The Trump administration approached its high-stakes summit with Chinese leader Xi Jinping projecting absolute confidence, asserting that Washington held the ultimate leverage in the bilateral relationship as the world’s primary trade deficit country. As U.S. Treasury Secretary Scott Bessent framed the dynamic ahead of the talks, “What do we lose by the Chinese raising tariffs on us? We export one-fifth to them of what they export to us, so that is a losing hand for them.”
This bravado was quickly exposed as geopolitical folly. Trade wars are exceptionally easy to lose when nations remain deeply dependent on a single major exporter for hard-to-replace industrial inputs, yet continue to conceive of international commerce through an outdated, zero-sum lens. China commands undeniable escalation dominance over the United States. This structural reality means that at virtually any level of economic threat or tariff retaliation, Beijing possesses the capacity to inflict significantly more pain on the American economy than Washington can return in kind.
To ease Beijing’s strict export restrictions on rare-earth elements—critical materials where China controls between 80 and 90 percent of global production—the United States has repeatedly been forced to make concessions on tariffs, advanced technology controls, and visa policies during various rounds of negotiations.
Yet Washington’s historical inability to immediately decouple, let alone extract unilateral concessions from China through blunt tariff threats, should not signal a complete surrender of economic diplomacy. For centuries, lesser powers in the global economy subject to such asymmetries of escalation dominance have successfully navigated relations with more powerful adversaries by bargaining pragmatically while actively avoiding destructive confrontation. Until recently, that exact pragmatic approach defined how China—and virtually all other major trading nations—viewed their economic interactions with the United States, occasionally to the immense frustration of American officials.
Economic relationships are rarely all-or-nothing affairs; they consistently leave ample room for both strategic resistance and pragmatic cooperation, even when one side would clearly suffer severe losses if the dynamic devolved into outright conflict. Despite persistent strategic rivalry and high mutual distrust, the U.S.-Chinese economic relationship does not have to be managed as a rigid zero-sum game. The material benefits derived from international trade and supply chain diversification for both economies remain substantial. Furthermore, China’s escalation dominance would hardly spare its own domestic economy from acute pain if it were forced into a prolonged tit-for-tat trade conflict with Washington. Indeed, Beijing, which remains broadly comfortable with the existing commercial status quo, has little genuine appetite for such escalation.
At the ongoing diplomatic engagements between Xi and President Donald Trump, the U.S. government has a vital opening to initiate a fundamentally different approach to the bilateral economic relationship. This pivot requires pursuing increased imports of key strategic goods alongside greater foreign direct investment originating from China. Naturally, this must form only one component of a much broader, comprehensive economic strategy. Sustained cooperation with international allies remains absolutely necessary to encourage any durable changes in Chinese commercial behavior and to diversify vulnerable supply sources over the long term. A far more complex, sober assessment of Xi’s strategic objectives and China’s domestic economic vulnerabilities will also be required for long-term strategic success. Nevertheless, these high-level meetings provide Washington with a valuable opportunity to buy the time necessary to address the country’s most acute economic and industrial needs.
Start With Stockpiling
Despite a decade of aggressive political rhetoric denouncing the national security threats posed by Chinese imports and foreign investment under both the Trump and Biden administrations, the U.S. government has fundamentally failed to meaningfully decouple even its most sensitive industrial sectors from China. As economic researchers Mary Lovely and Christine Wan have demonstrated, declining direct U.S. imports from China have not erased interdependence; instead, they have simply resulted in global supply chains becoming more attenuated and significantly less transparent.
China remains the irreplaceable primary source for rare-earth minerals, specialized permanent magnets, and the lower-end legacy semiconductors that power modern automobiles and household appliances, even if intermediate steps of manufacturing now take place in third-party nations. In the critical sector of pharmaceuticals, for instance, the United States may import large quantities of generic finished drugs from India, but India itself relies heavily on China for the foundational chemical feedstocks and active components required to produce them.
