Managing Sino-American interdependence

Last month’s summit between US President Donald Trump and Chinese President Xi Jinping signaled that the Sino-American relationship is moving from intense confrontation back toward something more stable. Both sides have committed to fostering a “constructive relationship of strategic stability.” Their disagreements have not disappeared, but each has come to realise that continued escalation is costly, dangerous, and unsustainable. Competition must be governed by rules, and disputes must be managed.

This judgment rests on sound strategic logic. During the Cold War, the prospect of “mutually assured destruction” prevented the United States and the Soviet Union from engaging in a head-to-head military conflict. Neither side trusted the other, but both understood that there could be no real winner from an escalatory war between nuclear powers.

A similar logic applies to the US-China economic relationship. Of course, economic interdependence is not the same as nuclear deterrence, and the potential costs of misjudgments do not rise to the same level. But in a world of intertwined global value chains, the US and China have undeniably developed a relationship of “mutually assured economic pain.” If either side tried to cripple the other through full decoupling, extreme pressure tactics, or moves to sever supply chains, it would also harm its own firms, consumers, and financial markets.

This marks an important change in great-power relations. Historically, countries that went to war had only limited economic ties. Even in the case of World War I and II, trade had expanded, but much of it was between different industries. Only after World War II did trade become increasingly intra-industry, and now the US-China economic relationship has gone further. It is both deeper and broader than earlier forms of great-power economic interdependence.

In the mid-2020s, the US and China are not merely buying from and selling to each other. Their economies are deeply embedded in the same production systems, innovation networks, and financial markets. To escalate a bilateral conflict is to invite serious harm to oneself. This is true of war, and it is true of comprehensive decoupling.

Although economic interdependence does not automatically prevent war, it does raise the cost of allowing a conflict to spiral out of control. It serves as a kind of insurance policy or stabilising force, but only when countries respect basic boundaries, keep channels of communication open, and recognise the importance of avoiding dangerous miscalculations.

The Russia-Ukraine war offers a sobering example of how things can go wrong. Before the war, Europe and Russia were closely connected through their energy trade. But that relationship did not prevent hostilities. The problem lay in the nature of the dependence, which was too concentrated in one sector, structurally asymmetric, and easily weaponised once political relations had deteriorated. The lesson is not that economic interdependence is an ineffective bulwark of peace, but that it must be balanced and properly managed.

In recent years, many countries have emphasised de-risking, supply-chain security, and strategic autonomy. These concerns are understandable. The COVID-19 pandemic, new wars, sanctions, and technology restrictions have all underscored the vulnerabilities and trade-offs that come with globalisation. But if every form of interdependence is treated as a security threat, and every economic link as a source of strategic weakness, the world risks replacing one form of danger with another. De-risking may escalate to decoupling, and the pursuit of supply-chain security may trigger a direct confrontation between global blocs.

A more fragmented world would not be a safer one. The constraints that great powers impose on one another would be weaker, and the risk of conflict much greater. The goal therefore is not to end interdependence, but to make it safer, more balanced, and more governable. We must build resilience while remaining open, preserve cooperation while still competing, and maintain communication despite disagreements. De-risking should have limits, security policies should be proportionate, and strategic competition should have guardrails.

This vision aligns with the ancient Chinese concept of he er bu tong (和而不同): “harmony without uniformity.” Harmony does not mean eliminating differences, but it does mean that differences do not lead to confrontation. In modern international relations, this idea can be enshrined through institutional inclusiveness. We need an international order that can accommodate major powers with different systems, development paths, and interests within the same global framework.

The recent US-China summit was significant because it highlighted the shared realisation that two nuclear powers that are deeply embedded in the global economy cannot make escalation a long-term strategy. US-China relations will naturally continue to involve competition and friction. But if both sides can keep the competition within rules, limit security concerns to reasonable boundaries, and turn interdependence into a stabiliser rather than a weapon, they will have created a foundation for peace.

Interdependence cannot guarantee peace, but without it, peace will become more fragile. The task for the US and China now is to make their interdependent relationship more balanced, rules-based, and governable. The alternative is a far more dangerous world.

Qiyuan Xu, a senior fellow at the Chinese Academy of Social Sciences, is the author of many books, including Reshaping the Global Industrial Chain: China’s Choices.

Image: “P20260514DT-3320” by The White House, United States Government Work