-operation" between the two nations.
If Beijing goes ahead with sanctions, it risks triggering a trade war, one in which it has much to lose. China is the world's biggest exporter of manufactured goods and the US is its largest market. If Congress is provoked, it would be more than willing to re-introduce legislation imposing tariffs on Chinese imports. Ultimately, trade warfare is not in the interests of either country. Total trade between the two nations was worth $419 billion in 2008.
The intransigence of both Washington and Beijing is partly a product of domestic politics. Anti-US rhetoric appeals to popular Chinese nationalism. A resolution on the website of the Global Times, a state owned newspaper "strongly condemning US behaviour" and "American hegemonism" received over 61,000 signatures. In the US, President Obama has been criticised for not taking a tougher line with China over climate change, and Iran. There would be strong support for protectionist measures. The belligerence on both sides masks a mutual reliance. Though they may not like each other, China and the US need each other. Their fates are locked together, whether they like it or not.