In one of the most dramatic announcements of the Cold War, President Jimmy Carter states that as of January 1, 1979, the United States will formally recognize the communist People's Republic of China (PRC) and sever relations with Taiwan.
Following Mao Zedong's successful revolution in China in 1949, the United States steadfastly refused to recognize the new communist regime. Instead, America continued to recognize and supply the Nationalist Chinese government that had been established by Chiang Kai-shek on the island of Taiwan. In 1950, during the Korean War, U.S. and PRC armed forces clashed. During the 1960s, the United States was angered by PRC support and aid to North Vietnam during the Vietnam War.
By the 1970s, however, a new set of circumstances existed. From the U.S. viewpoint, closer relations with the PRC would bring economic and political benefits. Economically, American businessmen were eager to try and exploit the huge Chinese market. Politically, U.S. policymakers believed that they could play the "China card"—using closer diplomatic relations with the PRC to pressure the Soviets into becoming more malleable on a variety of issues, including arms agreements. The PRC also had come to desire better relations with its old enemy. It sought the large increase in trade with the United States that would result from normalized relations, and particularly looked forward to the technology it might obtain from America. The PRC was also looking for allies. A military showdown with its former ally, Vietnam, was in the making and Vietnam had a mutual support treaty with the Soviets.
Carter's announcement that diplomatic ties would be severed with Taiwan (which the PRC insisted on) angered many in Congress. The Taiwan Relations Act was quickly passed in retaliation. It gave Taiwan nearly the same status as any other nation recognized by the United States and also mandated that arms sales continue to the Nationalist government. In place of the U.S. embassy in Taiwan, an "unofficial" representative, called the American Institute in Taiwan, would continue to serve U.S. interests in the country.