China and the US: Commerce, competition and decoupling

For much of the past four decades, commerce has been the ballast of the US–China relationship. Even when political tensions flared, trade, investment and business cooperation contributed to pulling the relationship back toward greater pragmatism. I still believe that commerce remains the most important structural force shaping the relationship today, but it is also under unprecedented strain.

Many view this shift as one from engagement towards greater competition, and though there may be some truth to this idea, it is not entirely accurate. Competition is not in itself a problematic approach to economic interaction, and it is fundamentally a form of engagement rather than juxtaposed to it.

Competition has always existed, and in many ways it has been healthy. What has changed is the framing of that competition as increasingly zero-sum—a mindset that treats economic interaction less as a source of mutual benefit and more as a vector of strategic vulnerability. This shift has profound implications for governments, companies and the future architecture of global business.

Competition and engagement

Firms learn from their rivals, adapting and improving. For years, American companies operating in China told me that their greatest challenge was not policy risk, but the rapid improvement of local competitors. And Chinese firms were catching up—in many cases surpassing foreign incumbents—in cost structure, speed and increasingly in innovation.

But what is different today is the growing belief, particularly at the government level, that certain capabilities must be denied to the other side. This represents a shift from constructive competition toward destructive competition. The goal is no longer to win in the market, but to prevent the other side from competing at all in selected domains. Once competition is framed this way, the logic of decoupling becomes difficult to resist.

And there is no question that decoupling is underway, it is more a matter of how deep it will go, and how much of it will become permanent.

Some decoupling is clearly policy driven. Both governments have deliberately restricted technology flows, investment and supply-chain integration in sensitive sectors. But what concerns me more is what I would call “organic decoupling”—decisions made proactively by companies themselves in response to wider political uncertainty.

One of the most underappreciated drivers of this decoupling is volatility. Businesses can adapt to higher costs; what they struggle with is unpredictability. When tariffs can change overnight, or when regulatory actions are driven by political cycles rather than economic logic, long-term investment becomes extremely difficult.

From the US side, companies increasingly question whether it is prudent to depend so heavily on China as a supplier. From the China side, firms ask the same question about US technology and components. This dynamic has little to do with ideology and everything to do with risk management.

The deeper issue here is trust. Trust is built slowly and lost quickly. At present, the trust deficit between the two countries is significant, and that deficit is now being priced into business decisions. This means that even in the absence of explicit government mandates, companies are redesigning products, reconfiguring supply chains and restructuring corporate entities to reduce exposure.

Once these decisions are made, they are not easily reversed. Moving production, duplicating supply chains or siloing operations is expensive, but likely worth it for avoiding uncertainty in the long term—particularly uncertainty around tariffs, export controls and political signaling. And unless there are similar issues in the future, businesses are unlikely to spend money to revert.

Narrative risk and corporate exposure

Beyond supply chains and tariffs, companies today also face greater narrative-related risk. Firms must consider not only what they do, but how their actions will be interpreted by customers, regulators and political leaders on both sides of the Pacific.

In the United States, companies are experiencing greater pushback or, in some cases, even facing punishments, for interactions that were perhaps previously legal but have only recently been deemed legally unacceptable. In China, firms must also be attentive to how their actions are perceived in a sensitive political environment and this creates a narrow path for multinational companies, where neutrality is increasingly difficult to maintain. As a result, many firms have become quieter, and while advocacy has not disappeared, it has increasingly moved behind closed doors.

It is this new environment that has elevated the importance of collective representation for businesses in the form of organizations such as AmCham China and the US-China Business Council. Such groups play a crucial role precisely because individual companies are less comfortable speaking out on their own.

Historically, multinational firms were vocal advocates during pivotal moments such as China’s accession to the World Trade Organization. Today, advocacy is more cautious, more technical and more collective, with institutions providing a potential buffer, allowing concerns to be raised without exposing individual firms to undue risk.

Lessons from earlier cycles

It is worth remembering that the US–China relationship has gone through periods of tension before. The current moment feels uniquely fraught, but it is not without precedent. Both countries benefited enormously from decades of commercial engagement, even as disagreements persisted.

There is also a certain historical irony in today’s business structures. In the 1990s and early 2000s, foreign companies often entered China reluctantly through joint ventures, concerned about inefficiency and loss of control. Today, many Chinese partners are highly capable, and the local market has become so complex and competitive that partnerships can be strategically advantageous.

In some ways, we have come full circle. Joint ventures, licensing arrangements and hybrid structures are again being reconsidered—not because companies are forced into them, but because they offer a way to balance opportunity and risk.

For business leaders today, China strategy has become inseparable from risk management. Political risk, regulatory risk, reputational risk and operational risk must all be assessed together. China remains a large and attractive market, but it is no longer the high-growth, high-margin environment it once was. Growth is slower, competition is fiercer, and profitability is under pressure. Success increasingly depends on market share rather than market expansion.

This reality is driving difficult structural decisions. Some firms are moving from wholly owned subsidiaries toward partnerships or licensing models to reduce exposure. Others are localizing management and operations while deliberately weakening the connective tissue between their China business and global operations. These siloed structures are less efficient, but they limit contagion risk.

Localization, long a strategic objective, has now become a necessity. But localization also means ceding control—a trade-off that firms must weigh carefully.

Looking ahead

I remain a long-term optimist. I do not believe that the United States and China are natural enemies, nor do I believe there is any inherent antagonism between the people of the two countries. The current tensions reflect structural anxieties, domestic pressures and unresolved vulnerabilities on both sides.

A more functional relationship will not be fully harmonious, but it does not need to be. It would be one in which competition is bounded, communication is sustained and trust is gradually rebuilt. That will require effort, restraint and a recognition that permanent separation serves neither side. When engagement stops, rebuilding becomes exponentially harder. Decoupling may reduce short-term exposure, but it also erodes the very channels through which understanding and cooperation can be restored.

History suggests that cycles turn. The challenge is ensuring that the decisions made during this period do not foreclose the possibility of a more productive future. Commerce, imperfect as it may be, remains one of the few arenas where that future can still be built.