Even if trade disagreements subside, the United States and China may have already found the next sticking point in their relationship. President Donald Trump has warmed to Taiwan via a series of recent actions including arms sales, the appointment of National Security Advisor John Bolton — who has taken a strong pro-Taiwan stance in the past — and encouraging visits between U.S. and Taiwanese officials. That has angered Beijing, which claims Taiwan under a policy known as "One China." China opposes other countries pursuing ties with the self-ruled island. The matter could affect trade negotiations between the two superpowers, which are threatening to tax one another's imports.

Beijing will put more pressure on U.S. companies in China to abide by the one-China policy — that is, not acknowledging Taiwan as a separate country — at the risk of their operations being shut down or fined ... Eurasia Group

Trade friction and Taiwan are two separate issues, but if Washington continues to build closer ties to Taiwan, it could become difficult to de-link the two, analysts at political consultancy Eurasia Group, wrote in a Monday note. "The U.S. administration's new approach to Taiwan will substantially complicate U.S.-China ties and make it much harder to an agreement on trade," the firm said. "A debate in Beijing is currently ongoing whether the U.S. is hoping to use Taiwan as leverage on trade issues or whether this is a fundamentally different U.S. approach to Taiwan," the note said. The matter could also influence the situation in North Korea, because Washington still needs Beijing's help reigning in the nuclear armed state.

Bolton and Taiwan

Washington has approved the license required for American manufacturers to sell technology to Taipei that would enable it to build its own submarines, Taiwan's national news agency reported on Saturday. Beijing opposes the move, demanding the U.S. "halt all forms of military links" with Taiwan, Reuters reported on Monday, citing an official statement. Bolton, who started his new job this week, is widely expected to ramp up engagement with Taiwanese President Tsai Ing-wen's government.

Bolton has "advocated for use of the 'Taiwan card' against China by upgrading the status of the American Institute in Taiwan, inviting Taiwan's president to the U.S. and ultimately restoring full diplomatic recognition," Eurasia Group analysts said. The American Institute in Taiwan operates as a non-profit organization with de facto embassy functions. Washington cut off official diplomatic links with Taipei in 1979, a necessary condition to establishing Sino-U.S. relations. The institute's new office is scheduled to open later this year, and Bolton may attend the event, according to Thomas Shattuck, research associate at the Foreign Policy Research Institute: "It's a good opportunity for him to show off his Taiwan chops (and anger China) and have a good PR visit early in his tenure." Eurasia Group analysts don't believe Bolton's recommendations will gain much traction, but they still believe the 69-year-old will "likely use his new post to put Taiwan directly on Trump's agenda." Meanwhile, Randall Schriver, who was appointed assistant secretary of defense for Asian and Pacific security affairs last year, is expected to push for expanded defense links, including arms sales, according to Eurasia Group.

Taiwan Travel Act

A law signed by Trump in March marks another major development. The Taiwan Travel Act, which ended decades of restrictions on official travel between U.S. and Taiwanese government officials, triggered a scathing response from the Chinese embassy in Washington, which said the law violated "the political foundation of the China-U.S. relationship." Washington sent two officials to Taiwan shortly thereafter, with footage of Deputy Assistant Secretary Alex Wong from the State Department's East Asian and Pacific Affairs bureau appearing publicly with Tsai just as Trump announced tariffs on Chinese products, Eurasia pointed out.

Other friendly U.S. gestures include Trump's December 2016 phone call with Tsai and Trump's signing of the National Defense Authorization Act late last year, which seeks to re-establish port of call exchanges between the U.S. and Taiwanese navies and invite Taipei to participate in military exercises. Trump may next push for the island-nation's participation in an upcoming meeting of the World Health Assembly, the the World Health Organization's decision-making body. The U.S. has supported Taiwan's inclusion in the past, but with Trump's pro-Taiwan team in place, "it is not unreasonable to see a more vocal and stronger effort this time around," said Shattuck.

How China could retaliate