China Cancels US Security Summit As Military Tensions Escalate

Though US media has largely ignored the trend, military tensions between Washington and Beijing have continued to escalate in 2018, aggravated by the US's trade-war push, the US's insistence on selling arms to an increasingly emboldened Taiwan, US sanctions against a Chinese military unit and the ever-more-frequent "freedom of navigation" operations in the South China Sea, which China views as a challenge to its "indisputable sovereignty" over the South China Sea. Just yesterday, the guided-missile bearing USS Decatur, a Navy warship, sailed within 12 miles of two Chinese military outposts situated on the parts of the disputed Spratly Islands, elicited nothing but a discomforting silence from Beijing. One week earlier, China accused the US of staging a "provocative" flight of B-52 bombers over the South China Sea, which also served to heighten tensions.

Jim

And with what appears to be China's response to these latest transgressions, Chinese officials have canceled a security meeting with US Secretary of Defense Jim Mattis which had been planned for October, the New York Times reported, citing an anonymous senior US official. The cancellations comes just days after a top Chinese official said there was no reason to panic over tensions between the world's two largest economies. According to the NYT, the Chinese government told US officials on Friday, just before the beginning of China's Golden Week holiday, that the summit would not happen.

China told the Trump administration on Friday that a senior Chinese military official would not be meeting Mr. Mattis, the American official said, who spoke on the condition of anonymity per diplomatic norm.

At last year’s security and diplomatic dialogue, the chief of the People’s Liberation Army, Gen. Fang Fenghui, attended the sessions held in Washington. (General Fang was purged shortly afterward, for unrelated reasons.)

Whether the accumulation of last week’s episodes, or one in particular, provoked the decision to scuttle the dialogue is not clear, the American official said.

While the announcement came out of the blue, in some respects, Beijing's decision to cancel the talks wasn't a surprise.

In some respects, Beijing’s move to abandon the dialogue, at least for the moment, was not surprising. The Foreign Ministry signaled last week that the arms sale to Taiwan threatened to cause "severe damage" to relations with the United States, including "bilateral cooperation in major fields."

Aside from Sunday's freeop, China was incensed by US Ambassador Terry Brandstad's decision to take out an advertisement in the Des Moines Register to push back against claims that the Chinese government made in that newspaper, which it hoped would anger Iowan farmers, a key part of Trump's base, by pointing out how his trade war would negatively impact them.

Last Tuesday, China refused a request by an American warship to make a port visit to Hong Kong in October.

China began a weeklong holiday Sunday. Government officials were not available for comment on the cancellation of the meeting.

On another front that could add to the sour feelings, the United States Ambassador in Beijing published a strongly worded opinion article on Sunday in his hometown newspaper, the Des Moines Register.

The opinion piece, a reply to a four-page advertorial paid for in the Register by the Chinese government last weekend, accused China of bullying and of unfair trade practices. It also complained about China’s state-controlled press.

Last year's security meeting in Washington was relatively productive (though the official who represented China was later purged), according to the NYT.

At last year’s security and diplomatic dialogue, the chief of the People’s Liberation Army, Gen. Fang Fenghui, attended the sessions held in Washington. (General Fang was purged shortly afterward, for unrelated reasons.)

To be sure, this isn't the only sign that the US and China are settling "into a newly chilly relationship." Trump recently accused China of meddling in US elections, while Vice President Mike Pence is expected to lay out the US's "negative views of China's international behavior" in a "major speech" later this week.

Tensions between the US and China are manifesting elsewhere. One bellweather that reflects trade and military tensions with China is the US relationship with North Korea, which took yet another turn toward the chilly over the weekend as North Korea's foreign minister denounced the US for "deepening the mistrust" between the two sides.

With this in mind, we'd like to once again bring up this handy chart, which should serve as a reminder: Currency and trade wars have a well-established history of preceding hot wars. Investors who are making long-term allocations would do well to remember that.

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