Article by Ying Ying Daniela Xu and Luisa Qiu
Introduction
In 2025, relations between China and the United States combine two seemingly contradictory dynamics. On the one hand, the two countries are locked in long‑term strategic rivalry: they compete over military power, cutting‑edge technologies, alliances and influence over global rules. On the other hand, they remain deeply intertwined through trade, finance, supply chains and global governance issues such as climate change and public health.
Rather than a clean “Cold War‑style” decoupling, what has emerged is a pattern of managed interdependence. Both sides accept that complete separation would be economically damaging and destabilising, but they are actively shaping, restricting and sometimes weaponizing interdependence in sensitive sectors. This duality became especially visible in 2025, with new U.S. legislation to lock in restrictions on AI chip exports to China, large‑scale Chinese naval deployments around Taiwan and Japan, crisis‑management talks in Hawaii, and a tariff‑for‑fentanyl deal that tied trade policy to joint efforts against synthetic opioids.
This article explains how strategic rivalry and managed interdependence coexist. It first sketches the structural drivers of rivalry, then looks at security tensions in the Indo‑Pacific, before turning to geo‑economic and technological competition. It then highlights how both sides are simultaneously building narrow channels of cooperation and concludes with the broader implications for global order.
1. From Engagement to Strategic Rivalry
For much of the post‑Cold War era, U.S. policy towards China was framed around “engagement”: integrating China into global markets and institutions in the hope that it would become a “responsible stakeholder” in the existing order. That bet has largely been abandoned. In U.S. strategy documents and defence planning, China is now described as the primary long‑term competitor and a comprehensive challenge to U.S. power and influence.
This shift reflects a classic power‑transition logic. China’s rapid growth has made it a near‑peer economic and technological power, while the United States is determined to retain its leading position, particularly in Asia. Realist theories of great‑power politics suggest that such situations generate enduring mistrust and competition, especially when a rising power seeks greater influence in its region and beyond.
At the same time, the two states embody different political and economic models. The United States promotes liberal democracy and relatively open markets; China emphasises party‑led governance, sovereignty and state‑directed development. This does not amount to a rigid ideological bloc confrontation, but it does sharpen disputes over issues like human rights, digital governance, development finance and the interpretation of international law.
Taken together, these structural factors mean that strategic rivalry between China and the United States is not simply a short‑term policy choice but a long‑term feature of the international system.
2. Security Rivalry in the Indo‑Pacific
The Indo‑Pacific is the main arena where this rivalry is playing out militarily. Long‑standing flashpoints, Taiwan, the East China Sea, and the South China Sea, have become more volatile as both sides increase their military presence and as U.S. allies react to Chinese moves.
2.1 Chinese deployments and regional reactions
In early December 2025, China deployed more than one hundred naval and coast guard vessels across East Asian waters in what has been described as its largest maritime show of force to date. The operations stretched from the Yellow Sea to waters near the disputed Senkaku/Diaoyu Islands, through the Taiwan Strait and into the South China Sea and western Pacific. Taiwan and Japan publicly expressed concern that such a wide‑ranging deployment threatened regional stability and pledged to step up monitoring and coordination with partners.
This kind of operation illustrates how routine exercises can be perceived as coercive signalling. Beijing insists that its forces operate lawfully in waters under its jurisdiction or in high seas; neighbours and the United States interpret large‑scale deployments as an attempt to normalise a more assertive Chinese military posture. The result is a classic security dilemma: measures one side sees as defensive look offensive to others, triggering counter‑moves and arms build‑ups.
An earlier incident in October 2025 highlighted the same dynamic further south. Chinese coast guard vessels rammed and damaged an anchored Philippine government boat near Philippine‑controlled Thitu Island and used water cannon against two other vessels nearby, in waters an international tribunal has said do not belong to China. Manila and Washington condemned the actions, and shortly afterwards the United States and the Philippines announced a new joint task force to coordinate operations and strengthen deterrence in the South China Sea.
2.2 Crisis management and military dialogue
Despite these tensions, both governments recognise the danger of accidental escalation. Under the long‑running Military Maritime Consultative Agreement, they resumed substantive talks in 2025. In November, military officers met in Hawaii for a second round of maritime security discussions that year. The talks were described as “candid and constructive”; both sides reviewed recent air and sea encounters and discussed practical steps to improve operational safety.
