In May 1993, U.S. President Bill Clinton tested whether economic leverage could be converted into political influence over China. Having campaigned on a promise to link trade to human rights, he signed an executive order conditioning the annual renewal of China’s “most favored nation” trading status on “substantial progress” across a set of human rights benchmarks. The initiative immediately met resistance: U.S. businesses warned that the order would harm American economic interests, while China threatened to obstruct U.S. diplomatic and trade priorities if its status were withdrawn. Over the following year, Beijing largely ignored Washington’s conditions, making few, if any, meaningful improvements on human rights. When renewal came due in 1994, Clinton granted China’s most favored nation status unconditionally, conceding that the strategy had “reached the end of its usefulness.”

Washington apparently concluded that confronting China was not worth the cost. Over time, accommodation became the default, and policymakers sought to align China with U.S. interests by embedding it more deeply in the global economic system. That familiar logic guided the decision to support China’s accession to the World Trade Organization (WTO) in 2001 and to grant permanent normal trade relations in 2002, institutionalizing the policy of engagement. Even as China’s economic power grew, this orientation proved remarkably durable. Successive American administrations offered dialogue and cooperation as a framework for managing ties, often treating stability as an end in itself.

Stability with Beijing, however, remains elusive. As with Clinton and the most favored nation status, China has consistently exploited American overtures, toggling between conciliatory rhetoric and threats of retaliation to shift the burden of stabilizing ties onto Washington. All the while, it has continued to accumulate coercive power as it actively works to displace the United States as the world’s preeminent power. Chinese leader Xi Jinping has made this much explicit: the country’s goal, he declared at the 20th Party Congress in October 2022, is to become the world leader “in terms of composite national strength and international influence by the middle of the century.”

The October 2025 summit between U.S. President Donald Trump and Xi in Busan, South Korea, is but the latest example of the engagement illusion. In the run-up to the meeting, Trump signaled he could bring a bazooka to the bargaining table, threatening to impose sweeping software export controls. In the end, however, the administration yielded in the face of Beijing’s rare-earth export controls, and the meeting yielded only a fragile truce: a one-year freeze on new punitive trade measures in exchange for nonbinding commitments from China to cooperate on curbing fentanyl flows and to resume limited purchases of U.S. agricultural products. Beijing, on the other hand, emerged emboldened, with Chinese state media openly boasting about Beijing holding Washington’s “core industrial lifeline” in its hands.

Trump does not have long before his planned visit to Beijing in April 2026. Without a clear-eyed assessment of the true intentions of the Chinese Communist Party (CCP), Washington risks getting caught flatfooted and played for a fool yet again. To best position the United States for that meeting, the administration needs to apply existing policy tools more effectively to consolidate its economic and technological advantages. While some of this work is already underway, Washington must accelerate global trade realignment away from China, strengthen U.S. and allied leadership in artificial intelligence by expanding export controls on advanced semiconductors and working with allies to close loopholes, and reduce reliance on Chinese-controlled supply chains for critical minerals, which is the United States’ most glaring vulnerability. It’s past time for the United States and other democracies to realize that pursuing stability above all else with a communist regime bent on global primacy is a fool’s errand.

BLINK FIRST

April 2025 was a watershed moment. The Trump administration launched its “Liberation Day” tariffs on virtually all U.S. trading partners. China retaliated with its own duties, triggering a tit-for-tat cycle that culminated in Trump’s imposing tariffs of 145 percent on Chinese goods—effectively signaling the start of a trade embargo. But for the first time, the CCP wielded the full force of its industrial dominance against the United States by cutting off rare-earth exports, a move designed to cripple major sectors of the American economy, from automotives to defense. (China controls roughly 85 percent of global rare-earth mineral mining and a staggering 95 percent of the world’s rare-earth processing and refining capacity.) U.S. manufacturers warned that delays were already straining supply chains and threatening to shut down production. It was enough to persuade the president to blink first. The two countries struck a 90-day truce in May, in which the United States agreed to lower China’s rates to 30 percent. For its part, Beijing ostensibly agreed to restore U.S. access to rare earths, but it retained control through its export licensing regime, rolling out approvals slowly and selectively.

Further U.S. concessions followed: in July, the administration walked back export controls it had placed on Nvidia’s H20 chips earlier that year. A month later, the Trump administration also delayed the previously planned “snap back” to higher tariffs for another 90 days, citing “productive negotiations”—effectively giving Beijing time to consolidate its economic leverage.

Stability with a communist dictatorship is a fantasy.

