For thirty years, Washington bet that economic integration would moderate China's politics. It didn't. Here is how that assumption collapsed — and what replaced it.
The defining foreign policy story of the 21st century is not terrorism, not climate change, and not the resurgence of Russia. It is the deterioration of the relationship between the United States and China — the world's two largest economies, its two largest military spenders, and the two countries whose decisions will shape the next hundred years more than any others.
Understanding where things stand requires understanding where they came from. Because for much of the past five decades, the relationship looked very different from how it looks today.
The modern U.S.-China relationship begins with one of the more audacious diplomatic moves of the 20th century. In February 1972, President Nixon — the most reliably anti-communist politician of his generation — flew to Beijing and met Mao Zedong. The logic was strategic: by opening relations with China, the United States could exploit the Sino-Soviet split and gain leverage over both communist powers simultaneously.
Full diplomatic relations were established in 1979 under President Carter, with Washington withdrawing formal recognition of Taiwan and acknowledging Beijing's position that there is "one China." This ambiguity — Washington acknowledged Beijing's claim without endorsing it — became the foundation of a relationship that lasted, in various forms, for the next four decades.
From the late 1970s through the early 2010s, U.S. policy toward China was built on a theory that policymakers called "engagement." The idea was straightforward: bring China into the international economic and institutional order, and its political system would gradually liberalize. As a middle class grew wealthy on trade, it would demand political rights. As Chinese companies integrated with global supply chains, China's leadership would have too much to lose from confrontation.
The theory had prestigious backing. It was the consensus position of the State Department, most academic China scholars, and the American business community. When China was admitted to the World Trade Organization in 2001, it was celebrated as a triumph of the engagement approach.
For a while, the theory seemed to be working. China grew spectacularly. Its middle class expanded. It joined international institutions. U.S.-China trade ballooned from roughly $5 billion annually in 1980 to over $600 billion by the late 2010s.
What the engagement theory underestimated was the resilience of the Chinese Communist Party's grip on power and its determination to modernize China's economy without democratizing its politics. The Party had watched the Soviet Union collapse and drawn a clear lesson: economic reform without political control was suicidal for a ruling party.
Under Xi Jinping, who consolidated power from 2012 onward, the direction of travel reversed. The space for civil society, independent media, and internal Party debate narrowed rather than widened. In 2018, Xi had the constitution amended to remove term limits, making him effectively president for life. The bet that prosperity would produce liberalization had definitively lost.
Meanwhile, the economic relationship began to look less mutually beneficial and more structurally lopsided. China maintained persistent barriers to foreign companies operating in its market while Chinese firms benefited from open access abroad. Intellectual property theft became a systemic feature rather than an isolated problem. Industrial subsidies allowed Chinese state-backed companies to undercut foreign competitors in global markets.
Between 2001 and 2019, the U.S. trade deficit with China totaled roughly $5 trillion. The political consequences of that number — in terms of manufacturing job losses concentrated in specific regions — reshaped American domestic politics in ways that made the old bipartisan consensus on China impossible to sustain.
Trump's first administration brought the latent tensions into the open. Beginning in 2018, the U.S. imposed tariffs on hundreds of billions of dollars of Chinese goods. China retaliated. The two countries signed a partial truce in January 2020, but the underlying structural disputes remained unresolved.
More consequential in the long run than the tariffs was a shift in technology policy. The U.S. government began restricting the export of advanced semiconductors and chip-making equipment to China, concerned that these technologies had dual-use military applications. The restrictions on Huawei — barring it from using American-designed chips and from the Google Play Store — announced in 2019, signaled that Washington was willing to fragment the global technology supply chain rather than allow China to achieve dominance in critical sectors.
The Biden administration tightened these restrictions further in 2022 and 2023, extending export controls to cover advanced AI chips and the equipment used to manufacture them. The logic had shifted from competing economically to decoupling strategically — accepting economic costs in exchange for slowing China's military-technological development.
Underlying every dimension of U.S.-China competition is Taiwan. The self-governing island of 23 million people sits 110 miles off the Chinese coast and produces roughly 90 percent of the world's most advanced semiconductors. Beijing regards it as a renegade province that must eventually return to the mainland, by force if necessary. Washington maintains a policy of "strategic ambiguity" — selling Taiwan defensive weapons while neither endorsing nor denying that it would intervene militarily if China attacked.
That ambiguity has been deliberately maintained for fifty years because it serves a deterrence function: China cannot be certain the U.S. won't fight, and Taiwan cannot be certain the U.S. will, which theoretically discourages both provocation and complacency. But the ambiguity also means that the most dangerous potential flashpoint in U.S.-China relations has no clear resolution mechanism.
The relationship is now defined by competition across virtually every domain — trade, technology, military posture, diplomatic influence, and narrative. There are still functional channels of communication, and both sides have an interest in preventing accidental escalation. But the baseline assumption has shifted fundamentally: neither government any longer believes that economic interdependence is a sufficient brake on conflict.
For the United States, the core challenge is maintaining deterrence in the Indo-Pacific while managing a relationship with the country that makes or assembles a vast share of the goods Americans buy. For China, it is achieving technological self-sufficiency before export controls take full effect, while managing an economy under demographic and structural stress. Neither challenge has a clean solution. And neither country has yet developed a stable framework for living with an adversary this large, this capable, and this deeply intertwined.