How Henry Kissinger and Ronald Reagan Messed Up US Relationships with China and Taiwan

In December of 1949, the Chinese Civil War came to an end as Mao Zedong’s communist army defeated the Kuomintang. Chiang Kai-Shek, the fallen leader, retreated to Taiwan and, shortly thereafter, both Mao and Chiang declared themselves the sole representative of both Chinas. The US recognized Taiwan and severed diplomatic relations with mainland China.

These events came on top of an imbalance created by the founding of the United Nations (UN) in 1945, when the US, the UK (the British Empire), France, the Soviet Union, and United China (then headed by Chiang Kai-Shek) declared themselves the five permanent members of the UN Security Council and assigned themselves veto power over “substantive resolutions.” As a result, after the Chinese Revolution, Taiwan assumed China’s UN seat with firm US backing. Britain, France, and other Western European imperial powers were still militarily occupying more than half of the world. But while World War II had liberated Western Europe from Hitler, it had also begun the process of liberating the rest of the world from Western Europe.

Germany and Japan, being defeated powers, were kept out of the Security Council role, although Germany and Japan have more people than Britain or France and their economies are larger. Meanwhile, India, the largest country in the disintegrating British Empire, did not succeed the UK (the British Empire) in the Security Council because, after 190 years of occupation, it was economically and militarily weak. Mainland China and India, the world’s two largest countries, were thus kept from UN leadership roles.

In 1971, Henry Kissinger, representing President Richard Nixon, visited China in an effort to foster an anti-Soviet alliance. In exchange, he and Nixon agreed to recognize Mao’s China as the sole representative of both Chinas and to support its claim on Taiwan’s seat on the Security Council. Kissinger also promised to remove the US military presence from Taiwan. In so doing, both he and Nixon ignored the advice of the then US ambassador to the UN, George HW Bush. Bush advocated strongly for a policy recognizing two-Chinas, and 62 per cent of Americans agreed. Yet rather than pursuing the two-China policy and telling Mao that it was for the people of both Chinas to decide how to merge, Kissinger told Nixon that Bush was "too soft and not sophisticated." Fifty years have passed since the US threw Taiwan under the bus, and yet we continue to complain about the defense of Taiwan as if somebody other than us had created this problem.

Today, the 10 largest economies by purchasing power parity are China, the US, India, Japan, Germany, Russia, Indonesia, the UK, Brazil, and France. The five permanent members of the UN Security Council are also nuclear powers, and they have formed a club to take charge of regulating global nuclear resources. India, a nuclear power, is not a member of this club. In 1971, Kissinger failed to insist that China agree to include Germany, India, and Japan as permanent members of the Security Council, and China now opposes their inclusion. Indeed, Kissinger has an extraordinary record of having been wrong again and again, on Bangladesh, Chile, the Middle East, Vietnam, and more.

When President Ronald Reagan took office in 1981, he did nothing to stop US companies from moving their factories to China, where low wages dramatically reduced production costs. Successive US presidents, with the support of Congress, cheerfully followed his example. Although we do know that trade generally benefits both partners, we have no theoretical basis or empirical evidence to suggest that allowing or encouraging its companies to move factories abroad and then, in effect, importing their goods could be expected to benefit the US. As more companies moved their factories to China, their profits soared, and millions of their US employees lost their jobs, including those in their US supply chains, while the devastating consequences rippled out through the US economy. Because of the poor state of education and vocational training in the US, and because the change was not planned nationally, these stranded workers could not find equally good new jobs by learning or applying different skills. Instead, they became less productive and spillover effects drove down the productivity of several other segments of the economy.

Meanwhile, the relocation of American factories provided China not only with new factories, but also with new supply chains, creating a beneficial ripple effect. The resulting spillover there drove improvements in productivity throughout the Chinese economy. China’s economy has since grown over forty times, while the profits of US companies in China have skyrocketed and Americans in the top 10 percent income group have become vastly wealthier through stocks owned either directly or indirectly. Furthermore, the incomes of the rest of Americans have stagnated, and US economic growth has remained anemic. Kissinger and Reagan, who always claimed to be strengthening America’s relative power in the world, succeeded dramatically in doing just the opposite.

This trade-driven transfer of income to the top 10 percent and away from the rest of Americans was turbo-charged by a series of tax cuts under Presidents Reagan, George W. Bush and Trump. Reagan promised that his tax cuts would benefit everyone in proportion to their incomes and that additional benefits would trickle down to the 90 percent. These promises offered little to begin with and delivered almost nothing. And the stagnant incomes of most Americans further diminished the quality of their children’s education.

Decades later, the net result of the policies of Kissinger, Reagan, and the presidents and representatives who have succeeded them is an unbalanced UN Security Council, a powerful China, a reduced United States, an anemic American economy, an inadequate US educational system, more superfluous wealth for America’s rich, and more pain for the rest of the Americans. That and an ongoing opportunity for politicians and pundits to whine about Taiwan!

Disclaimer: Views expressed are of the author(s) and do not necessarily reflect the views of The Statecraft Institute.