Taiwan Inks a Risky Deal With China

In a once unthinkable move, Taiwan and China signed a new pact last week to slash tariffs and open up business between the erstwhile adversaries. Some are greeting the Economic Cooperation Framework Agreement as the end of a Cold War–style freeze. The reality? The deal marks a high point for cross-strait relations, but it could ultimately bring more trouble.

The big winner for now is Taiwan's economy, which could grow an extra 1.7 percent per year. But that poses other problems. An economically stronger Taiwan would not only gain clout with the mainland but also have more money to entice allies other than the 23 nations around the globe that currently recognize the island as an independent state. Beijing is hoping closer economic ties will draw Taiwan further into its orbit. But Taiwanese President Ma Ying-jeou, who's up for reelection in 2012, is likely to go out of his way to demonstrate his independence, for fear of being labeled a Chinese puppet. Analysts say the $6.4 billion in arms his administration requested from the U.S. earlier this year was meant partly to send that signal. If his actions provoke nationalists in China, all bets are off again.