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How to China-Proof the Global Economy

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How to China-Proof the Global Economy


China’s emergence as the United States’ leading rival has upended long-standing tenets of international economic policy. For decades, policymakers in Washington assumed that economic engagement would draw Beijing into the Western order while providing business opportunities for U.S. companies. Thus, the United States pressed China to open its market to U.S. investors, accepting in return that at least some types of U.S. manufacturing would move to China. And in 2001, supported by the United States, China joined the World Trade Organization.

Behind these efforts lay a larger assumption about the power of economic policy to transcend geopolitics. Not only would the establishment of a global trading regime allow goods and services to move across borders without regard to political differences or geopolitical competition, but by anchoring China in a rules-based trading system, economic engagement would also serve as a moderating force on the Chinese government and ultimately spur political change. Through the early years of this century, many in Washington assumed that this logic was prevailing: China was becoming successfully integrated into the world economy, and it was sustaining extraordinary economic growth at home. At the same time, China’s comparatively technocratic leadership in the 1990s and 2000s promoted private enterprise, and there were hopeful signs that it would allow Chinese society to gradually open up.

By the early 2010s, however, this progress had stalled. As Beijing reasserted state control of Chinese society and adopted a more confrontational policy internationally, Washington began to challenge China’s actions. Thus, successive administrations have imposed tariffs, sanctions, and other coercive economic measures in an effort to alter Chinese behavior. But these punitive steps have been no more successful than earlier economic policies in prompting economic or political reforms. Meanwhile, under Chinese leader Xi Jinping, China’s geopolitical rivalry with the United States has intensified.

Today, it is clear that Washington’s economic approach to Beijing has not worked. But the United States cannot simply return to the divided economic model that prevailed during the Cold War, an era in which the West had few economic ties to the Soviet Union and most of the nonaligned countries had little economic clout. A contemporary global economic order must address not only the West and its rivalry with China but also the rise of Brazil, India, Indonesia, Nigeria, and other middle-power countries that now play a significant part in global economic growth but have little interest in formally aligning with either China or the United States.

Confronted with this increasingly complex and multipolar world order, Washington must find a new approach to its international economic strategy. Rather than pursuing economic policies intended to change China, the United States should accept that the Xi regime will not change. Instead, it should actively manage the economic relationship with China in ways that can advance specific U.S. interests and respond to evolving geopolitical demands. As the Biden administration has recognized, the United States must start by reducing its reliance on China in major supply chains and ensuring that the West keeps its edge in sensitive technologies.

But to sustain its advantage in an era of intense competition with Beijing, Washington must embrace a more sophisticated economic model. It needs to tailor policies to targeted, achievable goals and use a variety of creative tools to accomplish them. It must establish new trading relationships with like-minded partners, but it must also use financial diplomacy to draw nonaligned and developing countries closer to the United States. Success will be measured not by the extent to which the United States can convince China to liberalize and embrace the U.S.-led international order but by Washington’s ability to maintain its economic leadership, strengthen alliances, and avoid catastrophic outcomes.

BEIJING UNBOWED

Over the last five decades, the United States has wielded both inducements and threats in its economic statecraft toward China. Shortly after U.S. President Richard Nixon began the process of full normalization with Beijing, in 1971, Washington bet that greater economic ties would benefit the economic and strategic interests of the United States. Opening China’s market to U.S. business, policymakers thought, would also gradually promote political reform and geopolitical moderation in Beijing. The essence of this policy was summed up in a 2005 speech by Robert Zoellick, the U.S. deputy secretary of state at the time, on China’s emergence as a “responsible stakeholder” within the global economic order. “For fifty years, our policy was to fence in the Soviet Union while its own internal contradictions undermined it,” he said. “For thirty years, our policy has been to draw out the People’s Republic of China.”

The U.S. strategy undeniably succeeded at bringing China into the world economy. By 2014, China had overtaken Canada as the United States’ largest trading partner, and by 2023, China had achieved that status with more than 120 other countries as well. China itself experienced an economic rise that was unparalleled in modern history, becoming the world’s second-largest economy in 2010 and lifting more than 800 million of its citizens above the World Bank’s poverty line.

