With Donald Trump still leading in polls ahead of the US presidential election, many are wondering how a second Trump administration would approach China. Trump’s stance on purely political issues is unclear. He recently remarked that Taiwan should pay for US defence, hinting at an unwillingness to defend the island from attack by China, even as his former, and perhaps future, advisers advocate a large military buildup in Asia. But Trump’s economic approach to China is much less ambiguous: the two countries are competitors, and America must win.

In this sense, Trump and the Republican Party are not so different from US President Joe Biden and the Democratic Party. The Biden-Harris administration kept most of Trump’s China tariffs, and intensified the focus on the high-tech sector—particularly electric vehicles and batteries, which China has come to dominate. Politicians in both major parties have expressed concerns that US national security could be jeopardised should it be unable to manufacture its own clean tech and that it could fall further behind in an industry that is important for the renewables-based economy of the future.

In his second presidential run, Trump has proposed more tariffs: a 10 percent tariff on every import, a 60 percent tariff on all Chinese imports, and a 100 percent tariff on all cars made outside the United States. This worries many economists, because these sweeping tariffs, along with Trump’s other tax proposals, could cost Americans $500 billion per year, a burden that would be borne disproportionately by lower-income households, which rely more on cheap imports.

Observers may wonder whether the resulting economic headwinds would prevent the United States from imposing such high tariffs were Trump to return to the White House. The answer is probably no. History suggests why the government would forge ahead with a policy agenda that would harm average Americans.

The US has always valued being on the technological frontier. After World War I and World War II, when other Allied countries sought land and money as war reparations from Germany, the United States focused on securing German patents to boost American innovation. And it worked: access to German intellectual property after WWI significantly increased US patents in organic chemistry, a field in which the Germans were world leaders at the time.

A more recent example was the US-Japan trade war of the 1980s. Back then, many Americans viewed Japan’s rising market share in the semiconductor and automotive sectors as a threat to the US economy. To address concerns over the ‘dumping’ of these goods, American leaders pursued exceptionally aggressive policies against Japan.

For starters, the Democratic administration of President Jimmy Carter requested that Japanese automakers build factories in the US. Following that, the Republican administration of President Ronald Reagan imposed 100 percent tariffs on $300 million worth of Japanese imports in 1987.

The two trade wars are similar. Back then, as now, the US government sought to secure America’s economic supremacy, an agenda that commanded strong popular support across the political spectrum, despite large net losses to American consumers and firms. The tariffs imposed by the United States in both instances violated international rules set by the General Agreement on Tariffs and Trade and its successor, the World Trade Organization. Even the recent political rhetoric against China, which warns of future military conflict in the Taiwan Strait, echoes the Japan-bashing of the 1980s, which often harkened back to World War II.

But there are important differences between the two cases. Japan depended entirely on the US for its military defense in the 1980s. American political leaders were therefore confident that any pressure campaign, whether reasonable or not, would ultimately be successful. There is no such assurance with China.

China’s ability to respond to US demands is also limited by its domestic concerns. In 1990, per capita income in Japan and the US was similar, whereas Chinese per capita income is only about 17% of the US level. The Chinese government has invested heavily in lifting its population into the middle class and establishing itself as a global leader in high-tech sectors, which will limit its room for maneuver.

At a time of huge political uncertainty, one thing is clear: the US government will maintain its aggressive stance toward China, a policy that, as with Japan in the 1980s, has bipartisan support. But while Japan conceded to most of America’s demands, China may not be willing or able to be so obliging. Chinese and US leaders will need to recognise each other’s aims and limitations if they want to avoid tremendous economic losses for their people.

The future of US-China rivalry is not likely to become a cold war, nor a hot one. Rather, it’s more likely to be a simmer war, a new situation in which there is persistent competition in the economic, technological, and diplomatic domains while both sides avoid escalation.

A summit between the two countries’ leaders in November did not stem the deteriorating trend in the bilateral relationship, as shown by inclusion of measures directed against China in the United States’ 2024 defence authorisation act.

But the notion that US and China are in a new cold war is oversimplified. The Cold War between the US and the Soviet Union was possible because the two countries belonged to different economic systems. The cost of confrontation was limited. In 1989, when the Berlin Wall fell, the US exported $4.28 billion in goods to the Soviet Union and imported $709 million from it, inconsequential volumes for both economies.