This structural reality explains why industrial decoupling has proven to be such an uphill battle. Powerful economic fundamentals originally drove these global commercial arrangements, and systematically unwinding them is inherently slow, disruptive, and costly. For the immediate future, Washington’s most urgent priority should be building up robust short-term inventories of those vital strategic goods that are ultimately sourced from China. In an ideal world, the United States would instantly procure these inputs from alternative international partners. Yet the Trump administration, much like the Biden administration before it, has failed to make significant progress on this front. Both administrations attempted, but ultimately failed, to incentivize the creation of alternative domestic or allied sourcing through wider access to the lucrative U.S. market or other financial compensations. At their worst, in misguided attempts to spontaneously generate domestic U.S. production through manufactured deprivation, both administrations tried to force American businesses to do without essential Chinese inputs entirely through blunt tariffs and punitive restrictions.
Meanwhile, U.S. officials have frequently wasted valuable summits and diplomatic negotiations trying to convince their counterparts in Beijing to increase Chinese imports of various nonstrategic goods—precisely the items that China values least. Current and former officials often rationalize these efforts as indirect maneuvers to make China more dependent on U.S. agricultural and manufactured goods, thereby gaining leverage for future talks. Yet exports of American commercial airliners and soybeans neither alleviate immediate national security vulnerabilities nor improve fundamental U.S. macroeconomic conditions. In fact, to the degree that this prioritization of export promotion allows China to deliberately pit the United States and its allies against one another—such as inducing government-led bilateral deals to favor Boeing over Airbus or vice versa—it actively weakens Washington’s ability to assemble a unified international front against economic coercion.
During the October 2025 meeting between Trump and Xi, the United States and Beijing struck a limited deal to temporarily reduce tariffs in exchange for a partial, temporary relaxation of export limits on critical materials from China. By settling for these terms, the administration effectively abandoned broader strategic goals the moment its political bluster was revealed to be masking underlying weakness. With that provisional agreement facing expiration in November, Washington might be tempted to simply renew its existing parameters.
Instead, the Trump administration should pursue a far more ambitious deal that includes multiyear, large-scale purchasing agreements for those critical goods whose production remains heavily concentrated in China, or whose vital components originate there. The United States could strategically utilize government guarantees and direct public purchases to establish national strategic reserves until reliable domestic or allied alternative sources can be fully developed. In exchange, Washington should permit China to import larger quantities of certain sought-after advanced technologies where the United States maintains a clear competitive lead.
History demonstrates that such pragmatic economic accommodations are entirely viable. Even during the height of the Cold War throughout the 1970s and 1980s, the Soviet Union and the United States successfully negotiated a series of major grain agreements that enabled Moscow to import substantial quantities of American wheat, corn, and soybeans. Despite constant political temptations to exploit Soviet agricultural vulnerability—such as President Jimmy Carter’s imposition of a grain embargo following the 1979 Soviet invasion of Afghanistan—these commercial deals were consistently renewed and expanded by subsequent administrations under Presidents Ronald Reagan and George H. W. Bush.
China could, of course, choose to renege on such arrangements. Beijing has already carefully structured the terms of its rare-earth exports to actively discourage resale and inventory accumulation, precisely designed to preserve its geopolitical leverage. The direct cash value of rare-earth export sales by China is comparatively small and, viewed in isolation, provides an insufficient economic incentive for Beijing to willingly surrender that strategic advantage.
Yet the persistent threat of a sustained, total cutoff by China, while genuinely real, is frequently exaggerated. China maintains a strong national interest in maintaining robust export volumes to offset its persistently weak domestic demand and severe industrial overcapacity. Furthermore, heavy reliance on aggressive export bans is economically costly, invites immediate international retaliation, and ultimately drives trading partners to develop hostile, alternative commercial systems. Washington should understand these systemic risks intimately: the overuse of unilateral U.S. financial sanctions over the past five years has steadily encouraged foreign nations to move away from the U.S. dollar and toward Chinese-led financial payments systems. It is far more probable that a credible U.S. offer of sufficient commercial benefit would successfully induce China to export its resources more freely.
