What is the 'One China' policy?

Panama cut ties with Taiwan on Tuesday, switching its diplomatic relations to the People's Republic of China and accepting the "One China" policy.

"The Government of the Republic of Panama recognizes that there is only one China in the world," the joint statement said. "The government of the People's Republic of China is the only legitimate government representing all China, and Taiwan is an inalienable part of the Chinese territory."

That means that China will send an ambassador and establish an embassy in Panama and vice versa on the Panamanian site. And Taiwan, formally known as the Republic of China (ROC), will withdraw its diplomatic staff from Panama City.

With Panama's departure from Taiwan's diplomatic cadre, that leaves just 20 or so nations with official, ambassador-level diplomatic ties to the island. Most nations, including the United States, have accepted the "One China" policy.

OK, so, what is the One China policy?

The U.S. recognition of a "One China" policy stems from 1979, when the U.S. switched diplomatic recognition from Taiwan to the People's Republic of China (PRC).

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In the 1979 U.S.-PRC Joint Communique, the United States recognized the communist leadership in Beijing as the sole legal government of China, acknowledging the Chinese position that there is one China and Taiwan is a breakaway province that is part of China.

"The Taiwan question bears on China's sovereignty and territorial integrity and touches our core interests," Chinese foreign ministry spokesman Geng Shuang said in January after President Trump questioned the "one China" policy. "Adherence to the one China principle serves as the political foundation for the development of China-U.S. ties. If this foundation is wobbled and weakened, then there is no possibility for the two countries to grow their relations in a sound and steady way and cooperate on key areas."

For Taiwan, the lack of diplomatic recognition by the U.S. and most other nations means that it cannot belong to international organizations, such as the United Nations, that require statehood as a condition of membership. Taiwan's democratically elected president cannot make official visits to the U.S. and has not been invited as an official delegate to U.S. events, such as presidential inaugurations.

It hasn't always been easy ... 

Earlier this year, China and the U.S. had a falling out when Trump questioned the "One China" policy.

Trump broke with years of diplomatic protocol following his election when he accepted a congratulatory phone call from Taiwan President Tsai Ing-wen and again riled the Chinese when, in an interview with The Wall Street Journal in January, he said:  "Everything is under negotiation, including One China."

From the Chinese perspective, that policy is non-negotiable.

The relationship got back on track in February after Trump and Chinese President Xi Jinping broke the ice in a late night phone call. It was the leaders' first conversation since Trump took office Jan. 20. Trump met with Xi at his Florida resort, Mar-a-Lago, in April.

The U.S. seems to do a lot of business with Taiwan. What's up with that?

Officially, the U.S. government does not support independence for Taiwan, a democracy that elects its own president and parliament.

U.S. relations with the island are governed by the 1979 Taiwan Relations Act, which outlines the U.S. commitment to help Taiwan maintain its military defense. Last year, the U.S. approved $1.8 billion in arms sales to Taipei.

Washington maintains unofficial relations with Taiwan through the American Institute in Taiwan, a de facto embassy that implements U.S. policy, facilitates trade and issues visas. Similarly, Taiwan maintains a de facto embassy in Washington, D.C., through its Taipei Economic and Cultural Representative Office.

Trade between the U.S. and Taiwan is robust: The U.S. is Taiwan's second-largest trading partner and Taiwan ranks as the ninth-largest trading partner for the U.S. According to the State Department, companies from Taiwan employ more than 12,000 workers in the United States.