That’s not the situation between China and the US. Even after a pandemic and amid threats of decoupling, trade and investment ties between the US and China remain significant. Furthermore, China is the largest source of international scientists in the US. Any effort to decouple from China would be disastrous for both nations and the world.

US–China ties have become more entrenched and multifaceted. Elites from both sides know well that they must work together towards solving some of the most intractable global issues. And US efforts to organise a coalition of like-minded countries to counter and pressure China has achieved little success, notably in Europe.

The chance of a country engaging in war reflects the costs and benefits it perceives, as well as the reputational implications for its ruler. Since China and the US both have nuclear weapons, the course of a war between them would be unpredictable. More importantly, China’s stagnation in political reform over the past decade has led to a loss of its development momentum, and its economic growth potential is likely to fall below 2.5% per year in the next decade. Its willingness to bear the cost of a war should be diminished.

So, a simmer war becomes more likely. In such a situation, the two sides would not escalate to the level of open warfare or direct confrontation. Rather, they would engage in prolonged, low-intensity rivalry—a simmering state of non-violent hostility.

A simmer war would be in line with the national interest of the US. It must maintain lasting opposition to its challenger to maintain loyalty of allies and strengthen its global primacy. Imposing economic and technological sanctions on China can also help bolster domestic unity among political elites and foster trust among the public towards the government.

A simmer war would also be in China’s interest. In the Sino-US zero-sum game, it must demonstrate a strong posture to warn such countries as South Korea and the Philippines against leaning towards the US.

Meanwhile, both sides have wider interests that demand strategic compromise. For example, a loss of cooperation with the US would harm the Chinese economy, potentially triggering a governance crisis for President Xi Jinping. The US, meanwhile, needs China’s help in addressing such global issues as climate change and arms control.

Further, Washington has major domestic issues that would be harder to address in the event of military conflict with China.

Washington aims to contain China’s abilities in strategic sectors that threaten US security. The US term ‘de-risking’ and Chinese references to ‘self-reliance’ have a similar connotation. Each country seeks to minimise its exposure to economic punishment by the other.

Tacitly agreeing to manage the simmer war is perhaps the greatest diplomatic challenge for the two countries. China needs to promise the US it will not seek regional hegemony and has no intent to challenge Washington’s global leadership. Simultaneously, the US must more strongly show that it does not seek to change China’s political system and will not stymie China’s efforts to expand economic opportunities.

The two great powers need to build a new framework for their relationship.

The state of deterrence against China in the Indo-Pacific is constantly adapting to the evolving threat Beijing poses to the United States and its allies on multiple fronts. But  a growing number of US military service members warn that deterrence is unravelling.

The Houthi attacks targeting international shipping in the Red Sea and the Gulf of Aden show that the status quo is cracking, fast.

Perspectives from individuals actively engaged in deterrence operations can help shape effective policy. Such insights were gained in conversations between ASPI DC analysts and officers across the services at the Naval Postgraduate School in Monterey Bay, California. These ‘deterrence from the deck’ discussions demonstrated a multifaceted analysis of some of the key political and military issues needed to inform policy to build and sustain deterrence. The emergence of security compacts such as AUKUS took on significant importance. It became clear from our interactions that there were substantial gaps in policy and in public discourse on  the purpose of AUKUS and deterrence aims in the Indo-Pacific.

It is critically important to bridge these gaps to garner public support and safeguard the global system that has come under attack.

AUKUS serves two essential purposes. The first is that it offers the opportunity to act cohesively to shape the strategic environment in the Indo-Pacific. Although the headlines for AUKUS are dominated by nuclear-powered submarines, the agreement presents an opportunity to articulate and implement an overarching strategy to build deterrence that could alter Beijing’s cost-benefit calculus and restrain its aggressive behaviour. Responding to China’s threat is necessary though that will not necessarily restore deterrence. However, applying an overarching strategic effort possibly will.

The second AUKUS purpose is the opportunity it provides to accelerate, amplify, and deepen integration, collaboration and interoperability across the allied militaries, technology industrial bases, and supply chain networks to shape the Indo-Pacific strategic environment.

This level of effort is unlikely to be achievable via a piecemeal approach. AUKUS presents the strategic rationale and glue to underscore its purpose, to build deterrence in the Indo-Pacific and to deflect China’s goal of shaping the environment to suit its strategic vision of sovereign subservience. Consequently, the strategic value of AUKUS lies not merely in advancing military capabilities, but in building a new strategic environment that makes it increasingly costly for China to get what it wants by shoring up allies and their capacity to maintain a strategic presence in the Indo-Pacific.