Historically, even fierce geopolitical rivals approaching the brink of war have successfully pursued strategic stockpiling and continued bilateral trade. Prior to World War II, Imperial Japan made extensive efforts to import essential energy supplies, rubber, and other critical materials, sourcing as much as 40 percent of its vital war supplies directly from the United States as late as 1941, shortly before Washington instituted a total trade embargo against Tokyo. Similarly, Nazi Germany and the Soviet Union continued trading militarily useful technology and petroleum products right up until the moments of their respective invasions of Poland in 1939. Robust trade between France and Germany also remained remarkably stable throughout the decade leading up to the outbreak of World War I.
The exact same structural economic incentives that have governed strategic rivals throughout modern history apply directly to China and the United States today. The Trump administration and its most hawkish critics should therefore recognize that greater flexibility regarding U.S. export controls—combined with the selective opening of investment opportunities within the United States as part of a broader commercial framework—is well worth exercising to secure reliable access to essential Chinese goods for which Washington currently lacks viable alternatives. This policy shift simply acknowledges objective reality rather than clinging to punitive tools that have consistently failed to deliver results. The smartest tactical move for the U.S. government is to import and stockpile as much as possible from China for as long as possible. Pursuing this course should not discourage the long-term creation of domestic or allied supply chains any more than Washington’s past efforts at economic decoupling have successfully stimulated them.
Invested in Success
Since ancient times, potential adversaries have engaged in institutionalized forms of hostage exchange, requiring rival states or regional powers to send nobles or royal family members to live—and face personal risk—within the opposing side’s capital city. While this practice was never an absolute deterrent to armed conflict, it served as a significant psychological disincentive to unprovoked attacks and successfully slowed down precipitous military escalations. Many of these historical hostages even proved to be remarkably useful envoys, enhancing mutual understanding between hostile governments through public diplomacy and intelligence gathering.
The modern, highly effective economic equivalent of the traditional hostage exchange is foreign direct investment (FDI). Leading multinational corporations establish significant physical presences inside rival nations, actively transferring advanced technologies, capital, and management practices across international borders. Much like the aristocratic hostages of antiquity, this corporate presence carries profound symbolic value, as these companies are typically closely tied to political elites at home and their substantial capital investments remain inherently exposed to foreign jurisdiction.
Contemporary two-way FDI flows also generate vastly greater aggregate economic benefits than the ancient exchange of individual nobles ever achieved. Statistical data consistently links inbound FDI to the creation of high-paying local jobs relative to regional average wages, measurable increases in local research and development spending, and a reduction in supply chain volatility through geographic diversification. This exact type of economic exchange formed a foundational component of successive commercial deals negotiated between the United States and Western Europe, Japan, and South Korea during periods when those nations experienced rapid industrial catch-up relative to American manufacturing from the 1960s through the early 2000s. In those historical cases, mutual FDI successfully reduced the frequency of punitive tariffs and restrictive export controls by directly decreasing the economic rationale for them while building powerful domestic political constituencies with a vested financial interest in bilateral integration.
The U.S.-Chinese economic relationship is, of course, fundamentally different from those historical partnerships between Washington and its democratic military allies. Furthermore, many American corporations that deployed substantial foreign direct investment into China during the early 2000s grew deeply frustrated with persistent regulatory limits on their ability to repatriate profits, secure domestic market share, or adequately protect their intellectual property rights. As a result of these commercial disappointments, compounded by a sharply deteriorating security climate, cross-border bilateral FDI flows between the United States and China have plummeted by roughly 90 percent from their previous historic highs recorded in 2016.
Nevertheless, the underlying economic incentive structures—and the potential material benefits—remain powerful. The net economic benefits to the United States of attracting Chinese FDI have actually risen in recent years as Chinese technological prowess in critical green-tech sectors, such as advanced batteries and electric vehicles, has surged globally. The Trump administration should accordingly shift its primary focus toward actively attracting Chinese FDI. Washington’s most effective use of its market access as leverage remains enticing foreign investment inward rather than continuously fighting an uphill battle over export volumes.
