Feb. 1 – China has canceled military exchanges with the United States and threatened sanctions on U.S. defense companies in retaliation to a proposed US$6.4 billion arms sales to Taiwan.

The arms deal will provide Taiwan with 60 Black Hawk helicopters, Harpoon missiles, two refurbished minesweepers and Patriot interceptor missiles from top U.S. companies Sikorsky, Lockheed-Martin, Raytheon and Boeing.  If the arms deal pushes through, it is unclear if  the threatened Chinese sanctions on U.S. arms companies would reverberate economically since U.S. and EU arms companies have long been banned from dealing with China since the 1989 Tiananmen Square incident. 

The United States has been providing Taiwan with arms under the Taiwan Relations Act that allows diplomatic relations with both the People’s Republic of China and Taiwan. The act, passed by U.S. Congress in 1979, stipulates that the United States, “provide Taiwan with arms of a defensive character” as well as “to maintain the capacity of the United States to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people on Taiwan.”

The Taiwan issue has since become a thorn in U.S.-China relations. China considers Taiwan a breakaway province since the Civil War of 1949 that led Nationalists to flee to the island. It was only in recent years that diplomatic  relations between China and Taiwan have thawed. In 2008, direct flights between China and Taiwan commenced and mainland tourists were allowed to visit Taiwan.

U.S. State Department spokeswoman Laura Tischler was quoted by Reuters defending the arms deal saying that, “such sales contribute to maintaining security and stability across the Taiwan Strait.”