At the political level, there was no doubt that China had to be deterred from shaping the Indo-Pacific to suit its strategic priorities. But a common theme was the ambiguity regarding US and allied deterrence objectives, and a focus on the need to prioritise which People’s Republic of China (PRC) activities to deter. Provocative actions by the PRC including its illegal territorial claims, airspace violations, construction and militarisation of artificial islands, establishment of administrative structures to exert political pressure, and deployment of militia vessels to gradually cement its presence in contested waters, were key areas of concern. However, deterring these coercive ‘grey zone’ activities, which occur below the threshold of kinetic warfare, requires a different approach to how US allies and partners challenge Beijing’s territorial claims over Taiwan, Japan’s Senkaku islands, or India’s state of Arunachal Pradesh.

China’s moves are beyond a gradual accumulation of small salami-slicing actions that add up to a significant strategic change. A more accurate way of characterising China’s behaviour is that it reflects a revisionist surge strategy that is multipronged, accelerating, and designed to overwhelm and disrupt the strategic environment to help it ultimately become the preponderant power. This strategic challenge is not one that the US can confront alone but it can be counterbalanced through a collective effort involving allies and partners. A joint effort is needed to push back against China’s goal to assert dominance and reshape the Indo-Pacific strategic environment to align with its interests.

Although US policymakers are increasingly cognisant of China’s multidomain coercive toolkit, there’s an absence of clear political messaging that articulates why safeguarding the Indo-Pacific from Chinese influence is essential for both US and global strategic interests. Making the case for maintaining mare liberum, the free sea, and demonstrating the political will to build and sustain deterrence is vital to reassure allies and partners and to temper China’s revisionist activities.

Articulating this case is fundamentally important given that China is in the strategic competition for the long haul and its geographic location gives it significant advantages over the US. This geographic reality, as well as the politicisation of aid to Ukraine in Washington and the withdrawal from Afghanistan, has created the impression in Beijing that the US lacks the political will to stay the course. Even if this perception among Beijing’s US watchers is inaccurate, it nonetheless acts to the detriment of US credibility and deterrence in the Indo-Pacific, which encourages China to pursue its revisionist surge strategy with greater vigour.

To be clear, none of the service members we spoke with advocated for a conflict with China. Instead, their argument was that to deter China, the US and its allies and partners must engage in a range of activities that collectively act as guardrails to arrest escalation dynamics from boiling over to a hot war. These activities include military and security compacts such as AUKUS and building foreign and domestic supply chains and ensuring their resilience. As China’s revisionist surge strategy is advancing its agenda, the US-led security architecture needs to articulate and implement a cohesive response that contests China’s perception of extended sovereignty and its strategic vision of exacting compliance from neighbouring states and peoples in the Indo-Pacific.

So far, the 2020s have been marked by tectonic shifts in both technology and international security. Russia’s attack on Ukraine in February 2022, which brought the post–Cold War era to a sudden and violent end, is an obvious inflection point. The recent escalation in the Middle East, which may yet lead to a regional war, is another. So too the Covid-19 pandemic, from which the United States and China emerged bruised, distrustful and nearer to conflict than ever before—not least over the vexing issue of Taiwan, a stronghold in the world of advanced technology.

Another, less dramatic but equally profound moment occurred on 7 October 2022, when US President Joe Biden’s administration quietly unveiled a new policy overseen by an obscure agency. On that day, the Bureau of Industry and Security (BIS) at the US Department of Commerce announced new export controls on advanced computing chips and semiconductor manufacturing items to the People’s Republic of China. Mostly unnoticed by those outside a few speciality areas, the policy was later described by some as ‘a new domain of non-proliferation’ or, less kindly, as an escalation in ‘an economic war against China’.

The BIS announcement came just months before the latest platforms of generative artificial intelligence, including GPT-4, burst onto the world stage. In essence, the White House’s initiative aimed to prevent China from acquiring the physical materials needed to dominate the field of AI: the highly specialised semiconductors and advanced computing chips that remained in mostly Western and Taiwanese hands.

When coupled with an industrial policy that aimed to build domestic US semiconductor manufacturing, and a strategy of ‘friend-shoring’ some of Taiwan’s chip industry to Arizona, this amounted to a serious attempt at seizing the ‘commanding heights’ of AI. In July this year, Beijing responded by restricting exports of germanium and gallium products, minor metals crucial to the semiconductor industry.

