Responsible Statecraft writes that the bill, penned by Senate Foreign Relations chair Bob Menendez (D-NJ), would ‘gut’ the One China policy, the foundation of Sino-US relations.
Michael Swaine of the Quincy Institute: “The document plays with words to seem as if no fundamentals have changed, but One China is in effect gutted. The One China policy has led to strong limits being placed on political, diplomatic, and military contacts with [Taiwan]. This bill, if passed and implemented by the administration, would add greatly to the existing erosion of such limits.”
The Washington Post says the bill “could give the White House significant diplomatic heartburn,” and reports that the White House did not respond to an email asking for the administration’s position on the the bill.
The Taiwan Policy Act would designate Taiwan a “major non-NATO ally,” promote Taiwan’s de facto embassy from the “Taipei Economic and Cultural Representative Office” to the “Taiwan Representative Office,” and the director of the corresponding American Institute in Taipei would become a “representative,” and be subject to Senate confirmation. A big step towards officially ambassadorship.
The bill would edit the wording of the Taiwan Relations Act from merely providing Taiwan with arms "of a defensive character” to “arms conducive to deterring acts of aggression by the People’s Liberation Army.”
It is unlikely that Beijing will see this as an insignificant change.
RS writes that, “several experts [said] that they are most concerned about the section of the legislation dealing with sanctions."
The Act would compel the imposition of sanctions on Chinese officials, including the president, if Beijing escalates tensions with the effect of “undermining, overthrowing, or dismantling governing institutions in Taiwan.”
An ambiguous phrase which has scope for misinterpretation or selective application.
There is no guarantee that the bill will reach the Senate floor but it is likely that Beijing will consider an attempt by lawmakers on the Foreign Relations Committee to reframe US-Taiwan relations during a period of tensions highly provocative.
Peripherals remain mostly wider against the German 10yr, except for Greece, which sits 9bps tighter.
OAT/Bund trades 3.1bps wider and widest since mid June, and targets 60.00bps.
Above the latter would open to the June high at 62.42, also the widest print since 17/03/20.
Chart source: MNI/Bloomberg
UK: GBPUSD vs STIR spread
Jul-04 12:32
Sterling continues to look weak versus the dollar when compared to the 2-year STIR spread and the divergence is growing. There are a couple of possible explanations for this:
First and most obvious is that US STIR markets are driving UK STIR markets - and FX traders don't actually believe the hikes priced into the SONIA strip (which is roughly looking for Bank Rate at 2.50% in 2-years time with hikes to around 2.9% by the February 2023 meeting and then cuts).
Second, the dollar is trading at a premium due to risk aversion - and in large part due to risks of a recession.
An interesting dynamic is that when comparing sterling to the euro, sterling is trading marginally stronger than the STIR spread suggests. Referring to the arguments above, we draw two conclusions: first, that the FX market also does not believe pricing for the ECB, and second this gives us even more confidence that the dollar is trading at a premium due to recession risks.
US: MNI POLITICAL RISK ANALYSIS – US Daily
Jul-04 12:30
The Iran nuclear talks are back in hibernation but may be kickstarted by President Biden's trip to the region.
The Biden administration has relaxed its position on offshore oil and gas drilling.
Biden administration’s climate agenda now leans heavily on negotiations between Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV) for a revised social spending and climate bill but time is running out to get a package to the Senate.
Reps. Liz Cheney (R-WY.) and Adam Schiff (D-CA) have suggested that the January 6 committee may recommend a criminal referral to the Department of Justice.
Sen. Lindsey Graham (R-SC) has visited Turkey as part of a trip facilitate the sale of F-16 fighter jets.
Poll of the Day: Polling data is mounting that the Supreme Court decision to revoke Roe vs Wade will influence November’s midterms.