After Xi ascended to power in 2012, however, it became apparent that Washington’s China strategy was no longer advancing U.S. economic and strategic interests. For one thing, between 1999 and 2011, expanding trade with China had cost the United States an estimated two million or more jobs, according to a prominent 2016 study by the economists David Autor, David Dorn, and Gordon Hanson. And instead of opening its economy to U.S. imports and investment, Beijing was limiting foreign access even as it used subsidies and other policy measures to enhance its own industries at the expense of foreign competitors. In sectors where China did open its market, it often required U.S. companies to form joint ventures with local Chinese partners and to manufacture in China rather than import products and services from the United States. Even when profitable for the U.S. companies in question, these requirements tended to leave American workers on the sidelines.

China’s rise has made it more, not less authoritarian.

By the early 2010s, China had also become much more assertive on the world stage. It had expanded its maritime claims in the South China Sea, embarked on a massive modernization of its military, and ramped up its industrial and political espionage capabilities around the world. At the same time, the Chinese government had expanded domestic repression and built a vast censorship and surveillance apparatus, contradicting Western policymakers’ assumptions that the spread of technology would result in greater individual freedom and more limits on the state. Indeed, China soon became a leading exporter of the technology of repression. In short, China’s economic transformation was making Beijing more, not less, authoritarian, giving it new resources to buttress the Chinese Communist Party’s hold on power.

Starting near the end of the Obama administration, Washington tried to reverse these trends by weaponizing the economic ties it had built. In 2015, for example, the U.S. government threatened to impose sanctions against China for its rampant intellectual property theft. Three years later, U.S. President Donald Trump launched a trade war against Beijing—ultimately placing tariffs on more than 80 percent of U.S. imports from China. He also began a campaign against Huawei, the Chinese telecom company, whose 5G networks were deemed to threaten U.S. information security, and tried to ban TikTok, WeChat, and several other Chinese apps from operating in the United States. (U.S. courts ultimately blocked this plan.) Picking up where Trump left off, President Joe Biden imposed new human rights sanctions on Beijing and in late 2022 enacted sweeping restrictions on the sale of advanced semiconductor equipment to China. 

Yet these coercive measures proved no more successful in changing China’s behavior than the decades of inducements that preceded them. Although Beijing offered minor trade concessions to Trump in exchange for limiting further U.S. tariffs on Chinese goods, it continued to undercut the competitiveness of U.S. and other Western companies. And the Chinese government has proved similarly intransigent in the face of Biden’s pressure. U.S. bans on imports from China’s Xinjiang Province may have reduced U.S. imports made by forced Uyghur labor, and U.S. export controls on advanced chip technology may have slowed China’s ability to produce chips. But in both cases, Beijing has responded by developing other markets and expanding its own domestic investments rather than altering the policies that led to the U.S. restrictions.

MORE TOOLS, LESS RISK

As the Biden administration’s China policy has taken shape, there has been much discussion about “de-risking,” or reducing U.S. dependence on China for many important goods. On paper, the strategy provides a useful corrective to the economic policies of the past few decades. Since the 1990s, trade liberalization has given China outsize influence over certain U.S. supply chains and allowed China to use U.S. technology for its military and repressive apparatus. Aided by the CHIPS and Science Act of 2022 and other measures, de-risking uses domestic investments, export controls, and investment screening to secure U.S. supply chains and deny China access to a handful of leading-edge technologies such as semiconductors.

But the current strategy has been deployed too narrowly. Although Washington should not seek to cut off all or even most trade with China, it needs to reduce its dependence on its rival in a number of other critical sectors. For example, the United States continues to rely on China and Chinese supply chains for widely used pharmaceuticals and medical supplies. And although the 2022 Inflation Reduction Act has provided incentives to build clean energy technologies and electric vehicles in the United States, the U.S. government needs to make sure that Chinese companies are not abusing these measures by setting up U.S. factories in order to entrench Chinese control over key components. To be effective, then, de-risking must be applied to a greater variety of goods and employ a wider range of methods.

Tariffs are ripe for innovation. Rather than using them to gain leverage over Beijing, Washington should design them to promote specific U.S. strategic interests. For example, Washington could impose higher tariffs on resources and products for which the United States and its allies have developed strategic dependence on China such as critical minerals, batteries, and electric vehicle parts—not to mention China’s EVs, which have already begun to flood Western markets. The reality is that without protectionist measures, mines and green technology manufacturing facilities in the United States and partner countries often cannot compete with low-cost Chinese-owned counterparts, which receive subsidies from Beijing and are subject to few environmental regulations.