These meetings do not remove the underlying rivalry, but they are an example of managed interdependence in the security domain: even as they prepare for potential conflict, both sides accept that they have a shared interest in avoiding accidents, miscalculations and uncontrolled spirals.
3. Geo‑economic and Technological Competition
Security rivalry sits on top of dense economic and technological links. The United States and China are each other’s major trading partners, and global production networks remain tightly woven across East Asia and North America. At the same time, both governments increasingly treat trade, investment and technology flows as instruments of national security. This has produced a pattern of selective decoupling inside a broader framework of continued interdependence.
3.1 De‑risking, not full decoupling
Instead of trying to sever all economic ties, Washington and its allies talk about “de‑risking”: reducing dependence on China in critical sectors such as semiconductors, batteries, pharmaceuticals and certain digital infrastructure, while allowing—and in many cases encouraging—trade and investment in less sensitive areas. Beijing is pursuing its own version of de‑risking by promoting indigenous innovation, diversifying export markets and experimenting with export controls on strategic inputs such as rare earths.
In practice, this means that interdependence is re‑engineered rather than abolished. Production of high‑end chips, for example, is being reshored or “friend‑shored” to the United States, Japan, South Korea and parts of Europe, while consumer electronics, garments and many services continue to flow across the Pacific at scale.
3.2 The AI chip battlefield: the SAFE CHIPS Act
Advanced semiconductors are at the heart of this techno‑strategic contest. They power not only civilian AI applications but also military command systems, surveillance, autonomous weapons and cryptography. In October and November 2025, the Trump administration negotiated limited deals with U.S. chipmakers that allowed some AI chips to be exported to China in exchange for a special 15 per cent tax on those shipments.
This triggered a backlash in Congress. In December 2025, a bipartisan group of senators unveiled the Secure and Feasible Exports (SAFE CHIPS) Act. The bill would prohibit the Commerce Department from approving licenses to sell more advanced AI chips than China currently receives for 30 months and oblige the department to brief Congress before any future rule changes. The aim is to prevent any administration from significantly loosening existing controls without legislative oversight.
The SAFE CHIPS initiative illustrates how strategic rivalry is being built into U.S. domestic law, locking in constraints on technology transfers even as commercial interests push in the opposite direction. At the same time, the legislation stops short of a total export ban. Lower‑end chips and broader consumer hardware continue to reach the Chinese market, underscoring how the goal is to manage technological interdependence by drawing red lines around the most sensitive components.
3.3 Tariffs, fentanyl and the politics of linkage
Another striking 2025 development was the linkage between trade and the fight against synthetic opioids. In October, the U.S. government announced that a special tariff on Chinese imports connected to fentanyl‑related concerns would be cut from 20 per cent to 10 per cent. In return, China committed to tighter control over the production and export of key fentanyl precursor chemicals as part of a broader package aimed at easing bilateral economic tensions.
This agreement shows how economic and security issues are increasingly intertwined. Fentanyl is a major public‑health and law‑enforcement problem in the United States, while China has an interest in avoiding reputational damage and further sanctions. Linking tariff relief to enforcement pledges allows both sides to claim a win: Washington can present it as a step towards tackling overdoses, and Beijing can highlight reduced tariffs and a reset of part of the trade relationship.
Such deals do not end rivalry, but they are another example of managed interdependence: economic instruments are used both to coerce and to incentivise cooperation on specific problems.
4. Cooperation Within a Competitive Framework
The fentanyl‑tariff agreement is not an isolated case. Even in a period of intense competition, the United States and China continue to cooperate selectively in areas where interests overlap and the costs of non‑cooperation are high.
The Hawaii maritime security talks in November 2025 fall into this category. While neither side is reducing its military footprint in the region, they are trying to establish clearer rules of the road for encounters at sea and in the air. The working‑level discussions in Hawaii, under the long‑standing consultative framework, focused precisely on near‑miss incidents involving warships and aircraft, and on practical measures such as communication protocols and notification procedures.
