CNAS Insights | Strategic Stability with China Will Come at a Cost

U.S. President Donald Trump and Chinese General Secretary Xi Jinping will meet this week for the latest high-stakes summit. A core focus will be extending a trade truce set to expire this year. But a more consequential question will loom over the talks: Can the United States counter China’s growing geoeconomic power?

Coming out of the previous summit, the United States and China announced an intention to pursue “strategic stability,” which provided a welcome respite from the U.S.-China trade wars. But it is unlikely to last—and if it does, it will come at a significant cost to U.S. interests.

The agreement on strategic stability is best understood as a U.S. concession in the face of stiff Chinese retaliation following last summer’s bruising tariffs and export controls. U.S. attempts to coerce China badly backfired. China hit back hard, including restricting the export of rare earths—a critical input for advanced technologies and one for which China dominates global supply. When Trump accepted the strategic stability framing, initially suggested by Xi, it was a tacit admission that America had been backed into a corner.

Strategic stability, adopted from Cold War–era theories of mutually assured destruction in the event of a nuclear conflict, reflects the reality that the United States and China can inflict severe economic pain on each other, and thus restraint is in the interest of both. For Trump, strategic stability is meant to facilitate his preferred style of diplomacy—dealmaking. For Xi, however, strategic stability is about deterring America from using its geoeconomic leverage to threaten Beijing’s core interests.

Since the May summit, both sides have curtailed the overt weaponization of economic ties. The United States has not added a single Chinese company to its Entity List, or technology blacklist. U.S. trade officials have signaled a ceiling on the tariff rates that China will receive. China has started to slowly license rare earths exports.

At the same time, both sides have intensified efforts to reduce dependencies on each other. The United States has announced efforts to rid defense supply chains of Chinese products, build rare earths markets not reliant on China, and ban Chinese-produced drones and robotics from the U.S. market. China has introduced regulations to punish companies that move supply chains out of China.

The two countries have settled into an uneasy compromise. Both sides can defend their supply chains, so long as neither weaponizes their economic chokepoints.

But this misses a fundamental point: Defending U.S. interests can require actions that China opposes. The aim of U.S. policy should not be stability at any cost, but instead to maintain America’s role as the preeminent economic and security power in the world. This will unavoidably cause tension with China and, sooner or later, a breakdown in strategic stability. Even for a Trump administration focused on transactional wins, the geopolitical costs of preserving strategic stability could become too much to bear.

Consider Taiwan. Chinese aggression toward Taiwan has notably increased, with provocative Coast Guard exercises disrupting commercial traffic around the island as the latest example of a protracted campaign to erode Taiwan’s security environment and test U.S. support. For China, strategic stability is contingent upon America’s non-interference on Taiwan. But a U.S. failure to respond to Chinese aggression could fatally undermine confidence in U.S. leadership, and the outbreak of a conflict would be devastating for the global economy.

The ongoing Iran conflict is another test. American officials have threatened to punish countries offering Iran an economic lifeline. China has long been Iran’s largest buyer of oil and has promised stiff retaliation for any U.S. sanctions targeting their energy trade.

More broadly, China has acted as a sanctions spoiler for most major U.S. sanctions campaigns over the last decade. China’s trade in dual-use goods with Russia has sustained the Kremlin’s war machine, and Beijing is often the buyer of first resort for heavily sanctioned petrostates. The United States is unlikely to give up sanctions, but wielding them effectively increasingly means targeting Chinese entities that undermine them.

Strategic stability could also be upended by a miscalculation. The rare earths crackdown, for example, was prompted by a U.S. failure to anticipate China’s reaction to beefed up export controls. And while both sides have tolerated each other’s supply chain security measures, there is no shared understanding of when defensive actions tip into weaponization of economic ties.

The obvious answer to these challenges is to stop bullying U.S. allies and coordinate approaches to counter Chinese geoeconomic power. A coalition of advanced industrialized democracies brings sufficient economic firepower to blunt China’s retaliation, while also creating large enough market opportunities for non-China suppliers of critical goods to survive. Absent that, the United States is stuck in the strategic stability problem of its own making.

Emily Kilcrease is a senior fellow and director of the Energy, Economics, and Security Program.

Geoffrey Gertz is a senior fellow for the Energy, Economics, and Security Program.