A semiconductor factory in Binzhou, China, July 2023

CFOTO / Future Publishing / Getty Images

Washington also needs to better integrate tariffs with the Biden administration’s industrial policy. Take semiconductors. As the United States has put pressure on China’s advanced chip industry, China has ramped up production of older types of semiconductors that remain critical for U.S. defense, industrial, and automotive applications. The United States may need tariffs and other tools to ensure that China does not establish a monopoly on these chips. Meanwhile, Washington should cut tariffs on Chinese products, such as clothes and furniture, that raise prices for U.S. consumers while providing little strategic benefit. In the long run, a smarter policy will also require restrictions on Chinese components and Chinese companies involved in critical international supply chains, even if the final products are made in a country other than China.

Another crucial tool is technology policy. To defend its economic leadership, the United States needs to remain at the forefront of innovation in semiconductors, artificial intelligence, and other advanced technologies. Keeping that edge will require more investments at home in education, research, and manufacturing but also more limits on Beijing’s access to these technologies and the investments that support them. In addition to advanced semiconductor technology, the government should place export controls on biotechnology, advanced manufacturing, and other sectors to prevent China from stealing or copying U.S. advances and then reinforcing U.S. dependence on it for vital products.

Perhaps most urgent is better oversight of the use of Chinese digital products and data-gathering technologies in the United States. Washington has few regulations governing Americans’ use of Chinese apps and software. Although the Federal Communications Commission has made progress in restricting the use of Chinese telecom network infrastructure and in banning some Chinese surveillance cameras and similar devices, the country remains vulnerable to Chinese espionage and intrusion. For example, the U.S. government continues to purchase computers from Chinese companies, despite the security risks and the fact that Beijing has largely banned U.S. computers from Chinese government agencies. When it comes to Chinese apps and software that are widely used in the United States, Congress should enable the U.S. government to conduct security audits and impose measures—bans, in exceptional cases—to protect U.S. data and give Americans confidence about the security of the apps they use. And Congress needs to enact better protections against data brokers—companies that trade in personal or corporate data—and that are currently allowed to sell sensitive personal information about U.S. citizens to buyers all over the world, including in China.

As Washington develops new regulatory tools, it must also maintain open lines of communication with Beijing. Amid an intensifying geopolitical rivalry, economics is no longer an effective ballast in the U.S.-Chinese relationship. But as U.S. economic strategy toward China shifts from trying to induce changes in the Chinese market to actively managing economic ties, there are serious risks of misunderstandings or unintentional provocation. Direct and open dialogue can reduce the chances of escalation.

NARROWER DEALS, WIDER IMPACT

In response to rising competition from China, much of the U.S. foreign policy community has urged the United States to strike new trade deals with international partners. Many policymakers have called for joining an amended Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the multilateral pact that the Obama administration helped negotiate but that the United States never ratified. Others have called for new bilateral deals with countries in regions from Africa to Europe. The theory is that by entering comprehensive trade agreements, the United States could deepen relationships and enforce regulations that check Beijing’s global influence. With strategically nonaligned countries such as Indonesia and Vietnam, new trade deals could help draw them into the U.S. economic orbit. In turn, a deal with Japan or the United Kingdom could further strengthen U.S. cooperation with a core ally.

Yet the domestic implications of such trade agreements are challenging. Already, Biden’s industrial policy, including subsidies for manufacturing semiconductors and clean energy technologies, has raised tensions with existing U.S. trade commitments, and the policy is continuing to evolve. U.S. policies toward the digital economy and the technology sector are also in flux, with many domestic agencies embracing greater regulation. The rise of artificial intelligence, meanwhile, threatens to disrupt a wide variety of industries, from software design to health care, and will require new approaches to copyrighting and other forms of intellectual property protection. As a result, new trade agreements could bind the United States to rules that might conflict with evolving domestic priorities.

Instead of seeking broad accords, Washington should adopt a narrower, more targeted approach to trade by pursuing deals in sectors where interests clearly converge. One example is the critical minerals agreement that the United States has begun to negotiate with Japan and other countries, as well as the European Union: in the coming years, the United States will face a staggering increase in demand to support the clean energy transition; mineral-producing countries seek greater access to the U.S. market. In reaching a deal with these countries, Washington can also negotiate higher environmental and labor standards.

