After the two leaders met in May, they put forward an important concept: “constructive strategic stability.” Do you think it has been well maintained over the past few months?
In our research, we found that when some Americans talk about “China–US strategic stability,” what they actually have in mind is a different term, a French one: détente. The concept dates back more than a century, to discussions in European diplomatic circles. Fifty years ago, the United States and the Soviet Union achieved détente. All those meetings, summits and agreements were never meant to make US–Soviet relations good. Their purpose was to make sure the relationship between the two superpowers did not capsize. Now the United States wants a similar arrangement with China. But China will not accept a Cold War concept as the framework for today’s relationship. After consultation, the two sides settled on “constructive strategic stability.”
The United States has no intention of making the relationship good. Through “strategic stability,” it wants to contain the downside risk. As a global hegemon, and especially now, with its domestic and foreign affairs in disarray, it cannot afford the consequences of a rapid deterioration, all-out competition or direct confrontation with China. I believe that if we keep up a struggle that is justified, advantageous and well-paced, there is still a chance to turn “constructive strategic stability” into lasting and effective stability.
Why do I say this? Look at the Biden years. The administration kept stressing two things in its China policy: competition on one hand, and “guardrails” on the other. Then came the Trump administration, which initially refused to accept this approach and launched an extravagant trade war, stepping up sanctions and economic warfare. In the end, we pushed all of it back. The rhetoric has changed, but the underlying understanding has converged: you gain nothing by fighting China, the risks are very high, and you cannot bear the consequences. Both sides may have to stabilize the relationship through a struggle that is firm but controlled.
Washington has recently taken on even more pressing problems. First, the war in the Middle East is not going well for the United States. There are rumors that the US government is debating internally whether to accept defeat in the Middle East, cut its losses and save itself by sacrificing a limb. On the battlefield, the two sides are deadlocked. Whatever Trump has tried, soft or hard, threats or actual bombing, he has been unable to reopen the Strait of Hormuz. More importantly, the situation in the region is shifting over time, and this shift is critical. The old alignments, meaning who stands with whom and who is whose enemy, are changing. The most telling example is the split in OPEC. Saudi Arabia has drawn in Pakistan and Türkiye and publicly signed what is called the “Mecca Pact,” or “Mecca Alliance Treaty.” That alliance is now extending an invitation to Iran to join. What was originally a Sunni bloc is now explicitly inviting Iran in.
Beyond geopolitics, the United States is also facing mounting problems in the financial markets. Government bonds with ten- and thirty-year maturities in the world’s ten largest economies have recently been sold off. Some believe that savers around the world are abandoning the long-dated bonds of the US, the West and the advanced economies, which reflects pessimism about the future of the Western bloc as a whole. In other words, if you want me to buy your bonds at the same interest rate, you have to offer a discount. That has pushed up borrowing costs for Trump and Bessent very quickly, and it puts the Trump administration under heavy pressure. From the American perspective, China can help with both problems, and the most helpful thing it can do is not make trouble. They hope China will at least not work against them.
People often conflate tariffs with sanctions, but they are two different things. Tariffs on China are Trump’s policy. Sanctions on China, including the various entity lists maintained by the Department of Defense, the Department of Commerce and other agencies, are driven mostly by the bureaucracy. Many in that bureaucracy belong to the establishment, and they retain a lingering strategic wariness toward China. So the line they pursue may not be entirely aligned with President Trump’s own thinking.
The real motive behind Trump’s tariff war was neither to fix the US trade deficit, which is a false problem, nor to counter the hollowing-out of American industry and win back manufacturing jobs for the white working class of the American heartland. It was neither. Those were pretexts. His real aim was to raise tariff revenue, which is federal revenue, by waging a tariff war, and to use that money to fund his tax cuts. That is his true motive. But the main beneficiaries of those tax cuts are the upper-middle class and the wealthy. Tariffs, in essence, amount to a consumption tax on imported goods bought by middle- and lower-income Americans. That looks bad politically, so he needed a justification: that he was defending American manufacturing, creating manufacturing jobs, reducing the trade deficit, and so on. All of that was merely an excuse.