Pursuing this strategy would not be breaking entirely new ground. The Reagan and Bush administrations successfully courted major foreign direct investment from Japanese and German automakers and chemical corporations throughout the 1980s. Similarly, China leveraged global FDI from nations around the world to rapidly build up its domestic industrial capabilities during the first two decades of the twenty-first century. Most recently, the European Union has begun utilizing Chinese green-field FDI to foster the rapid growth of its own domestic electric vehicle manufacturing sector.
Recent political opposition, such as U.S. Transportation Secretary Sean Duffy’s public letter sharply attacking Ford Motor Company over its licensing agreement with Chinese battery manufacturer CATL for a factory owned by the American automaker in Michigan, along with broader bipartisan congressional outrage against Chinese investment, ignores this strategic opportunity. China successfully accelerated its economic resilience and industrial growth by negotiating local production standards and technology transfers at the turn of the century. The United States possesses every reason to emulate that proven path up the global technological competitiveness ladder. In an era dominated by advanced remote sensing, sophisticated cyberattacks, and rapid reverse engineering—not to mention the unlicensed global distillation of cutting-edge artificial intelligence models—the marginal additional risk of technology loss or security exposure stemming from Chinese corporations establishing physical operations within the United States is exceptionally minimal. In practice, targeted Chinese FDI would add net benefits to American employment, domestic research, and advanced manufacturing know-how, ultimately strengthening U.S. national security.
Time for Sale
Last year’s summit served as a sharp wake-up call for the Trump administration and bipartisan foreign policy hawks alike, delivering a vital lesson: no amount of bilateral trade-related threats, punitive tariffs, or exclusion from the U.S. consumer market will yield an easy, sweeping victory over China. The United States requires time to systematically reduce its dangerous structural dependence on China—and on other overly concentrated supply sources of critical industrial inputs—as well as to rebuild international alliances that can make alternative supply chains truly viable. Past unilateral attempts by both the Biden and Trump administrations to decouple from China and pressure reluctant allies into providing immediate alternatives have failed to meet these strategic demands.
Fortunately, Beijing’s leadership currently feels it has time on its side, particularly as Washington has steadily abdicated its historical position as the foundational leader and insurer of the global liberal economic order. The upcoming diplomatic summits should therefore be utilized to reassure and incentivize China to sell this crucial commodity of time through stable, mutually beneficial commercial ties.
The necessary first step is for the United States to return to the sophisticated economic diplomacy long practiced by nations accustomed to operating without absolute dominance. Having already helped create a new economic geography, Washington must now act similarly to how lesser powers have interacted with it over the past eight decades: by actively seeking win-win commercial deals, negotiating cautiously from a position of relative weakness, and deliberately leveraging ongoing economic interdependence to construct national resilience.
History demonstrates that even bitter geopolitical adversaries on the cusp of conflict continue to trade, invest, and cooperate. For the United States and China, that enduring pattern is likely to hold true, potentially outlasting previous historical periods of major-power rivalry thanks to the stabilizing buffers of the Pacific Ocean, effective nuclear deterrence, and remaining American technological advantages across multiple key sectors. China’s own severe domestic economic and demographic challenges make it even more probable that Beijing maintains a strong national interest in preserving relative peace, not least by continuing its vital export and investment flows into the United States.
There are no absolute guarantees that restoring elements of bilateral economic interdependence will permanently prevent China from someday restricting U.S. access to critical goods or initiating a military conflict. Nor will a purely bilateral approach magically generate comprehensive U.S. economic resilience on its own—sustained domestic industrial investments and allied coordination remain essential. However, importing from China at scale, trading valued exports to stockpile critical national reserves, and exchanging commercial hostages in the form of foreign direct investment will buy the necessary time and mobilize the economic resources required to secure America’s long-term resilience.
The Trump administration must look past both its initial zero-sum bluster and subsequent knee-jerk shifts toward piecemeal accommodation. Effective bilateral economic diplomacy truly begins the moment a government fully recognizes its inescapable interdependence with a potential adversary; it should never end there.