Many other sectors are ripe for dealmaking. A medical supply chain agreement with Israel and several countries in Europe could help reduce the United States’ dependence on China for crucial pharmaceutical ingredients. A deal on electronics could help companies shift manufacturing away from China and increase the security of devices sold in the United States. Washington could also pursue an industrial policy agreement with other G-7 members to guarantee transparency and develop shared standards for subsidies to ensure that multinational companies do not play allied governments against one another.

Instead of broad trade accords, Washington should seek targeted deals.

A sectoral trade strategy would also allow the United States to think more creatively about the kinds of commitments it seeks from partner countries. Beyond such traditional measures as lower tariffs and standardized customs processes, an agreement aimed at a particular sector could encompass expedited permitting for major projects, such as mining and manufacturing infrastructure. It could also provide access to U.S. financing tools—such as the U.S. Development Finance Corporation and even Defense Production Act funding—that could support the development of key manufacturing and other infrastructure.

With a sectoral approach, the United States could link trade priorities more directly to national security strategy. For example, as part of an agreement on industrial policy with close allies, Washington could offer expedited U.S. government approvals—such as from the Committee on Foreign Investment in the United States, the interagency body that reviews investments for national security risks—to companies based in those countries that are seeking to invest in sensitive areas of the U.S. economy. It could also refrain from imposing export controls on sectors that are covered in a trade deal, a move that would signal to companies and entrepreneurs that national security tools will not impair cross-border business ties.

In contrast to the old model of global trade, which did little to promote the clean energy transition, U.S. trade policy also has to address climate change. And since China is the world’s largest greenhouse gas emitter, generating twice the quantity the United States does, any climate-oriented trade policy must address China. There are several ways to do this. The EU is already moving forward with a carbon border adjustment mechanism, which will use tariffs to protect lower-carbon, but higher-cost, European producers from carbon-intensive foreign competitors, including China. The United States should join with partners in Europe and elsewhere to develop a polluter import fee on greenhouse-gas-producing goods to ensure that domestic efforts to reduce emissions do not simply result in offshoring to China and other countries that have laxer emissions rules. Indeed, climate-focused trade policies can give China economic incentives to decarbonize even if geopolitical tensions make it otherwise reluctant to do so.

Although sectoral trade deals should be the main emphasis of U.S. policy, Washington is also under pressure from allies to revive the languishing World Trade Organization. In recent years the United States has downplayed the WTO and blocked the appointment of judges to its appellate body—effectively gutting its ability to issue  binding decisions on global trade. This approach reflects the widespread view in Washington that the WTO suffers from conceptual problems at its core: WTO rules, for example, were designed to require member countries to generally treat one another equally for trade purposes, meaning that the U.S. should treat China no differently than it treats allies such as Germany. This approach reflects the optimism of the early post–Cold War era, when policymakers envisioned a new global economic order, but it makes little sense in an era of geopolitical rivalry. Moreover, the Biden administration’s subsidies for semiconductors and clean energy technologies may well violate WTO rules, although to date, the United States has persuaded its allies to refrain from bringing a legal challenge against them.

For the WTO to remain relevant, its other members will have to agree on new mechanisms that allow it to respond to geopolitical tensions and the now pressing need for green industrial policies. One option is to update the text of WTO rules to allow greater flexibility for national industrial policy and to encourage amicable dispute resolution. Another option—potentially more realistic given that rule changes require unanimous agreement from WTO members—is for the G-7 countries to reach an informal agreement that forbids them from using the WTO to challenge certain policies or requires them to appoint judges committed to more flexible interpretations of the existing WTO rules.

SECURITY WITHOUT FIREWALLS

In adopting a sectoral approach to trade, U.S. policymakers need to give special attention to the Internet and the cross-border flows of technology it enables. From the earliest years of the Internet, the United States has generally resisted regulating it, under the assumption that the digital economy would develop faster without government interference and that government institutions are poorly equipped to keep up with the latest innovations. Indeed, for much of the past quarter century, the relative lack of rules and restrictions spurred rapid advances, allowing U.S. tech companies to establish dominant global positions.

In recent years, however, national security concerns have pushed Washington and its allies to reevaluate this hands-off approach. China and Russia have erected national firewalls to the Internet and used government access to devices, network infrastructure, and cameras to surveil tens of millions of citizens in real time. China is also actively exporting its Internet surveillance technology, with companies that build network infrastructure, such as Huawei and ZTE, continuing to win bids around the world even as the United States pressures countries to avoid them. And Chinese and Russian hacks have continued to target Western firms and Western governments.