The second round of tax cuts began last year, at a scale of roughly 400 billion dollars a year. That is why, on April 2 last year, he launched a tariff war against the entire world. In the end, on an annualized basis, the extra tariff revenue he collected came to a little over 400 billion dollars. But the opposing forces within the American system were also strong. The case went up to the Supreme Court, which ruled the tariffs unlawful, so he now has to refund the money. Can we say, then, that Trump’s trade war has most likely failed? He did not achieve his goals. It cannot be called a complete failure, but it was certainly not a success. First, its legal foundation was struck down at home. Internationally, it was not a complete success either, because China is one of very few countries that have fought him all the way. I can no longer say the only one, since Canada has recently stood up as well.
Another charge we often hear from Western media in recent years is the “China Shock.” China has recently been exporting large volumes of electric vehicles and solar panels to a number of European countries, and some Western media have accused it of causing a new round of “China Shock 2.0.” Now that China is on par with the United States in AI, they say they are experiencing “China Shock 3.0.” How do you view these escalating accusations?
I don’t use these concepts. My explanation is that this is a necessary and painful adjustment in the process of globalization: creative destruction. The global market system behaves like slow, deep movements of the earth’s crust. It is a long-cycle trend with its own inner necessity. And this round involves not only China but the rise of East Asia as a whole, which is exerting systemic pressure like colliding tectonic plates. Since about the 1960s, East Asia has risen as a manufacturing base, and the whole Asian production network has improved in quality and moved up in sophistication, overtaking North America and Western Europe. Its production capacity is also approaching the combined output of the two regional production networks of North America and Western Europe. In this process, Asian manufactured goods are squeezing North America and Western Europe.
What East Asia’s rise, and above all China’s industrialization, has brought about is a price revolution. What do I mean by that? The price ratio between the manufactured goods of the Global North and the commodities of the Global South, such as ores and other resources, has changed systematically. I often cite this example. In the spring of 1998, I bought my first mobile phone, a large Motorola, for 3,800 Hong Kong dollars. At the oil prices of the time, that was roughly equal to 20 barrels of crude. Today, a mainland-made phone, a mid- or low-range model rather than a high-end one, costs the equivalent of about two barrels. At current prices, two barrels of crude will buy you a decent phone. Why? Two forces are at work. On one side, China, as the world’s largest energy importer, has moderately raised the price of crude oil. As a result, what Global South countries produce, whether oil, natural gas, coal, precious metals, gold and silver, or copper, iron, aluminum and nickel, has become more valuable. On the other side, our enormous production capacity has made computers, phones, cars, and traditional manufactured goods like clothing, shoes and luggage far more affordable.
So through China’s industrial revolution, and East Asia’s more broadly, the incomes of Global South and Global North countries are in fact converging. But has Chinese manufacturing so far squeezed others unfairly? I don’t think so. China’s share of global manufacturing output is roughly in line with its share of the world’s population. We are not taking an exaggerated portion. It is just that this share used to be held disproportionately by Japan, South Korea, Western Europe and Northern Europe, and we have simply rebalanced it. And they cannot accept that.
Some countries now say that China has overcapacity and that, to restore balance to the market, production quotas should be set for imports and exports, so that China does not produce too much. Isn’t that the classic planned-economy mindset? Can that thinking protect their manufacturing? Not at all. If you are inefficient and you protect what is backward, you end up with a gap in water levels on the two sides. Chinese products iterate quickly, are high in quality, technologically strong, low in cost, and better looking than yours. Yours are outdated. In the end, the gap between the two becomes huge. You then have to resort to protectionism: high tariffs and non-tariff barriers. And even with those measures, you cannot beat China. At most, you can protect a small part of your home market. You cannot protect the far larger global market of eight billion people.
How can China keep its advantage in this process, rather than repeat the American mistake of hollowing out its manufacturing? The answer lies in currency internationalization. The United States was once the greatest industrial nation in the world. In the 1950s and 1960s, it was the largest industrial power, excellent in both scale and quality. In those days, a father with an ordinary job could support a wife, two children, a dog and a car. How did it get to where it is now? The key moment was August 15, 1971, when Nixon announced the temporary closing of the gold window. From then on, the dollar enjoyed an excess privilege. The United States could print paper money that no longer had to be redeemed with real gold and silver or with the fruits of its own labor. Its trade deficit has widened ever since, and its national debt has now accumulated to 40 trillion dollars. From the American point of view, that 40 trillion is only nominal. How much of that debt must actually be repaid in real wealth, in the fruits of labor, in gold and silver? None. Why? Because after August 15, 1971, the dollar was decoupled from gold and from real goods. Today the dollar is an inconvertible currency, and that is the benefit the United States has enjoyed. The price is that it went from being the strongest man in the world to a bloated fat man. This is the privilege that economists call “exorbitant privilege.” If you want that privilege, your body changes. If you gain without working, you gradually grow fat. Look at the US economy today and its industrial structure: it can hardly build warships anymore, and it struggles to repair them, because its industrial capacity is gone. The whole economy has become highly financialized and virtual.