Designers of AI platforms have argued that novel large-language models herald a new epoch. The next iterations of AI—GPT-5 and beyond—might usher in a future of ‘radical abundance’ that frees humanity of needless toil, but could equally lead to widescale displacement and destruction, should an uncontrollable ‘superintelligence’ emerge. While these scenarios remain hypothetical, it is highly likely that future AI-powered surveillance tools will help authoritarian governments cement control over their own populations and enable them to build new military–industrial capabilities.

However, these same AI designers also admit that the current AI platforms pose serious risks to human security, especially when they’re considered as adjuncts to chemical, biological, radiological, nuclear and high-consequence explosive (CBRNE) weapons. We, the authors of this article, are currently investigating how policymakers intend to address this issue, which we refer to as ‘CBRNE+AI’.

This more proximate threat – the combination of AI and unconventional weapons—should oblige governments to find durable pathways to arms control in the age of AI. How to get there in such a fractious geopolitical environment remains uncertain. In his recent book, The coming wave, Deep Mind co-founder Mustafa Suleyman looks to the 20th-century Cold War for inspiration. Nuclear arms control, and the lesser-known story of biological arms control, provide hopeful templates. Among Suleyman’s suggestions is the building of international alliances and regulatory authorities committed to controlling future AI models.

We recently suggested that the Australia Group, founded during the harrowing chemical warfare of the Iran–Iraq war, may be the right place to start building an architecture that can monitor the intersection of AI and unconventional weapons. Originally intended to obstruct the flow of precursor chemicals to a distant battlefield in the Middle East, the Australia Group has since expanded to comprise a broad alliance of countries committed to harmonising the regulation of components used in chemical and biological weapons. To the group’s purview should be added the large-language models and other AI tools that might be exploited as informational aids in the construction of new weapons.

Former US secretary of state Henry Kissinger recently called for Washington and Beijing to collaborate in establishing and leading a new regime of ‘AI arms control’. Kissinger, and his co-author Graham Allison, argue that both the US and China have an overriding interest in preventing the proliferation of AI models that could extinguish human prosperity or otherwise lead to global catastrophe. But the emerging dynamics of a new cold war will demand a difficult compromise: can Washington realistically convince Beijing to help build a new architecture of non-proliferation, while enforcing a regime of counter-proliferation that specifically targets China? It seems an unlikely proposition.

This very dilemma could soon force policymakers to choose between two separate strains of containment. The October 2022 export controls are a form of containment in the original Cold War sense: they prevent a near-peer competitor from acquiring key technology in a strategic domain, in a vein similar to George Keenan’s vision of containment of the Soviet Union. Suleyman, however, assigns a different meaning to containment: namely, it is the task of controlling the dangers of AI to preserve global human security, in much the same way biological, chemical and nuclear weapons are (usually) contained. For such an endeavour to work, China’s collaboration will be needed.

This week, US and Chinese leaders are attending the APEC summit in San Francisco. It is at this forum that Kissinger suggests they come together in a bid to establish a new AI arms control regime. Meanwhile, campaign season is heating up in Taiwan, whose citizens will soon vote in a hotly contested election under the gaze of an increasingly aggressive Beijing. More than a month has passed since Hamas opened a brutal new chapter in the Middle East, and the full-scale war in Ukraine is approaching the end of its second year.

Whatever happens in San Francisco, the outcome could determine the shape of conflicts to come, and the weapons used in them. Hopefully, what will emerge is the outline of the first serious arms control regime in the age of generative AI, rather than the deepening fractures of a new cold war.

The United States was sharply critical of Germany’s energy dependence on Russia, imposing sanctions on the construction of pipelines carrying Russian gas beneath the Baltic Sea to Germany (if not, as a now-refuted report by investigative journalist Seymour Hersh recently claimed, getting its navy divers to blow them up).

However, the US’s economic dependence on China runs far deeper, and severing the link—for example, in the event of conflict between the two nations—would be far more disruptive.

A provocative report by economist and former Greek finance minister Yanis Varoufakis suggests China could more easily break free of the relationship of mutual dependence than the US.

Varoufakis relates that a Chinese official described to him the ‘dark deal’ China struck in the 1970s under which its manufacturers would send their excess production (that is, their output beyond China’s domestic needs) to the US and reinvest the bulk of their US-dollar profits into America’s ‘FIRE’, or finance, insurance and real estate sectors.

