- Washington has taken recent actions that appear to be drawing it closer to Taiwan.
- Beijing opposes other countries engaging with Taiwan and may retaliate by cracking down on Taipei.
- The matter could further complicate U.S.-China ties, which are already strained by trade tensions, and potentially impact bilateral trade negotiations.
President Donald Trump has warmed to Taiwan via a series of recent actions including arms sales, the appointment of National Security Advisor John Bolton — who has taken a strong pro-Taiwan stance in the past — and encouraging visits between U.S. and Taiwanese officials.
That has angered Beijing, which claims Taiwan under a policy known as "One China." China opposes other countries pursuing ties with the self-ruled island.
The matter could affect trade negotiations between the two superpowers, which are threatening to tax one another's imports.
Trade friction and Taiwan are two separate issues, but if Washington continues to build closer ties to Taiwan, it could become difficult to de-link the two, analysts at political consultancy Eurasia Group, wrote in a Monday note.
"The U.S. administration's new approach to Taiwan will substantially complicate U.S.-China ties and make it much harder to an agreement on trade," the firm said.
"A debate in Beijing is currently ongoing whether the U.S. is hoping to use Taiwan as leverage on trade issues or whether this is a fundamentally different U.S. approach to Taiwan," the note said.
The matter could also influence the situation in North Korea, because Washington still needs Beijing's help reigning in the nuclear armed state.
Washington has approved the license required for American manufacturers to sell technology to Taipei that would enable it to build its own submarines, Taiwan's national news agency reported on Saturday.
Beijing opposes the move, demanding the U.S. "halt all forms of military links" with Taiwan, Reuters reported on Monday, citing an official statement.
Bolton has "advocated for use of the 'Taiwan card' against China by upgrading the status of the American Institute in Taiwan, inviting Taiwan's president to the U.S. and ultimately restoring full diplomatic recognition," Eurasia Group analysts said.
The American Institute in Taiwan operates as a non-profit organization with de facto embassy functions. Washington cut off official diplomatic links with Taipei in 1979, a necessary condition to establishing Sino-U.S. relations.
The institute's new office is scheduled to open later this year, and Bolton may attend the event, according to Thomas Shattuck, research associate at the Foreign Policy Research Institute: "It's a good opportunity for him to show off his Taiwan chops (and anger China) and have a good PR visit early in his tenure."
Eurasia Group analysts don't believe Bolton's recommendations will gain much traction, but they still believe the 69-year-old will "likely use his new post to put Taiwan directly on Trump's agenda."
Meanwhile, Randall Schriver, who was appointed assistant secretary of defense for Asian and Pacific security affairs last year, is expected to push for expanded defense links, including arms sales, according to Eurasia Group.
A law signed by Trump in March marks another major development.
The Taiwan Travel Act, which ended decades of restrictions on official travel between U.S. and Taiwanese government officials, triggered a scathing response from the Chinese embassy in Washington, which said the law violated "the political foundation of the China-U.S. relationship."
Washington sent two officials to Taiwan shortly thereafter, with footage of Deputy Assistant Secretary Alex Wong from the State Department's East Asian and Pacific Affairs bureau appearing publicly with Tsai just as Trump announced tariffs on Chinese products, Eurasia pointed out.
Other friendly U.S. gestures include Trump's December 2016 phone call with Tsai and Trump's signing of the National Defense Authorization Act late last year, which seeks to re-establish port of call exchanges between the U.S. and Taiwanese navies and invite Taipei to participate in military exercises.
Trump may next push for the island-nation's participation in an upcoming meeting of the World Health Assembly, the the World Health Organization's decision-making body. The U.S. has supported Taiwan's inclusion in the past, but with Trump's pro-Taiwan team in place, "it is not unreasonable to see a more vocal and stronger effort this time around," said Shattuck.
Taipei is likely to bear the brunt of Beijing's anger, though China is widely expected to continue criticizing Trump's policies directly.
"Whether it is the passage of the Taiwan Travel Act, the submarine agreement, or the rumors of arms sales, Beijing will blame Taiwan and Tsai for tricking the United States," said Shattuck.
In the short term, "Beijing will boost military intimidation against Taiwan," warned Willy Lam, adjunct professor at the Chinese University of Hong Kong. That could include circumnavigating the area with Chinese naval vessels, or war games involving the invasion of islands off Taiwan's coast, he explained.
"Other measures to isolate Taiwan diplomatically will also be taken," Lam continued.
Beijing, for example, is seeking to normalize relations with The Vatican, Taiwan's only diplomatic ally in Europe. If that happens, the Italian city-state would have to cease recognition of Taiwan.
Chinese President Xi Jinping could also choose to target American companies in Taiwan.
"Beijing will put more pressure on U.S. companies in China to abide by the one-China policy —that is, not acknowledging Taiwan as a separate country — at the risk of their operations being shut down or fined for not complying with China's new cybersecurity law," the Eurasia Group said.