After the PRC defense ministry responded to the deployment of the battle groups by announcing that it was imposing a blockade on "the renegade province of Taiwan" and warned all ships to refrain from approaching Taiwanese ports, the president began to appreciate how resolute Beijing was going to be, and how dangerous the momentum towards conflict had become, the official said.

The president still believed, though, that a united front among U.S. allies in Asia could dissuade Beijing from further aggression, he said. South Korea sent a salvo against that assumption Thursday, when its embassy in Washington said that "as a result of its persistent pursuit of the Sunshine Policy and diplomatic endeavors with China, tensions in Asia were at an all-time low." The statement said that when the president made his previously scheduled trip to Asia, Washington's "misunderstanding" with Beijing "would be cleared up." South Korea's government not only refused to join any U.S. military action against the PRC, it forbade the United States from using its own military bases in the Republic of Korea for such purposes.

In Japan, meanwhile, the mobilization of business leaders prevented the prime minister from backing Washington in the escalating confrontation with Beijing, the diplomat said. Tokyo also refused to allow the United States to use its military facilities on Japanese territory for operations against PRC forces. Washington reacted angrily, pointing out that Japan's de facto declaration of neutrality violated the spirit of the security statement adopted by the two governments in February 2005, declaring that a peaceful resolution of the Taiwan dispute was a crucial security interest of both countries. Japan's reneging on that commitment, U.S. officials warned Tokyo, endangered the future of the U.S.-Japanese alliance.

There was considerable sympathy for Taiwan among the Japanese public as well as the country's political elite, but the business community successfully fanned fears of China's economic and military retaliation for Japanese support of U.S. military action. Other governments throughout East Asia followed suit, declaring their neutrality in any armed conflict between the United States and China, favoring their growing political and economic ties with Beijing.

The missiles that China fired on Saturday had been part of its arsenal of 1,200 missiles, which it had been amassing for the past two decades. Military experts estimate that the initial barrage consisted of fewer than one hundred missiles, and Taiwan's missile defense system intercepted more than 80 percent of them. The physical damage inflicted by the warheads that reached their targets was quite modest, experts said, but the economic and psychological impact was considerable.

Washington was still measuring what its response should be when Taiwan's air and naval forces responded initially by attacking PRC surface vessels and waging aerial dogfights over the strait, and subsequently launching air strikes on Chinese missile batteries on the mainland. Military experts estimate that China's second barrage was probably about twice as large as its first.

NEITHER U.S. nor diplomatic sources have been able to ascertain who fired the first shot in the conflict between U.S. and Chinese forces in the Taiwan Strait on Sunday. The United States apparently did not expect China to conduct its comprehensive campaign of electronic warfare to disrupt U.S. communications and launch several anti-satellite weapons that knocked out two key U.S. spy satellites--a capability it had acquired due to the relaxation of EU sanctions on arms sales. Those tactics neutralized the advantage that the United States had enjoyed in every conflict since the Gulf War of being able to see and manage the battlefield far better than any adversary.

It was the subsequent Chinese missile assault on the Reagan and its support ships that ignited the fury of those national security advisors that had long been advising the president to take bold military action. U.S. inaction had cost the country three ships, while four had been damaged in the first hours of the battle, they noted. After China's coordinated attack, deploying a new generation of Advanced Sunburn missiles, struck the Reagan itself, calls for decisive retaliation become overwhelming. The loss of the Reagan shocked the American public, since the aircraft carriers were widely seen as virtually invincible.

By the time U.S. forces in the western Pacific were already in action--with planes from the Stennis and the Lincoln attacking PRC aircraft over the strait and supporting Taiwanese air strikes on airfields and other military installations on the mainland--sources in Washington and Asia indicated that both the United States and the PRC had put their strategic nuclear forces on maximum alert.

At a White House meeting following the sinking of the Reagan, several members of the president's national security team were in favor of escalation, advocating an attack on military and infrastructure targets throughout the PRC, said the official. That action would have required far more air power than the United States had available from the two remaining carriers. The Joint Chiefs of Staff urged the president to order the fleet of B-2 bombers from the continental United States into action, said the official. Those planes would focus on the government compound in Beijing as well as selected targets in China's prized economic jewel, Shanghai. Some officials also recommended that the United States launch attacks from its bases in South Korea and Japan, regardless of the disapproval of host governments.

Other members urged caution. The secretary of defense pointed out that China had more than 200 nuclear warheads mounted on intercontinental ballistic missiles capable of reaching any target in the United States. If the United States started bombing Beijing and Shanghai, there was no estimating where the cycle of escalation would stop. An all-out war between the United States and China, potentially involving the use of nuclear weapons, was conceivable.

The president opted against further escalation. A similar process of fear-induced restraint apparently occurred within the PRC government. In the ceasefire that emerged this week, China agreed to stop its bombardment of Taiwan and to lift the blockade, while the United States agreed not to challenge PRC control of the offshore islands and to withdraw its forces from the strait. Beijing also agreed to redeploy its forces to the western half of the strait, if Taiwan redeployed its forces to the eastern half. Although those moves formed the basis for the ceasefire, the diplomat in Asia said that China had made other behind-the-scene demands. U.S. insistence on the resignation of the Taiwanese leader and the opening of talks on reunification were made at Beijing's behest, she said.

Taiwan's new president, who comes from the more pragmatic wing of the Democratic Progressive Party (DPP), will reluctantly accommodate Beijing's demands, said the Western diplomat. Taipei had hinged its aspirations for independence on U.S. military protection, but that protection has proved insufficient. Given the damage the United States had suffered in the confrontation with China, Washington's military protection will likely be even less reliable in the future, particularly under the current administration. Even many DPP stalwarts appear convinced that Taiwan's dream of internationally recognized independence is now not achievable. The island's remaining strategy appears centered on stalling reunification negotiations for as long as possible and striking the best deal available, she said.

Although Beijing has secured many of its objectives in the crisis, reunification talks could drag on for more than a decade, according to analysts, and if reunification is finalized, it may entail a loose confederation between Taiwan and the PRC. Clearly, China has paid an extraordinarily high price for those gains.

In both the House and the Senate, the proposed Anti-Aggression Act of 2013 appears poised for swift passage, mandating not only the severing of diplomatic ties, but also a total embargo on commerce with the PRC and a ban on U.S. investment in China. A rupture in the U.S.-China relationship could do serious damage to the American economy and the global economy generally, and would have a devastating effect on China's economic health, U.S. and Chinese economists have said.

Many experts are now pointing to a new era: Sino-American cold war and competition for strategic and economic advantage throughout East Asia. Analysts will surely be estimating in the weeks and months to come the far-ranging fallout of the war over the status of one small island.

Ted Galen Carpenter is vice president for Foreign Policy and Defense Studies at the Cato Institute. This article is based on a chapter in his America's Coming War with China: A Collision Course over Taiwan (2006).