Washington has responded to these threats in several ways. The Committee on Foreign Investment in the United States has stepped up its vetting of proposed foreign purchases of U.S. companies, considering whether the buyer might get access to U.S. data. In some cases, CFIUS may require a U.S. company acquired by a foreign one to store its data and information on computers in the United States and to avoid sharing them with its new owner. Banning or otherwise restricting TikTok continues to be a topic of lively debate in state capitals and Congress. Representatives have proposed placing new limits on the export of U.S. data to China, measures that should be adopted but that must be carefully tailored to address security risks without disrupting legitimate business. The EU, India, and an assortment of countries, meanwhile, are adopting data localization requirements of their own. Whether imposed by the U.S. government or its counterparts in other countries, these restrictions reinforce the fragmentation of the Internet, even among close allies.

U.S. Senator Mark Warner unveiling legislation to ban TikTok, Washington, D.C., March 2023 

Bonnie Cash / Reuters

To counter this trend, the United States and like-minded countries should develop a new approach to Internet governance. The United States and the EU took a step in this direction in 2022, when they, along with several dozen other countries, endorsed the Declaration for the Future of the Internet, a joint statement underscoring the need for a collective response to data security risks. The declaration envisioned the creation of a common approach to address online threats, regulate cross-border data flows, ensure that members rely on trusted network infrastructure and avoid technology that poses national security risks, and enforce unfettered access to the Internet itself. The United States and its partners should work to translate that vision into a meaningful set of commitments.

Similar regulations are needed for technologies that have broader security implications and that have become flash points in Washington’s competition with Beijing. These include many technologies that could transform the global economy over the next decade: semiconductors, artificial intelligence, quantum computing, advanced manufacturing technologies, and 3D printing. For now, these technologies are dominated by a small group of advanced industrial countries—and China. Most high-end semiconductors, for example, are made in Japan, the Netherlands, South Korea, Taiwan, and the United States. Among Western countries, artificial intelligence research is centered in the United States, with France, Germany, Japan, South Korea, and the United Kingdom also having important research centers. These countries also control much of the computing power needed to effectively train advanced AI systems. China and the United States currently have the lead in quantum computing, with Australia, Canada, Japan, South Korea, and the EU also in the game.

To harness the convergence of interests among these countries, the United States should form a new critical technologies club that would both support the development of these products and regulate their export to China. The United States has long promoted and participated in multilateral export-control regimes, going back to efforts after World War II to limit exports of dual-use goods—products that have potential military as well as civilian applications—to Soviet bloc countries. But a club devoted to regulating advanced technologies could expand these kinds of controls to other areas to ensure that the West remains ahead of China not only in the military domain but also in crucial areas of economic innovation.

DOLLARS, NOT DEBTS

A better approach to containing China and its influence in the world cannot be based on sectoral trade deals and export controls alone.To bring developing countries closer into alignment with the West, the United States also needs to find more ways to provide economic and infrastructure support to its partners. New forms of international financing will be especially important, not only for driving the clean energy transition and promoting sustainable development but also for offering countries a more attractive alternative to partnering with China.

Starting in 2019 and 2020, as the Trump administration highlighted the risks of China’s global lending policies, many governments and analysts began giving more scrutiny to the Belt and Road Initiative, China’s vast infrastructure financing program. Beijing’s opaque lending practices and “debt trap” diplomacy have often left borrowing countries in thrall to China. Nonetheless, the Chinese government has been able to use the Belt and Road Initiative to promote its geopolitical interests because the program has often served legitimate financing needs. Those needs will be even greater in the coming clean energy transition. A high-level expert report prepared for the UN’s 2022 climate conference, COP27, found that developing countries need at least $1 trillion a year to finance the costs of adapting to climate change; a 2023 UN report found that these countries face a $4 trillion financing gap to meet sustainable development goals. The reality is that if the United States and its allies do not meet these needs, China will.

Over the past year, Washington has responded to the financing problem by pushing the World Bank, the International Monetary Fund, and other multilateral institutions to expand their lending capabilities and create new tools to address climate change. But Washington must appropriate enough funds—a step only the U.S. Congress can take—to ensure that the World Bank and IMF reforms are successful, and it needs to overhaul its bilateral investment and development tools. To better compete with Beijing, Washington should make more creative use of the U.S. Development Finance Corporation and the Export-Import Bank, which promote U.S. private sector investment in the developing world. For example, the government could direct these programs to offer concessional lending—loans offered on more favorable terms than prevailing market rates—so they can close deals more quickly in foreign countries.