In September, the Trump administration’s conciliatory approach seemed to wobble when the U.S. Department of Commerce revised its export control rules, closing loopholes that Chinese companies had used to access controlled U.S. technology through affiliates and intermediaries. Washington framed this “Affiliates Rule” as a long-overdue regulatory cleanup, but Beijing saw it as an unwelcome reversal. China’s Ministry of Commerce condemned the change as an “extremely egregious” move that “gravely undermines the security and stability of global industrial supply chains.” In October, China dramatically expanded its rare-earth export controls in response, threatening to cut off critical inputs for everything from consumer electronics to advanced defense systems. It was a sweeping assertion of leverage that exposed companies worldwide to severe economic risk.

By the time of the Busan talks in late October, the Trump administration had a cocked and loaded gun pointed at its head. It came as no surprise, then, that the truce that emerged heavily favored Beijing. Trump immediately cut tariffs tied to fentanyl flows by ten percentage points in exchange for promises of Chinese cooperation—an arrangement reminiscent of the 1993 saga over human rights improvements. Washington also suspended the Affiliates Rule and new trade restrictions for a year; in return, it received what it claimed was a commitment from China to eliminate its rare-earth export controls and end bans on the purchase of U.S. chips.

In practice, Beijing has retained and even tightened its rare-earth licensing requirements, using them to harvest supply chain data and trade secrets from foreign firms. Moreover, it has continued to restrict Chinese companies from purchasing U.S. chips. China’s tactical concessions, such as purchasing more American soybeans, were calibrated to placate Trump while it consolidates its advantage and pursues its long-term objectives.

THE MAIN BATTLEFIELD

Summit optics should not obscure Beijing’s ultimate goal, which was spelled out in the CCP’s proposal for its latest five-year plan, scheduled for formal adoption in March. The proposal, accompanied by an extensive “explanation” from Xi himself, 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 CCP views advanced manufacturing as “the main battlefield” in the contest for global dominance, and it has organized its priorities accordingly. Jin Canrong, an influential Chinese international relations scholar, summarized the view from Beijing well when he argued in October 2025 that China must “resist the illusion of Western ideologies and value systems” and prioritize industrial development, as “global competition increasingly favors those with scalable industrial capacity.”

The 15th Five-Year Plan, which covers 2026–30, consummates Xi’s long-standing drive to subordinate economics to national security. Directives to establish a “foreign-related national security mechanism” and an “overseas security guarantee system” signal Beijing’s intent to further insulate its economy from external pressure while expanding its coercive capacity. The plan’s accompanying communiqué, meanwhile, explicitly instructs the military to “prepare for war,” marking a break with previous five-year plans, which typically focus on economic and social development. Taken together, Beijing’s policy language evinces what Matthew Johnson, a senior fellow at the Jamestown Foundation, has called “a siege mentality.” The CCP has permanently wired its economy and society for confrontation with the United States.

The Trump administration had a cocked and loaded gun pointed at its head.

Although the five-year plan pays lip service to the structural imbalances that have long plagued China’s economy, its overwhelming focus is on industrial modernization. For nearly a decade, Beijing has promised to rebalance toward consumption and curb excessive investment. Today, in the face of mounting international pressure and Xi’s own calls to combat competitive price spirals, as well as growing signs of social disaffection with its priorities, the CCP shows few signs of genuine course correction. Instead, it is poised to compensate for domestic stagnation by continuing to scale up state-directed manufacturing and export abroad its staggering trade surplus, which hit a record $1.2 trillion last year.

China already accounts for roughly a third of global manufacturing output—more than Germany, Japan, and the United States combined—but it wants an even larger share of the pie and sees artificial intelligence as crucial to getting it. The five-year plan emphasizes how AI-driven industrial transformation will put China in a stronger position to “shape a favorable external environment,” strengthening its hold over critical supply chains that it can use to coerce rivals. The United States and other democratic market economies should therefore focus not only on reducing trade exposure to China but also on limiting Beijing’s ability to further convert advances in AI into extraordinary industrial advantages.

START OF SOMETHING NEW

Countering Beijing requires nothing short of reordering the global trade system. For much of the post–Cold War era, U.S. trade policy rested on the assumption that deeper economic integration with China would encourage it to liberalize. Beijing’s accession to the WTO failed to deliver structural reform, but even years later, Washington continued to treat Asia as a single open production space in which efficiency and market access outweighed strategic vulnerability. When the United States finally began to adjust course during Trump’s first term, some U.S. firms relocated production to Southeast Asia and Mexico to avoid higher tariffs on Chinese imports. But China quickly followed, rebuilding supply chains in countries across the so-called global South and using transshipment and diversion channels to maintain access to the U.S. market.

