TWENTY YEARS from now, will China be a friend or foe of the United States? Certainly, China's youngest generation will influence the answer. It controls future policies, the pace of internal development, domestic stability and whether there is a crisis over Taiwan. Yet America's response is also important; the wrong actions could turn China against us.

The United States must adopt a two-pronged policy. The first is to encourage China to become a "responsible stakeholder" in the international community. The second is to hedge against competitive or aggressive behavior by China. Americans are impatient and dislike ambiguity, so successive U.S. administrations have struggled to sustain public support for a policy that to many, at first glance, can seem self-contradictory. But there is no reason for our policy to be self-contradictory. The key is what might be termed "prudent hedging", which does not impede engagement and does not create a self-fulfilling prophecy where treating China as an enemy turns it into one.

Since Chinese military leaders cannot predict the future, they will prepare for the worst even as they hope for the best. Hedging is contagious. The problem is their efforts will appear to Washington as the very behavior against which we are hedging. During the Cold War, hedging and worst-case-scenario assumptions led to a dangerous and expensive arms race. . . .

While countering the United States is a major preoccupation, there are other missions as well. Long before China can hope to match the United States, it must establish clear regional supremacy. China's adjusted defense spending of $50-$80 billion is already comparable to Japan's $44 billion, Russia's $65 billion and India's $24 billion. Moreover, given that China is a resource-poor country-the world's third largest oil importer, with a clear dependence on Middle Eastern and African sources-China wants to protect its supply lines. Resource politics also help drive outstanding territorial claims, as China continues to contest ownership of the Senkaku, Spratly and other islands. Periodic incidents between the PLA and the navies of the region are not strategically significant, but they have deep emotional resonance given the larger feelings of rivalry and historic grievances among the nations of east Asia. . . .

CHINESE EFFORTS to undermine U.S. operational supremacy will require specific U.S. investments in response. These investments are in line with the Pentagon's budgetary plans and demand accommodation in future budgets. They constitute the near- and medium-term hedges a two-pronged U.S. strategy requires.

But if China's military has a portfolio problem, America's is even more complex. U.S. force structure and investment is being pulled in five directions at once. First, there are the costs of hedging against China. In terms of military investment, this means ultra-modern air and naval capabilities. It is the main budgetary rationale for advanced fighter aircraft, a new strategic bomber, new aircraft carriers and other surface combatants, stealthy unmanned aerial systems with long range and dwell time, nuclear attack submarines and a host of C⁴ISR assets. Yet this comes against the backdrop of the "long war" against terrorism-a mission that emphasizes the need for special operations forces and greater spending on intelligence, law enforcement, diplomacy and homeland security.

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