There has long been a view that China’s relationship with other countries is mainly one of trade and economic ties, while the United States provides them with security guarantees. Do you think that view still holds?
Yes, it does. In my view, China has a historical complex. We went through a time when our nation and people stood on the brink of extinction, and we endured a century of national humiliation. So when it comes to hegemony, to the use of force in international relations, to strategic commitments, and to extending our own hard power beyond our borders, our political discourse and our foreign policy principles have always imposed a strong form of self-restraint.
But when Chinese companies do business abroad, particularly in Africa, Western media often interpret these ties through a political lens, calling them a “Belt and Road debt trap” or neocolonialism. How do you rebut that argument?
The data shows that this claim does not hold up. Start with debt. The main creditors of developing countries are Western financial institutions: commercial financial institutions, bondholders and financial investors. So most of the lending comes from Western financial capital. International financial institutions such as the IMF and the World Bank, along with some European banks and multilateral bodies, have also lent a great deal. By comparison, the loans that China’s official financial institutions have extended to developing countries are very limited. And those loans are tied to infrastructure projects in the borrowing countries. So the money we lend produces tangible results: roads, bridges, buildings, ports, docks and railways. It is constructive. Much Western aid, by contrast, comes with many conditions. As far as I know, the Chinese government has never used a country’s debt to pressure it into ceding territory, paying indemnities or anything of the kind. Even now, the Chinese have a very strong sense of moral self-discipline. We do not interfere in other countries’ internal affairs. Some Gulf states have found this puzzling. They say: China, you are now so strong, in some respects stronger than the United States, so why won’t you take the lead in the Middle East? We would be willing to buy your hegemony and pay for your protection. China’s answer is that it will not do this, because within China’s own value system, it is immoral.
The same pattern seems to have played out in AI. On one hand, Washington wants to limit China’s development through export bans. On the other, it finds that those bans are accelerating China’s production capacity and driving domestic substitution, so the US also loses its own market. How do you see this paradox?
The competition today is mainly between China and the United States. China’s advantage is a complete industrial chain. Because we have so many production settings, our AI draws on large volumes of real, effective data tied to production and supply, which is high in quality and large in scale. We also have a large domestic population of good quality. In algorithms in particular, we are very strong. We do have weaknesses in the underlying infrastructure and hardware. To make up for them, we are now building a computing power network, and behind it a power grid and related infrastructure. China also has a long-term orientation. Once a national strategy is set, we usually carry it out over a very long cycle, ten or twenty years, one generation after another. And we have a new whole-nation system. Compared with the old one, besides mobilization within the state system, it involves a measured degree of cooperation with the market, private enterprises and multinational companies.
The United States has advantages too. First, it prints the world’s money, which gives it monetary hegemony. With that, it can sustain a capital market that is prosperous over the long term. It is also a society of immigrants, open to all, which draws the world’s brightest and wealthiest people. So it follows a global elite model. American society also has a strong culture of debate, critical thinking and innovation, and its industries share that tradition. It keeps discarding old industries and outsourcing them, then moves on to new ones. So each side has its strengths. China mobilizes from the top down: the state sets the strategy, and companies follow, working on the upstream and downstream, hardware and software of AI. The United States works from the bottom up.
A new situation has now emerged: anti-China sentiment among the American public is declining. People there are turning against two other things: AI and Jews. Anti-AI and anti-Jewish feeling are new trends in American domestic politics and public opinion. So I think we need not worry too much about who is ahead in the short term, because this is a long-cycle race and a comprehensive one. It is not just about chips, or computing power, or algorithms. It also involves electricity, adjustments in the macroeconomy, and applying AI where it is truly productive. More than that, it depends on your social system and institutions, and on how your core decision-making groups handle the redistribution of interests that comes with technological change, changes in the mode of production and changes in how society operates. Such change creates a group of winners and a new group of losers. How you rebalance the interests of different groups, and so clear the way for further technological progress, is part of a comprehensive, long-cycle competition. So I think we need not dwell on the short term, on who has restricted our chips or whose model scored higher. Those things may not matter as much as they seem to.
Editor: Yangwen