U.S. Trade Representative Jamieson Greer recognizes that the post–Bretton Woods trade system has failed to evolve to meet the times. The “Trump Round,” as Greer has dubbed the present moment, is a necessary break from decades of prioritizing efficiency over security. That old consensus let China game the system: exploiting open markets abroad while running a closed, state-driven economy at home. To usher in a new order, Greer has taken steps to renegotiate trade flows with Southeast Asia. New economic security agreements—signed with Cambodia and Malaysia, and pending with Thailand and Vietnam—go far beyond traditional tariff schedules. Like deals with Japan, South Korea, and the European Union, they encompass economic security clauses to cooperate on export-control enforcement, investment screening, and critical-mineral supply chains. The agreements also place heavy emphasis on countering transshipment and diversion—implicitly targeting problems that emerged in Trump’s first term after he levied tariffs on China. The logic is clear: trade partners receive preferential access to the U.S. market in exchange for reduced dependence on China, and the threat of higher U.S. tariffs enforces the arrangement.

Beijing has followed a consistent playbook: import, substitute, displace, dominate.

Greer’s strategy also aims to strengthen North America as a production base capable of competing with China. While the Trump administration has aggressively pressured Ottawa and Mexico City to secure concessions ahead of this year’s review of the U.S.-Mexico-Canada Agreement, the priority should now shift from brinkmanship to consolidation, treating the pact not simply as an arrangement for market access but as the foundation of a shared industrial strategy. The bloc already has deeply integrated supply chains in automobiles, aerospace, medical devices, and semiconductors. Strengthening rules of origin, aligning investment incentives, and coordinating tariffs and other restrictions on Chinese imports would prevent dumping and backdoor access through North American production channels. Over time, the bloc could expand to include additional partners in the hemisphere and beyond and build an expanded supply chain network insulated from Chinese overcapacity. This shift is already underway: Mexico has overtaken China as the United States’ largest trading partner for goods and has steadily raised its own tariffs on China. In November 2025, Washington also announced new trade framework agreements with Argentina, Ecuador, El Salvador, and Guatemala.

U.S. tariffs have effectively reduced the United States’ exposure to China: the Chinese share of U.S. imports has now dropped below where it stood prior to China’s WTO accession 25 years ago. Sustaining that shift, however, depends on a tariff gap between China and the rest of the world that is wide enough to make sourcing from China unattractive. Trump’s ten percent tariff concession to Xi narrowed this differential, weakening the incentive to pivot away from China.

Greer retains authority to raise tariffs on China and restore the necessary arbitrage, but his ability to do so will be constrained for fear of shattering the president’s trade truce with Xi. Before April, Washington must learn that short-term compromises merely postpone the inevitable reckoning between dealmaking and decoupling. Moreover, maintaining higher tariffs on China will not only reshape supply chains but also put pressure on China’s growth model. As U.S. demand recedes, Chinese firms will be forced to dump goods into smaller, export-dependent markets at razor-thin margins, which could worsen deflation, provoke foreign backlash, and strengthen the United States’ hand.

THE CHIP GAP

Trade diversification reduces U.S. exposure to China and strengthens American resilience. But durable advantage also requires exploiting asymmetries—none more so than access to advanced computing power. AI is poised to fundamentally transform the balance of economic and military power for decades to come. U.S. and allied leadership in chip design, manufacturing, and cloud infrastructure is Washington’s most enduring and potent source of technology leverage.

This is why the Trump administration’s decision in December 2025 to license exports of Nvidia’s H200 chips to China is a massive error. While framed as a commercial win for the United States, it amounted to a major concession to Beijing—one that directly contradicts the logic of the administration’s own National Security Strategy and its AI Action Plan, which calls for “denying our foreign adversaries” access to compute resources on economic and national security grounds. 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.

Right now, computing power is the key constraint on China’s AI ambitions. According to Chris McGuire, a senior fellow at the Council on Foreign Relations who served on the National Security Council during the Biden administration, the most advanced American AI chips are roughly five times more powerful than Huawei’s best offerings; that disparity is projected to grow to 17 times by 2027. Production gaps are even starker: the United States and its partners can produce AI processors at a rate more than 35 times that of China. Chinese leaders and AI scientists are acutely aware of this disparity. In a Politburo study session convened in April 2025, Xi stressed that China was behind the United States in AI and must “face up to the gap” in chips. And at an AI conference in Beijing earlier this month, one of Alibaba’s AI leads, Lin Junyang, acknowledged that U.S. compute advantages may be “one to two orders of magnitude larger than ours.”

