In the aftermath of last month’s summit between Donald Trump and Xi Jinping, China-watchers and policymakers across the political spectrum find themselves in an uneasy agreement about the current state of U.S.-China relations: détente. Even the most hawkish voices who previously warned against what they saw as the trap of détente now concede that, for the time being, each country is capable of inflicting intolerable economic pain on the other at a moment when neither can afford the distraction of self-inflicted, lose-lose great power economic confrontation.
The question now is what to do about it. Many in Washington view the present phase of competition as an opportunity to rectify previous shortcomings in policy and a race to acquire more leverage and minimize vulnerabilities. For the United States, this would amount to a kind of “Decoupling 2.0”: reshoring and “friend-shoring” strategic manufacturing; diversifying critical supply chains away from China, from refined rare earths to pharmaceutical inputs; and refining the means to weaponize Beijing’s persistent reliance on foreign energy, finance, and technology.
We agree that the United States and China are now in a period of détente, and that this period is an opportunity both to break from the policy failures of the past and to enhance American competitiveness. However, “Decoupling 2.0” risks repeating the mistakes of earlier approaches while further diminishing American competitiveness.
Instead, we call for a policy of strategic leveraging, taking a page out of Beijing’s old playbook. With the support of federal and local governments, American corporations should establish partnerships with China’s industry leaders and give them what they need—access to American consumers—in exchange for IP transfer, workforce training, and other pro-industry concessions.
What would this look like in practice? One model is a technology licensing agreement of the sort struck by Ford and the Chinese battery manufacturer CATL in 2023. Under this framework, Ford licenses lithium iron phosphate battery (LFP) technology from CATL while retaining full ownership and operational control over production; there is no foreign equity investment or board control. Hiring and training are already underway at Ford’s new BlueOval Battery Park in Marshall, Michigan, where LFP battery production is scheduled to begin this year.
Another model is a joint venture, in which a Chinese or Chinese-owned entity has an equity stake in a project. One promising example here is the Illuminate USA project, a joint venture between the Chicago-based renewables developer Invenergy and Chinese solar panel manufacturing giant LONGi. Under an agreement announced in 2023, Invenergy is the majority owner of Illuminate and controls all physical assets in the venture’s Ohio facility, while LONGi contributes technological and operational know-how while exercising limited governance rights.
These deals have already proven controversial, and any new partnerships that touch on more sensitive domains like biotech or give Chinese or Chinese-owned entities as much as 50% control will be even more so. Although there is much unhelpful fearmongering and paranoia that muddles rational public debate and policymaking, serious skepticism is understandable. After all, the United States isn’t the People’s Republic of China, and it’s hard to imagine federal, state, and local governments exerting the kind of sustained pressure that Beijing brought to bear on foreign firms seeking entry to the enormous market under its control.
Moreover, a skeptic could also point out, today isn’t 1978 (the beginning of China’s economic liberalization), or 1992 (when China doubled down on reform in the wake of Tiananmen and the collapse of the Soviet Union), or 2001 (when China acceded to the World Trade Organization). And while a few decades ago China was so far behind economically that it had little to lose by opening up to American investment, today the two countries are in a fierce rivalry, in which every concession feels consequential. If these partnerships really would be so good for American firms, Beijing won’t allow them to go through.
But reality belies this zero-sum thinking. Just because Beijing has a good hand to play doesn’t mean it’s happy with the status quo. China’s economy has never been more globally integrated than it is today, and while that gives Beijing a lot of leverage and power (for example, in the form of export controls on critical minerals) to resist unilateral pressure, it is also inextricably linked to a major vulnerability: reliance on exports for continued economic growth. Beijing’s increasingly globalized firms are hungry for markets, especially in light of the country’s weak domestic consumption. Leaders of other industrialized countries like Germany and the France are pushing for new tariffs on Chinese imports to protect domestic firms. At the same time, countries in the Global South cannot absorb all of China’s exports and in the long run will not tolerate the current imbalance as they push to develop their own domestic industries and move up the value chain. We shouldn’t underestimate the appeal of access to American consumers for Chinese firms.
Further, as much as Beijing might be reluctant to help boost the American economy, it is keen to ease bilateral economic relations. China has proven itself capable of weathering Washington-initiated supply shocks (e.g. to the global oil supply during the Iran war) and economic disruption (e.g. the tariff wars and recent pressure to contain Chinese economic influence in third countries like Peru, Panama, and Syria), but it would still strongly prefer a stable relationship with the United States. The announcement of an agreement to establish a bilateral board of investment following the Trump-Xi meeting last May suggests that Beijing would likely permit its firms to partner with American partnerships as part of a broader geopolitical thaw.
The problem with zero-sum thinking isn’t just that it misreads Beijing’s strategy. It’s also that it underestimates the upside of partnerships for the United States. Policymakers in Washington need to come to terms with the sobering truth that in many of the key industries that will define what it means to be an advanced economy in the 21st century, Chinese firms are already leaders: from renewables, to batteries, to shipping, to advanced materials, and even—as one new report by the Council on Foreign Relations’ China Strategy Initiative notes with great alarm—certain types of pharmaceuticals and biotech. American firms still lead in many critical industries and frontier research, but we need to recognize that when it comes to core areas of technological and economic competition, the challenge now is not how to contain China but how to catch up to it.
The good news is that licensing agreements and other forms of partnerships can have compounding effects on the broader technological and industrial ecosystem: the benefits of technology transfer can have an impact beyond the narrow vertical of a particular agreement. The LONGi example mentioned above is a case in point. Through Illuminate USA, Invenergy has not only gained access to LONGi’s solar panel manufacturing expertise but also to the broader set of elements that underlie China’s manufacturing capacity, including automation, robotics, and advanced materials.
Such partnerships also have the potential to unlock new progress in the United States, for the benefit of American firms and consumers. Skeptics have a point when they observe that the United States can’t replicate China’s industrial and political system, which requires tolerance for a high degree of inefficiency and centralized control. But that doesn’t mean the United States can’t enjoy the fruits that that system and climate have produced: especially advanced manufacturing and automation that enable massive production at relatively low cost. Even if the United States continues to lead in cutting-edge technology and frontier research, the benefits of that progress will not be realized at scale without the kind of state-of-the-art manufacturing systems that China’s top firms have been forced to develop through a combination of ruthless domestic competition and effective industrial policy.
The urgency of this issue is especially clear when it comes to artificial intelligence, where the United States supposedly retains a major advantage over China in terms of compute thanks to export controls on advanced semiconductors, access to massive capital, and an unparalleled position as the center of frontier research. But compute is only part of the story. What China lacks in advanced semiconductors it arguably possesses many times over in electricity production—thanks in no small part to its massive investment and deployment at scale of clean energy technology. In short, if the United States wants to retain its lead, it can’t afford to let the electron gap widen and should seize every opportunity—including through partnerships with Chinese clean energy firms, as well as investment in public infrastructure—to narrow it.
To return to the newly recognized reality of detente: China is too big, too powerful, and too advanced to be isolated or contained. It is also too big of an opportunity to be disregarded. Ultimately, American competitiveness hinges not on excluding China but on optimizing for it: identifying critical sectors where American firms can, within reasonable limits related to national security, leverage Chinese manufacturing and technological know-how.
Aaron Glasserman is a Postdoctoral Fellow at the University of Pennsylvania’s Center for the Study of Contemporary China.
Mitch Presnick is a Non-Resident Honorary Fellow on Chinese Economy at the Asia Society Policy Institute’s Center for China Analysis.
The views expressed in this article represent those of the author(s) and not those of The Carter Center.