‘It ensured that the dollar’s supremacy was just as functional to the interests of US rentiers as it was to Chinese capitalists,’ he says. Of course, the losers in the transaction were the US domestic manufacturers (and their workers) who went out of business under the pressure of Chinese competition.

Varoufakis says the dominance of the US dollar in international finance is a function of the huge US trade deficits, which mean there’s a constant outflow of the currency into world markets. The ability of the US to continue running such large deficits turns on the willingness of its suppliers to accept US dollars and to recycle them.

His insight is that the recycling has been to the enormous benefit of the politically influential US financial and real estate sectors. The recycling goes far beyond the more generally understood Chinese purchase of US Treasury bonds.

‘Without the dollar’s global reign, America’s de-industrialization would not have accelerated, and Chinese capitalists would not have been able to extract colossal surplus value from Chinese workers and stash it in America’s rentier sector.’

Amid the deteriorating political relationship between the two nations, China has been increasingly concerned about its exposure to US assets. Chinese authorities were shocked by the seizure of the Russian central bank’s foreign exchange reserves following the invasion of Ukraine. In the event of a Sino-American conflict, Chinese assets would similarly be vulnerable to expropriation.

The most contentious element of Varoufakis’s analysis is his assertion that the size and sophistication of China’s ‘fintech’ sector could enable it to break free of its addiction to US dollars.

‘As America’s new cold war threatens to squeeze Chinese conventional capitalism, China could end the Dark Deal that keeps it tied to US hegemony by mobilizing its homegrown cloud finance and pursuing a growth model that no longer relies on the US trade deficit.’

The idea is that China would redirect manufacturing towards its domestic market instead of the US and shift the source of demand in its economy away from business investment and towards domestic consumption.

‘Globally, China’s decoupling from the US trade deficit would permit its cloud finance, ably assisted by the People’s Bank of China’s own digital currency, to offer the rest of the world a renminbi-denominated, cloud-based payment system that bypasses fully the currently dominant dollar-denominated and US-policed payment system.’

As Varoufakis admits, such a shift would involve ‘ditching the industrial model at the heart of China’s economic miracle, incurring the wrath of China’s traditional capitalists, who crave access to the US trade deficit and to dollars’.

For the US, there is no clear path to resurrect its domestic manufacturing. US firms such as Apple, with manufacturing centred in China, would have no good options.

University of Peking finance professor Michael Pettis commented on Twitter that while Varoufakis’s analysis was one of the ‘more thoughtful’ pieces on China’s role in the global trading system, he disagreed that such a shift in Chinese policy would raise the profile of the renminbi as a global currency.

For the renminbi to become a global currency, China would have to be willing, as part of its reform, to run large trade deficits. Pettis notes that in the early 1990s there were expectations that Japanese yen would become a global currency, but it didn’t happen because the economic adjustment required to run a deficit, with a sharp fall in domestic savings, would have been too great.

China has greatly reduced the importance of exports in its economy over the past 15 years. Exports peaked at a massive 36% of GDP in 2006, but were down to 20% by 2021. China’s exports have continued growing, but not as fast as its economy. China has gone much further in ‘deglobalising’ than any other nation.

However, the ‘dual circulation’ economic model of President Xi Jinping still includes an important role for exports. In a key speech on economic priorities in December, he said exports should continue to play a vital role. ‘We must accelerate the building of a strong trading nation,’ he said.

The US relationship with China has become increasingly adversarial over the administrations of Donald Trump and Joe Biden; however, Varoufakis’s ‘dark deal’ has continued to shape the course of trade between the two countries.

The Trump administration’s efforts to narrow the US deficit by imposing steep tariffs on imports from China and negotiating a deal under which China promised to lift its purchases from the US had little effect, either at the time or subsequently. The trade has enabled China to become manufacturer to the world, responsible for around a third of global manufacturing output.

US imports from China reached US$537 billion last year, almost matching their 2018 record and up by more than US$100 billion from 2020 levels. US imports from China are more than three times greater than US exports in the other direction.

While Beijing asserted the dominance of the Chinese Communist Party over the private sector throughout 2022 with tougher regulatory controls on sectors including technology, real estate, education and video games, it has never seriously upset the earnings of the export sector or tackled the far-reaching reform that would be required to shift resources from the business to the household sector.

However, in the event that conflict deepens between the two superpowers, Varoufakis’s analysis suggests that China may have more options than the United States.