Similarly, the fentanyl agreement reflects a recognition that purely unilateral enforcement will not solve the problem of synthetic opioid trafficking. Stricter Chinese controls on precursor chemicals matter for U.S. public health outcomes, while small adjustments in tariff policy are a relatively low‑cost concession for Washington in the context of an otherwise highly restrictive trade regime.
Beyond these headline issues, both countries continue to interact in multilateral forums on climate, financial stability and global health. Progress is uneven and often overshadowed by disagreements, but the basic point remains: strategic rivalry has not eliminated the functional need for cooperation on transnational challenges. Instead, cooperation has become narrower, more transactional and more closely tied to visible pay‑offs.
5. Implications and Conclusion
The 2025 picture of U.S.–China relations is therefore mixed. Strategic rivalry is deepening across military, technological and normative dimensions. Chinese naval deployments and coercive actions in the South China Sea are pushing U.S. allies such as Japan and the Philippines closer to Washington and raising the risk of incidents at sea. U.S. legislative initiatives like the “Safe Chips Act” aim to harden long‑term restrictions on technology transfers. Tariffs, export controls and investment screening have become permanent tools of statecraft.
At the same time, complete decoupling has not occurred. Trade and financial ties remain extensive, global supply chains still rely on Chinese manufacturing and U.S. demand, and both sides recognise the costs of trying to unwind this interdependence fully. Instead, they are attempting to shape and bound it: insulating sensitive sectors, diversifying critical inputs, and using chokepoints—from AI chips to rare earths and precursor chemicals—as tools of leverage.
The simultaneous pursuit of rivalry and managed interdependence has several important implications:
- Crisis risks remain high.As the number of military assets operating in close proximity rises, so does the chance of accidents and miscalculations. Crisis‑management mechanisms like the Hawaii talks are essential but cannot fully offset the structural tensions around Taiwan and the South China Sea.
- Geo‑economic fragmentation is likely to continue. Even if tariff levels fluctuate, the use of export controls, sanctions and industrial policy to pursue strategic goals will keep pushing the global economy towards partially separate blocs in critical technologies and supply chains.
- Middle powers face growing pressure to choose sides. Countries in East and Southeast Asia, as well as in Europe and the Global South, are trying to hedge—maintaining economic links with both giants while avoiding security confrontations. How successful they are will shape whether the emerging order is bipolar, fragmented or genuinely multipolar.
Overall, the U.S.–China relationship in 2025 is neither a simple partnership nor a clean Cold War‑style confrontation. It is better understood as a “stable‑if‑managed” rivalry, in which both sides seek advantage while accepting that they cannot fully escape mutual dependence. The future stability of the international system will depend on how effectively Washington and Beijing, along with their allies and partners, can maintain this balance: competing hard where interests diverge, but preserving enough cooperation and restraint to prevent their rivalry from tipping into open conflict.
References
- Alper, A. (2025) ‘US senators unveil bill to prevent easing of curbs on Nvidia chip sales to China’, Reuters
- Maalouf, K.R. (2025) ‘China in the Indo-Pacific: October 2025’, Council on Foreign Relations, 24 November.
https://www.cfr.org/article/china-indo-pacific-october-2025
- Noland, M. (2025) ‘US–China fentanyl deal could benefit the economy and save lives’, RealTime Economics, Peterson Institute for International Economics, 30 October. https://www.piie.com/blogs/realtime-economics/2025/us-china-fentanyl-deal-could-benefit-economy-and-save-live
- Reuters (2025) ‘Taiwan, Japan voice concern over Chinese military movements’, Reuters, 5 December.
- U.S. Department of Defense (2024) Military and Security Developments Involving the People’s Republic of China 2024: Annual Report to Congress. Washington, DC: U.S. Department of Defense.
- U.S. Department of State (2025) ‘Statement on dangerous Chinese actions in the South China Sea’, Office of the Spokesperson, 13 October.
- Wang, A. (2025) ‘China, US hold “candid” maritime security talks amid Japan, South China Sea tensions’, South China Morning Post, 22 November. https://www.scmp.com/news/china/military/article/3333801/china-us-hold-candid-maritime-security-talks-amid-japan-south-china-sea-tensions
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