The second major trend in the slide toward a U.S.-China cold war has been the accelerating politicization of the economic relationship. As a result, economics no longer offsets the stresses in other dimensions of the relationship, and the voices of those urging a decoupling of the two economies grow in both countries. Nevertheless, countries whose economies are as entwined as the United States and China cannot easily turn the benefits gained from these ties into policy weapons. Roughly 20 percent of the imported goods that Americans consume come from China; trade with China generates nearly 1.2 million American jobs; and China bankrolls nearly 4 percent of the U.S. national debt, holding more than $1 trillion in U.S. treasuries. On the other hand, the United States remains China’s largest export market, taking nearly 19 percent of its total exports, amounting to 3 percent of China’s GDP.

This mutual dependency, however, is no longer viewed by either country as largely beneficial, marred only by disputes over specific trading practices. Both governments now view it as a potential threat to national security. While the tariff war initiated by the Trump administration was a hammer intended to force China to correct the imbalance in its trade with the United States, it was also accompanied by steps to sever ties in areas of education and research, blacklist companies associated with China’s defense and intelligence agencies, and punish with sanctions Chinese officials said to be involved in repressive actions in Xinjiang and Hong Kong. “We don’t need China,” Donald Trump exclaimed in a 2019 outburst, “and, frankly, we would be far better without them.” When campaigning for re-election, he promised that “we’ll end reliance on China once and for all.”

The Biden administration is considering easing aspects of the trade war with China, but it has kept in place other elements of the Trump administration’s hardline policy. Sanctions are added to sanctions, and more Chinese companies are blacklisted on national security grounds or for human rights violations. The Biden administration’s plan, announced in June 2021, to “build resilient supply chains and revitalize American manufacturing” has a sound policy basis, given the vulnerabilities of the U.S. globalized economy, but the explicit primary target in three out of the four priority areas—large capacity batteries, critical minerals and materials, and pharmaceuticals—is China.

China answers each new U.S. action with counteractions of its own, such as a sweeping Anti-Sanctions Law passed last summer, targeting U.S. lawmakers responsible for sanctions imposed on China. The law is broad enough to potentially ensnare U.S. companies. Since 2020, Xi Jinping has also embraced a Chinese version of decoupling, dubbed the “dual circulation strategy.” Against the vagaries of global economic demand and the U.S. threat to supply chains, Xi has set China on a path to self-sufficiency and the indigenization of critical technologies, with the goal of making the domestic market the engine of the country’s economic growth.

Third, both countries have locked themselves into a struggle for technological supremacy driven by national security concerns—a dynamic similar to the nuclear arms race in the Cold War. Each month brings a new action by the United States, such as the decision to blacklist “seven” Chinese supercomputer entities, followed by the blacklisting of Huawei and four additional major Chinese telecom firms “on national security grounds.” Furthermore, Washington has warned companies and research institutions of “the risks of interacting with China in five key tech sectors: artificial intelligence, quantum computing, biotechnology, semiconductors, and autonomous systems.” The Biden administration is also devising its own version of the Trump administration’s “clean network” initiative—an effort to deny China access to all American data, as international security expert Alan Dupont says, “from military communications carried on undersea cables to 5G-enabled smart refrigerators and television sets.”

China has long been weaponizing data, viewed as key to dominance in critical technologies at the heart of twenty-first-century economic competition with the United States. To this end, China has pilfered where it can, striven to eliminate dependency on the United States for materials and expertise, and vastly expanded investment in relevant sectors. Beijing's “techno-nationalism” and the aggressive U.S. response have transformed science and technological advancement into an intense new battleground.

Fourth, if deepened, the shifting contours of a burgeoning geostrategic rivalry will provide the ultimate shape of the new cold war. Conceptually and practically the path is now open: the strategy that the United States formally embraces and China informally parrots—to “compete, confront, and cooperate”—is losing its balance. Confrontation is taking on organizational forms, competition as a constructive challenge is yielding to destructive means, and cooperation in scope and scale is shrinking. The Biden administration’s new China strategy implicitly commits the United States to a strategy of containment. Accordingly, Secretary of State Antony Blinken has said, “[W]e cannot rely on Beijing to change its trajectory ... So we will shape the strategic environment around Beijing...”

