Key Takeaways:
- The United States has consistently failed to effectively leverage its economic power to influence China’s behavior, leading to a pattern of exploitation and instability in the relationship.
- China’s goal is to become the world leader in terms of composite national strength and international influence by the middle of the century, and it is actively working to displace the United States as the world’s preeminent power.
- The United States needs to apply existing policy tools more effectively to consolidate its economic and technological advantages, including accelerating global trade realignment away from China and strengthening U.S. and allied leadership in artificial intelligence.
- Countering Beijing requires a long-term strategy that goes beyond tactical concessions and focuses on building leverage and resilience that China cannot switch off at will.
- The United States must prioritize reducing its dependence on China for critical minerals, such as rare earths, and develop a viable rare-earth ecosystem free from China’s grip.
Introduction to the Problem
The United States has long struggled to effectively leverage its economic power to influence China’s behavior, leading to a pattern of exploitation and instability in the relationship. In 1993, President Bill Clinton attempted to link trade to human rights, but China resisted and ultimately ignored the conditions, leading Clinton to grant China’s most favored nation status unconditionally. This set a precedent for future interactions, with the United States prioritizing stability over confrontation and China exploiting American overtures to accumulate coercive power.
The Engagement Illusion
The engagement illusion refers to the idea that the United States can stabilize its relationship with China through dialogue and cooperation. However, this approach has proven ineffective, as China has consistently exploited American overtures and continued to accumulate coercive power. The October 2025 summit between U.S. President Donald Trump and Chinese leader Xi Jinping is a prime example of this illusion, as the meeting yielded only a fragile truce that heavily favored Beijing. The United States must recognize that stability with a communist dictatorship is a fantasy and that China’s goal is to become the world leader in terms of composite national strength and international influence.
The Main Battlefield
China’s 15th Five-Year Plan makes clear that Beijing plans to double down on industrial policy, relying on exports and high-tech sectors to sustain economic growth and build national power. The plan emphasizes the importance of advanced manufacturing and artificial intelligence in achieving this goal, and China has organized its priorities accordingly. The United States and other democratic market economies must focus on reducing trade exposure to China and limiting Beijing’s ability to convert advances in AI into extraordinary industrial advantages.
Start of Something New
Countering Beijing requires nothing short of reordering the global trade system. The United States must prioritize building leverage and resilience that China cannot switch off at will, rather than relying on tactical concessions that merely invite exploitation. This can be achieved through a combination of trade diversification, export controls, and investment in critical technologies such as artificial intelligence and rare earths. The United States must also work with its allies to develop a shared industrial strategy and build an expanded supply chain network insulated from Chinese overcapacity.
The Chip Gap
The Trump administration’s decision to license exports of Nvidia’s H200 chips to China is a massive error, as it directly contradicts the logic of the administration’s own National Security Strategy and AI Action Plan. Allowing sales of cutting-edge AI chips to China is tantamount to transfusing the United States’ lifeblood into the arteries of its chief rival, hastening a future in which the AI revolution bears a "Made in China" stamp. The United States must prioritize maintaining its leadership in chip design, manufacturing, and cloud infrastructure, and prevent China from achieving global semiconductor supremacy.
Operation Mineral Security
The United States’ dependence on China for rare earths is a critical vulnerability that must be addressed. China’s dominance in rare earths rests on three key chokepoints: the concentration of heavy rare-earth minerals in China and Myanmar, its near monopoly in processing and separation, and its dominance in the manufacturing of permanent magnets. To counter Beijing, the United States and its allies must adopt an industrial strategy similar to the one pursued during the pandemic, using diversified investment, proactive financing of large-scale manufacturing, and public-private coordination to build resilient rare-earth supply chains. This will require strategic stockpiles of rare earths, long-term offtake agreements, and targeted tariff relief to partners that block Chinese acquisitions and enforce transparent supply chains.