Tactical concessions cannot buy durable cooperation.

The argument that China will remain “addicted” to U.S. chips, if only the United States agrees to sell them, is seductive, but nonetheless willfully ignorant of the CCP’s track record. Across sectors, from telecommunications to solar panels and batteries, Beijing has followed a consistent playbook: import, substitute, displace, dominate. It has resolved to do the same with semiconductors. Even after news broke that Washington would license H200 sales, Chinese authorities were considering a $70 billion stimulus for the chip sector—a clear signal that U.S. largess would not deter their drive for self-reliance. These subsidies would come on top of the approximately $150 billion that Beijing has directed to its chip sector since 2014.

Taken together, these moves belie the delusion that China seeks anything less than global semiconductor supremacy. But capital alone cannot substitute for access to advanced tools, expertise, and globally integrated manufacturing ecosystems—precisely where U.S. and allied leadership, and the export controls designed to protect it, remain decisive. Exporting advanced chips weakens that competitive advantage by giving Beijing exactly what it needs to achieve its long-term ambitions. With the H200 chips, Beijing can now surge ahead across domains where it faced difficult tradeoffs: military modernization, AI model development, and the long-term push for chip self-sufficiency.

Loosening export controls threatens another pillar of U.S. tech dominance: cloud computing. American firms operate the world’s leading cloud platforms and invest seven times more in AI data centers than their Chinese counterparts. Allowing advanced AI chips to flow into China could help Chinese tech giants such as Alibaba and ByteDance to compete directly with American companies in third-country markets. Given the limited supply, every chip exported to China is one unavailable for domestic AI infrastructure.

Security risks further compound the problem. Currently, no Chinese AI data centers operate outside China. But if Chinese technology becomes embedded in U.S. data centers, it could enable Beijing to collect sensitive data or conduct remote sabotage. The Commerce Department has the authority to block imports of risky Chinese-connected technologies, including components for data centers, which it should use now to prevent Chinese firms from entrenching themselves in American and global data infrastructure.

OPERATION MINERAL SECURITY

Even the most successful trade realignment and export controls will fall short if the United States remains dependent on China for the raw materials that power modern industry. Nowhere is that dependence more dangerous than in rare earths. Without reliable access to rare earths, the United States cannot produce the defense systems required for deterrence, the energy infrastructure needed to power the AI revolution, or the semiconductors and electronics that underpin modern life. The Trump administration’s recent moves, including cooperation agreements with Australia and Japan to secure the supply chains of critical minerals and rare-earth magnets, and executive orders directing agencies to accelerate domestic mining and processing, laid important groundwork. These efforts must now be implemented at scale. With sustained investment and coordination with allies, the United States can build a viable rare-earth ecosystem free from China’s grip.

Beijing’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. For decades, while the rest of the world neglected upstream and midstream supply chains, Beijing hardwired these dependencies into the global economy. And as early as 2010, it revealed a willingness to weaponize them, cutting off rare-earth shipments to Japan as punishment for a fishing dispute.

Countering Beijing requires nothing short of reordering the global trade system.

To counter Beijing, the United States and its allies must move beyond fragmented, project-by-project initiatives and adopt an industrial strategy similar to the one it pursued during the pandemic. The COVID vaccine development program known as Operation Warp Speed used diversified investment, proactive financing of large-scale manufacturing, and public-private coordination in order to compress a decade of vaccine development into less than a year. An Operation Mineral Security could likewise compress the timeline for building resilient rare-earth supply chains. Washington should aim to bring mining, refining, separation, and magnet production online at scale, and use long-term offtake agreements to deter Chinese price crashes, public financing to crowd in private investment, and subsidies and indemnification to support firms at risk of retaliation. This strategy will require strategic stockpiles of rare earths to stabilize demand, and it should offer targeted tariff relief to partners that block Chinese acquisitions and enforce transparent supply chains.

The rare-earth challenge demands urgency and imagination. This is not a problem that markets alone will solve; purely commercial ventures cannot compete with highly subsidized Chinese competition. But with targeted government intervention, patient capital, and acceptance of the tradeoffs, what appears economically unviable becomes feasible.

Washington is still haunted by the same dilemma that confronted Clinton: tactical concessions cannot buy durable cooperation. Instead, they merely invite exploitation. Stability with a communist dictatorship is a fantasy. Breaking the cycle requires building leverage and resilience that Beijing cannot switch off at will.