The architectural underpinning for this strategy is already advanced. NATO’s new 2022 Strategic Concept introduces China as a multi-pronged threat. Indeed, the expansive scale of the security challenges that China and Russia are said to represent and the response NATO has planned make it appear that the alliance is girding for a global Cold War 2.0. The administration’s Build Back Better World (B3W) partnership takes aim at China’s Belt and Road Initiative (BRI). Its Indo-Pacific Economic Framework targets China’s efforts to bind the economies of East and Southeast Asian countries to its own. The administration is working to strengthen the Quad, the defensive collaboration between Australia, India, Japan, and the United States, and has orchestrated a trilateral security pact with Australia and the United Kingdom (AUKUS). Washington has also encouraged the new Japanese-Australian defense pact—all implicitly directed against China. On the issue of Taiwan, President Joe Biden’s repeated assurances that the United States will defend Taiwan has muddied Washington’s long-standing posture of “strategic ambiguity,” even if he insists nothing has changed. Moreover, Washington’s new emphasis on arming Taiwan—in ways designed to avoid a crisis similar to Ukraine—further calls into question the nature of “strategic ambiguity.”

In this deepening geopolitical duel, China is seizing the initiative. Under Xi Jinping, China expert Elizabeth Economy argues, China sees itself as “reclaiming its historic position of leadership and centrality on the global stage.” In the Chinese leader’s eyes, the United States, a reigning but crippled superpower, can’t abide China’s rise, and is determined to undermine its economic dynamism and checkmate its foreign policy success. In response, Beijing intends its BRI, beyond its economic benefits, to whittle away at American geostrategic advantages.

China’s military modernization and forward deployment in the South China Sea are designed to give China military dominance in the first two “Pacific island chains,” as well as a competitive presence in the Indian Ocean region. It has increased the sophistication and aggressiveness of state-curated cybersecurity attacks on the United States. Furthermore, China continues to organize ever more ambitious joint military exercises with Russia in Northeast Asia addressed not only to local threats, but also a potential military conflict with the United States. And across a wide swath of international institutions, Beijing has secured a leadership role and sought to use its position to alter their rules and norms to its liking.

THE RUDIMENTS of a U.S.-China cold war are thus in place. Crossing the threshold into a formal cold war will occur if the following three trends deepen and then merge. First, if the tension surrounding the U.S.-China military rivalry grows, further distorting increasingly tense economic relations. Second, if the overall strategy of the other country comes to be seen by one or both countries as seriously intent on undoing its domestic order. And third, if the geostrategic competition is seen by one side as tilting decisively in the other’s favor. If the essence of a cold war is a relationship with all the elements of war short of guns firing, but with the risk that they could, that is where the United States and China will then be. That is where the United States and Russia are.

As noted earlier, while the U.S.-Russia cold war, unlike the original Cold War, does not encompass and encumber the entire international political system, if this threshold is crossed, a U.S.-China cold war will. The international economy will be deeply warped and destabilized by economic warfare between the two countries that account for more than 40 percent of the world’s GDP. Deeply frayed U.S.-China economic ties will risk fracturing the entire global economy. The incipient trend toward deglobalization already underway, such as the shifting away from “just-in-time” material sourcing and the moving toward locating critical production facilities closer to home, will then have a dominant, security-oriented source. For security reasons of their own, European Union (EU) countries, Japan, and India are already encouraging companies to leave China, creating barriers to intellectual property theft, and banning China’s next-generation telecommunications technology from their markets. But, if the effects of ruptured U.S.-China economic ties force a reorientation of their trade, the unraveling for these nations will be enormously disruptive. Not the least because any such reorientation will involve—indeed, will be driven by—the impairing of critical supply chains.