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always had doubts about relying on the United States for foodstuffs, pointing back to the Nixon embargo of soybean exports in 1973 and the Carter embargo of wheat for the Soviet Union in 1979.

      Dependence on the US market has been highlighted by President Trump’s tariffs. Financial fears are stoked by dependence on the dollar and the aggressive exploitation of its international role by the United States against adversaries such as Iran, Russia, North Korea, and Cuba; China fears that it might be excluded from the SWIFT system of international payments settlement as Iran once was. The sharp cutback in new Chinese FDI in the United States has probably been due more to China’s own controls on capital outflows than to US restrictions. As tensions rise between the countries, and a new Cold War perhaps approached, the costs of interdependence loom much larger, relative to its benefits.

China, as well as the United States, might thus tacitly, or even explicitly, agree to reduce their mutual economic dependencies. Such “managed disengagement” (Rosen 2018) is already under way to some extent. It would discomfit elements in both countries that would lose some or even all of their previous economic benefits, but it might limit tensions at the margin. It would not resolve any of the underlying problems, however, and might even reduce the incentives for the two countries to attempt to address those problems.

      These cutbacks were not sufficient for the hawks, both inside and outside the Trump Administration. They therefore sought the most extreme option, containment or Cold War. It would aim to replicate the economic dimensions of the previous Cold War, isolating the adversary from the world economy and from US ties as much as possible. Carried to its logical “total decoupling” conclusion, this would require restoring Smoot–Hawley tariffs (or even more) to all imports from China; embargoing all exports that carried any national security – or even economic security – overtones; cutting off virtually all direct investment and technology flows in both directions; perhaps restricting flows of people (including students and tourists) in both directions; and seeking to reassemble the anti-Soviet COCOM (Coordinating Committee for Multilateral Export Controls) structure by enlisting as many allies as possible (a feat made more difficult for the Trump Administration by its own attacks on those same allies). The Trump Administration publicly avowed that it was a major policy error to let China join the WTO.

      Mistrust between China and the United States has been deep-seated for some time (Lieberthal and Wang 2012). It has now reached extreme levels and will be hard to reverse. The roughly 100 working groups and task forces that existed between the two countries in the past have reportedly been cut to fewer than 20.

      There are clearly elements within both the national security and economic policy communities in the United States that would welcome, or even seek, a new Cold War between the United States and China. They believe that China wants to exclude the United States from Asia and dominate it on the global stage. They want to use such a framework to further expand the trade war, and broaden it into an investment and technology war, and perhaps a currency war, that would treat China – at least at the margin, going forward – as the United States treated the Soviet Union.

The speech by Vice President Mike Pence at the Hudson Institute on October 4, 2018, laid out the Cold War case without using the term (Pence 2018). It accused China of employing a “whole-of-government approach to advance its influence and benefit its interests. It’s employing this power in provocative and coercive ways to interfere in the domestic policies of this country and to interfere in the politics of the United States.” President Trump supported the Pence pronouncements (Bolton 2020).

      There are similar trains of thought within China. Many there view the United States as an implacable foe whose primary foreign policy goal is to contain or even stop China’s rise. There is thus considerable risk that the overall relationship between the two countries could deteriorate so far (and maybe so fast) that it would be difficult, if not impossible, to make any constructive progress on the economic topics.

      These restrictive deviations from the traditional engagement approach levy increasing costs on the US economy as the gains from trade and investment are curtailed. They pose huge questions concerning the feasibility of unraveling four decades of growing interdependence. For example, what would happen to the trillion-plus dollars of investment in US Government securities by the People’s Bank of China and other Chinese investors? To the supply chains that integrate US and Chinese firms across many industries? To the tens of billions of dollars of FDI that already exist in both directions? The chairman of Foxconn, the Taiwanese company that is one of the world’s largest employers, suggests that global technology supply chains would “split into two camps – one for China and those associated with it and another of the United States and their friends” (Financial Times 2020). Some observers doubt whether extensive decoupling is even possible.

      The even bigger question about the containment option, however, is whether it could succeed in its goal of containing China. Could China’s rise be stopped, or even significantly slowed down? And would the extent be sufficient to make the self-inflicted costs to the United States itself, and the boomerang effects on China and the rest of the world, remotely worthwhile?

The Trump containment effort failed miserably. China’s rise continued. It was the only major economy to maintain positive growth in 2020, while the United States and almost everybody else dropped substantially into negative territory due to the coronavirus pandemic. The gap between China’s growth rate, and that of the United States and its hegemonic coalition, increased during the period of the three shocks (the trade war, the pandemic, and the deep recession spawned by the latter). China’s trade continued to expand much faster than global trade, and its share of world exports rose further (even while its trade with the United States dropped sharply). US growth dropped into sharply negative territory, its global trade deficit kept rising and there was no significant pickup in domestic investment in general, or reshoring in particular. China passed this stress test with flying colors.

      The answer going forward turns heavily on whether the United States could persuade the rest of the world to side with it in isolating China. China is open to trade: fully 20 percent of GDP is exported. That number has declined steadily over the past 15 years, and is likely to continue falling, but a sharp cutback of those sales would have a major impact on its economy (as the modest cutback due to President Trump’s tariffs in 2018–19 produced modest losses of a few tenths of a percent in growth for those years). Only about one quarter of those recorded exports go to the United States, however. Europe, Japan, and other Asian countries are China’s other large markets. Hence those countries would have to be induced to participate if a containment strategy were to have substantial impact.

      The United States has had some success in blocking Huawei (under President Trump) and was successful in keeping China out of TPP (under Obama), so perhaps international agreement could be reached on some version of selective decoupling, which would amount to containment at the margin. It is unlikely, however, that such a strategy, especially if confined to the margin, could seriously impede the overall Chinese economy, curtailing its growth and/or significantly slowing its technology advance. The United States has been battling Huawei for years, and has gotten some support as the contest for 5G supremacy heats up, but the company has become the leading supplier of IT equipment in the world and is worth over $100 billion. There are numerous high-tech sectors, including AI and the Internet, where China is now arguably ahead of the United States and could not be significantly deterred.

It is hard to imagine, short of an aggressive Chinese military invasion of a neighboring country that threatens global peace – or even then – that the Europeans and, even more so, other Asians would embargo Chinese firms, let alone overall trade with China, to attempt to contain its rise. China is now the major trading partner for over 60 countries around the world, up from 5 in 2000 and compared with about 40 for the United States. The European Union signed a comprehensive new investment agreement with China in late 2020, and Japan, South Korea, Australia, and New Zealand liberalized trade with it via the RCEP at about the same time. There was relatively little reaction outside the United States to the Tiananmen Square massacre as far back as 1989. The minor folly of the AIIB case would be replicated on a far more consequential scale.

      The impact of such a US policy on China itself would also

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