The tenuous trade truce between Washington and Beijing has collapsed. What lies ahead is less a conventional trade war and more of a sustained struggle in which both powers codify coercion into their economic statecraft and increasingly weaponize interdependence as a source of leverage. In this new, emerging phase, confrontation will no longer be perceived as a policy failure but as a policy tool to test supply chains, exploit asymmetries, and pressure rivals without tipping into all-out economic warfare.
Yet if the Cold War’s nuclear balance imposed mutual restraint, then today’s economic contest seems to reward escalation. Each side appears to gain leverage by showing that it can steer disruption, not shun it. Put differently, deterrence then was about surviving destruction; deterrence now is about mastering instability, with both countries convinced that they could outlast, outmaneuver, and outperform the other.
The tenuous trade truce between Washington and Beijing has collapsed. What lies ahead is less a conventional trade war and more of a sustained struggle in which both powers codify coercion into their economic statecraft and increasingly weaponize interdependence as a source of leverage. In this new, emerging phase, confrontation will no longer be perceived as a policy failure but as a policy tool to test supply chains, exploit asymmetries, and pressure rivals without tipping into all-out economic warfare.
Yet if the Cold War’s nuclear balance imposed mutual restraint, then today’s economic contest seems to reward escalation. Each side appears to gain leverage by showing that it can steer disruption, not shun it. Put differently, deterrence then was about surviving destruction; deterrence now is about mastering instability, with both countries convinced that they could outlast, outmaneuver, and outperform the other.
Behold the era of mutually assured disruption.
It happened slowly, then suddenly. The delicate trade détente negotiated in the spring and reaffirmed in Madrid this summer began to fray almost immediately. Last month, Beijing announced anti-dumping and anti-discrimination probes into U.S. chips policy and, soon after, turned its sights on the U.S. semiconductor giants themselves by ordering Chinese companies—including ByteDance and Alibaba—to halt purchases of Nvidia chips on national security grounds. Washington, meanwhile, pressed ahead with a new 50 percent affiliates rule, which extends tech controls to subsidiaries of Chinese companies already on the U.S. Commerce Department’s Entity List. In the run-up to a proposed summit between U.S. President Donald Trump and Chinese leader Xi Jinping in Seoul, these moves and other countermoves were politely dismissed as posturing.
Then, last week, the veneer cracked. Beijing announced sweeping new export curbs on rare-earth magnets and other high-performance materials, tightening licensing rules and targeting global supply chains long considered too critical to touch. China’s move wasn’t simply procedural; it was purposeful and principle-driven, bearing Xi’s fingerprints. The rules extend Beijing’s reach beyond production to permission, giving China de facto control over what the world can build with its materials. However, what China viewed as calibrated coercion, Trump interpreted as betrayal, believing the rare-earth issue had been settled. Within hours, Trump threatened massive tariffs on Chinese imports, floated new software restrictions, and hinted that the summit could collapse unless China reversed course—a prospect that seems remote.
Brinkmanship and bluster aside—including Beijing’s martial vow to “fight to the end”—this month’s leader-level meeting will happen because it has to. Both sides need it for different reasons. Trump needs a stage to project control over chaos; Xi needs a mechanism to manage it.
Each increasingly sees dialogue not as détente, but as leverage. The summit’s persistence, despite mounting turbulence, underscores a deeper truth: Confrontation has become part of the choreography, not a breakdown of it. Each leader understands that the other will posture publicly, inflict limited pain, and then regroup once leverage is rebalanced. That cyclical logic—escalate, absorb, stabilize—has become the rhythm of the bilateral relationship. What outwardly looks like volatility is, in practice, a form of order: a managed contest where each side tests resolve without abandoning dialogue.
This emerging framework—mutually assured disruption—is in some respects the economic analogue of mutually assured destruction (MAD): deterrence through entanglement rather than destruction. But, unlike nuclear MAD, disruption isn’t final; it’s reversible, repeatable, and can be deliberately ratcheted up or down. Each side now seeks to control the rhythm of escalation, deciding when and where to pull economic pain levers. The goal isn’t stability, as it was during the Cold War, but supremacy in managing instability. Dominance therefore depends less on who wields the greater tools on paper and more on who can absorb shocks, recalibrate quickly, and weaponize uncertainty without losing control.
Mutually assured disruption rests on three interlocking assumptions. First, that coercion can be codified without collapsing markets. Second, that each side can endure and adapt faster than the other—because both believe that their rival is more brittle than it appears. Third, that global supply chains can be weaponized to bend rather than break, applying enough strain to signal strength without triggering systemic failure. Yet, unlike nuclear MAD, this very framework rewards escalation: Each act of disruption reinforces the illusion of control and tempts both sides to push further, convinced the other will blink first. Importantly, each capital believes that it can master all three, yet the harder they both push, the more disruption becomes design.
That brings us to today. Xi and Trump face the same paradox: Each feels compelled to escalate to maintain credibility, yet both are nearing the limits of what their economies—and political systems—can endure. Beijing’s overconfidence has led it to mistake temporary discipline for durability, emboldened by Trump’s April retreat from triple-digit tariffs when markets wobbled. Xi, facing economic headwinds himself, now sees value in brinkmanship—pushing the limits to test the United States’ pain threshold because he believes Washington will fold. Washington’s overconfidence, meanwhile, leads it to mistake pressure for strategy, wrongly assuming that Beijing will revert to the status quo ante agreed to in Geneva last spring. The result is less a strategy than a standoff: two powers locked in a contest of conviction, each waiting for the other to flinch first.
Whatever happens in Seoul, the outcome will be temporary. Both sides are operating within a new strategic equilibrium defined not by resolution but by repetition—a cycle of confrontation, calibration, and partial retreat that neither seems able or willing to break. The logic of mutually assured disruption ensures that any truce will be transactional as opposed to transformative. Washington’s answer to Chinese coercion has been selective exclusion: cutting Beijing off from advanced semiconductors, investment flows, and supply-chain choke points. Beijing’s response has been selective scarcity: restricting access to the minerals, materials, and markets the world still needs. These twin tools—exclusion and scarcity—now form the scaffolding of economic statecraft, hardening competition into the system itself.
Going forward, China may have the higher pain tolerance, but the United States still commands the greater capacity to impose costs. Washington controls the choke points that matter most—advanced semiconductors, design software, high-end tooling, and access to the dollar system. Beijing’s leverage is real—rare earths, batteries, midstream materials—but narrower and more reversible. Yet in this era of mutually assured disruption, endurance is no longer the measure of strength, tempo is; and, for now, Beijing appears to be setting it. The irony is unmistakable: The Cold War’s logic of deterrence prized patience and permanence. Today’s contest rewards speed and shock, with each side racing to force capitulation before the system breaks. The danger is that in trying to win faster, both may lose control altogether.
