When we first reported on a deal affectionately nicknamed "torpedoes for Taiwan" back in May, we warned that the latest Trump-approved arms sales to China's renegade province - in direct defiance of President Xi's demand that foreign powers stay away from Taiwan - could sharply accelerate the decoupling between the world's two largest economies.
And judging by the news this morning, it looks like we were on to something. To wit, stocks in Asia and Europe are trading in the red after China warned it would impose sanctions on US defense contractor Lockheed Martin after Washington approved the $620 million deal for Taiwan to buy parts to refurbish defensive missiles made by the company.
After announcing the sanctions, Chinese Foreign Ministry spokesman Zhao Lijian called on the US to cut military ties with Taiwan to avoid "further harm to bilateral relations."
"China firmly opposes U.S. arms sales to Taiwan," Zhao said. "We will impose sanctions on the main contractor of this arms sale, Lockheed Martin."
The news sent the offshore yuan lower against the dollar.
BBG noted that the move could create serious problems for Lockheed, since Sikorsky, a wholly owned subsidiary of Lockheed Martin, has a joint venture in China called Shanghai Sikorsky Aircraft that does business with aviation companies and GSEs. Lockheed generated nearly 10% of its profits in Asia last year.
Last night, the Trump Administration confirmed that it would no longer recognize China's claims to the South China Sea, a policy change that will further escalate military tensions between the two world powers.