Washington can also provide more capital to partners and allies by expanding the use of sovereign loan guarantees. By offering a U.S. government backstop to entities that loan money to a foreign government, sovereign loan guarantees unlock additional financial resources for emerging or fragile economies. In recent decades, however, the United States has used them sparingly: since the 1990s, it has offered them to only seven countries, with the most recent guarantee—to Ukraine—issued in 2022. But because global interest rates have risen over the past year and are poised to stay high, sovereign loan guarantees offer an attractive way to provide direct financing to partner governments.

Washington needs to overhaul its investment in the developing world.

Finally, the United States needs to prepare for an emerging global financial order in which the dollar remains dominant but Washington’s ability to leverage that dominance is waning. Much of the focus of U.S. economic policymakers has rightly been on the positive side of the international agenda—how capital can be deployed to meet global needs and opportunities. But successive administrations have grown increasingly effective at weaponizing U.S. control of the global financial system, whether by disrupting trade with Iran and North Korea in response to their nuclear programs or by using sanctions to put intense financial pressure on Russia following its invasion of Ukraine in 2022.

In recent years, China, Russia, and a number of developing countries have identified Washington’s weaponization of the dollar as a threat and worked to establish alternative reserve currencies. From a macroeconomic perspective, these efforts have largely failed, but the goal of these rivals is not actually to supplant the dollar as the dominant unit of exchange. Instead, they have a narrower and more achievable objective: developing a non-dollar-denominated payments network that would allow them to continue basic trade and financial activities should they lose access to the dollar. What these countries seek, in other words, is not a new dominant currency, but a viable one that could be used for their trade as needed.

Measured against that goal, these efforts show some signs of success. Already, Russia’s experience following the 2022 sanctions shows that a country with sufficient financial clout can maintain both internal stability and international financial ties with China, India, and other countries across the developing world, even when most of its major banks have been kicked off Western financial networks. Beijing is creating an alternative payment system for its energy imports and global exports in case it becomes the target of Western sanctions.

Over the long term, the United States is unlikely to prevent the emergence of these rival networks. But it can actively reinforce the dollar’s position in global trade and finance and slow the rise of alternatives. In 2022, for example, the United States was able to curtail Russia’s attempt to expand its cross-border Mir electronic payment system to Turkey and other countries by warning of sanctions against non-Russian banks that connected to it. These threats have not stopped Russian trade, but they have ensured that more of it remains potentially subject to U.S. sanctions.

A SHARPER EDGE

As Washington embarks on what could be years of geopolitical competition with Beijing, Americans have reasons to be optimistic. This is not because the United States is likely to “win” the competition the way it won the Cold War with the dramatic collapse of the Berlin Wall, at least on any time horizon relevant to U.S. policymakers. Indeed, the next decade seems likely to offer neither victory nor defeat since the odds of China fundamentally changing its geopolitical course, at least while its current government remains in power, are minimal. Yet the United States is well positioned to maintain its edge in leading economic domains. China’s mishandling of the COVID-19 pandemic and erratic crackdown on its business sector have sapped Chinese economic confidence and encouraged talented technologists and entrepreneurs to relocate abroad.

Although Xi’s government will undoubtedly tap the wealth created by the hard work of the Chinese people, and China will continue to use its economic strength to make alliances abroad, many analysts now suggest that China’s growth will be substantially slower in the years to come than it has been over the past three decades. Closed societies also tend to be less conducive to innovation, and in view of Beijing’s efforts to insulate itself from the outside world, China may find its pace of technological advances slowing as well. U.S. companies, meanwhile, have opened a lead in AI, and American universities continue to attract talented students from around the globe, a vital source of innovation that U.S. policymakers should do more to encourage. And smart domestic investments and macroeconomic policies have given the United States the strongest post-COVID economic recovery of any major developed nation.

To position itself for success in the long term, however, the United States will need to develop a more effective economic strategy toward its close allies and other partners across the globe. New and better economic tools and more targeted international trade and finance policies can prevent Beijing from displacing the U.S.-led international order and help Washington adapt to geopolitical rivalry in a multi-aligned world. Even if they cannot force Beijing to change, U.S. policymakers can ensure that Washington maintains its economic and technological advantage and draws a larger share of the world its way. In doing so, they can further the interests of the United States and those of its partners, regardless of the choices China makes.

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