Absorbing the Painful Blow

Rising confidence on an island republic

In a back alley in Taipei on April 16, a new era began in American diplomacy. Fifty former staffers of the U.S. embassy in Taipei quietly opened the American Institute in Taiwan, taking over quarters that had once been occupied by the U.S. military. In the Taiwan Relations Act, passed by Congress in March, the institute is described as "a nongovernmental entity incorporated under the laws of the District of Columbia." In fact, it carries out virtually all of the functions of the old U.S. embassy, which closed after Washington normalized relations with Peking and broke off diplomatic ties with the Republic of China.

The U.S. decision last December to recognize Peking was greeted with outrage and dismay in Taiwan. President Chiang Ching-kuo denounced the move as a betrayal, saying that never before had the U.S. severed diplomatic relations with an ally. Two weeks after the announcement, U.S. negotiators, led by Deputy Secretary of State Warren Christopher, arrived in Taipei to discuss a new relationship. Christopher and U.S. Ambassador Leonard Unger were slightly injured when their car was attacked by angry demonstrators and the windows shattered. Christopher promptly warned that the talks would be called off unless the government guaranteed the safety of his mission. Shocked by the unexpected violence, though his government had encouraged the demonstrations, Chiang agreed to ensure the safety of the delegation.

Five months after the painful break in relations, Taiwan not only seems to have absorbed the blow but to be more confident than ever of its future. Privately Taiwanese officials admit that the U.S. move has even had a number of unexpected benefits. The opening of the euphemistically named institute, for example, may encourage other nations that do not recognize the Republic of China to establish a quasi-diplomatic presence on the island in the hope of not unduly antagonizing Peking. Says one senior Taiwanese official: "There are a number of people in Taipei who feel the institute might be used as a blueprint for other important free nations that now have no relations with us."

Taiwanese officials note with satisfaction that no other nation followed the U.S. lead in breaking relations with the Taipei regime. They also allege that Washington encouraged South Korea to recognize Peking; instead, Seoul showed its commitment to Taiwan by sending its Foreign Minister to Taipei on an official visit. Only 21 countries, mostly Latin American and African, still have diplomatic relations with the Republic of China; they include such important trading partners as South Africa and oil-rich Saudi Arabia. Since the break in relations with the U.S., in fact, there has been only one major change on the Taipei diplomatic scene: Uruguay, formerly represented by a charge d'affaires, now has an ambassador.

Underlying Taiwan's optimism about the future is the island's burgeoning economic strength. Last year the republic had a 12.8% real growth in gross national product, based largely on a foreign trade of $23.7 billion, greater than that of the mainland. Two-way trade with the U.S. amounted to $7.4 billion, making Taiwan America's eighth largest trading partner. Total foreign investment, mainly from the U.S. and Japan, is $2 billion. Though some of this dates back to the 1950s, about $500 million has been invested so far in 1979 alone. Some American companies, including Ford, Chrysler, Bechtel and Westinghouse, are plowing new money into Taiwan. At the end of 1978, Taiwan's foreign exchange reserves stood at $6.5 billion--not bad for a nation of only 17 million. Unemployment is a tiny 1.2% of the working population. Says Economic Affairs Minister Chang Kwang-shih: "I sense that American businessmen think that some of the uncertainties have been removed and that the environment here is one that is conducive to investment. My main problem is to keep our economy from growing too fast. We are striving for growth with stability."

Barring an unforeseen blowup with Peking, the Republic of China will probably continue on its profitable and stable course for some years to come. Four things could upset this optimistic outlook and inspire Peking to resolve the Taiwan question. The first would be a declaration of independence by Taiwan, which would end once and for all the myth of "one China." At present, the subject is taboo on Taiwan, mainly because of fear of the violent reaction from Peking that would almost certainly follow such a move. The second would be a threat by Taipei to play its so-called Russian Card, seeking Soviet aid to balance the threat from China. President Chiang spent more than a decade in the Soviet Union and his wife Faina is Russian, but his animosity to Communism in any form makes this course seem unlikely. The third factor is Taiwan's continued refusal to negotiate better relations with the mainland. China's Vice Premier, Deng Xiaoping (Teng Hsiao-p'ing), has cited this hostile attitude as one that could cause Peking to take drastic action. Finally, if Taiwan were diplomatically isolated and torn internally over China's offer of a peaceful reunion, Peking might decide that invasion was a practical alternative for settling the issue. Given Taiwan's booming economy and its impressive armed forces, this last alternative seems remote.

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