U.S. policymakers balance economic interdependence with security fears in shaping future China policy by shifting from a strategy of engagement to one of strategic competition.

This new approach recognizes that while a full "decoupling" is economically unfeasible, certain dependencies on China, particularly in critical technologies and supply chains, pose significant national security risks.

The core of this balancing act is a concept called "de-risking."

The Shift from Engagement to Competition

For decades, U.S. policy was based on the premise that economic engagement with China would lead to its political liberalization and its integration into the Western-led international system. This approach resulted in deep economic interdependence, with the U.S. becoming heavily reliant on Chinese manufacturing for consumer goods and industrial components, while China became a crucial market for U.S. companies.

However, U.S. policymakers now view China as a "strategic competitor" and, in some areas, a "systemic rival." This shift is driven by:

• Military Modernization: China's rapid military buildup, particularly its advancements in naval power, anti-access/area-denial (A2/AD) capabilities, and the militarization of the South China Sea, is seen as a direct challenge to U.S. military dominance in the Indo-Pacific.

• Economic Coercion and Unfair Practices: China's use of economic leverage to punish other countries (like Lithuania or Australia) and its non-market economic practices, such as intellectual property theft and state subsidies, are viewed as threats to the U.S. and its allies.

• Technological Challenge: China's state-led push for dominance in critical technologies like 5G, AI, and semiconductors is seen as a direct threat to U.S. technological superiority.

This new mindset has forced U.S. policymakers to rethink how to manage the relationship without causing a severe economic disruption.

De-risking: The New Guiding Principle

Instead of a full decoupling, the current strategy is to "de-risk" the relationship. This means selectively reducing key dependencies on China without severing all economic ties. The goal is to make the U.S. and its allies more resilient to potential Chinese coercion.

• Targeted Export Controls: The U.S. has imposed strict export controls on advanced semiconductors and chip manufacturing equipment to China. The rationale is to slow down China's progress in developing high-end technologies with military applications, such as AI and supercomputing. This is a clear example of prioritizing security over economic interests, as it harms U.S. companies that sell to the Chinese market.

• Investment Screening: The Committee on Foreign Investment in the United States (CFIUS) has become more active and robust. It's a cross-government committee that reviews foreign investments in the U.S. for national security risks. CFIUS has blocked numerous Chinese acquisitions of American companies that have access to critical technology, sensitive data, or are located near military bases.

• Supply Chain Diversification: U.S. policymakers are encouraging and subsidizing companies to diversify their supply chains away from China to a network of more "trusted" partners. This strategy, sometimes called "friend-shoring," aims to reduce U.S. vulnerability to disruptions from a potential conflict or political coercion.

The Economic Consequences and Domestic Policy Debate 

This shift in policy is not without its economic costs and has sparked a major debate in U.S. domestic politics.

• Impact on Businesses: American companies that have long relied on the Chinese market and supply chains are caught in the middle. They face increased uncertainty and a more difficult operating environment. Some argue that this new policy is overly broad and could harm U.S. competitiveness.

• Consumer Costs: Restricting trade with China and reshoring manufacturing can lead to higher prices for American consumers. Policymakers must weigh the long-term national security benefits against the short-term economic impact on inflation and household budgets.

• Bipartisan Consensus: Despite the costs, there is a strong bipartisan consensus in Washington that a tougher approach to China is necessary. Politicians from both parties have adopted a hawkish stance, leading to a focus on economic nationalism and a debate about how to "bring manufacturing jobs back" to the U.S. The CHIPS and Science Act is a prime example of this bipartisan support for an industrial policy that prioritizes security.

In conclusion, U.S. policymakers are trying to strike a difficult balance between the undeniable economic benefits of trade with China and the escalating national security risks. The traditional model of economic engagement is being replaced by a new strategy of "de-risking," which involves targeted controls, investment screening, and supply chain diversification. This approach acknowledges that while the two economies are too intertwined to be fully separated, the U.S. must proactively reduce its vulnerabilities to protect its long-term security and global leadership.