The U.S. and China Are Losing Control of Trade and Sanctions Chaos

The fragile trade truce between Washington and Beijing has collapsed. What lies ahead is not so much a conventional trade war as a sustained conflict in which both powers codify coercion into economic statecraft and increasingly weaponize interdependence as a source of influence. In this emerging new phase, confrontation will no longer be seen as a political failure, but rather as a political tool to test supply chains, exploit asymmetries, and pressure competitors without turning into an all-out economic war.

However, if the nuclear balance during the Cold War imposed mutual restraint, today’s economic competition appears to reward escalation. Each side appears to be gaining influence by demonstrating its ability to direct unrest, not avoid it. In other words, deterrence then was about escaping destruction; Deterrence is now about controlling instability, with both countries convinced of their ability to withstand, outmaneuver, and outperform the other.

The fragile trade truce between Washington and Beijing has collapsed. What lies ahead is not so much a conventional trade war as a sustained conflict in which both powers codify coercion into economic statecraft and increasingly weaponize interdependence as a source of influence. In this emerging new phase, confrontation will no longer be seen as a political failure, but rather as a political tool to test supply chains, exploit asymmetries, and pressure competitors without turning into an all-out economic war.

However, if the nuclear balance during the Cold War imposed mutual restraint, today’s economic competition appears to reward escalation. Each side appears to be gaining influence by demonstrating its ability to direct unrest, not avoid it. In other words, deterrence then was about escaping destruction; Deterrence is now about controlling instability, with both countries convinced of their ability to withstand, outmaneuver, and outperform the other.

This is the era of mutually assured disruption.

It happened slowly, then suddenly. Delicate trade détente It was negotiated In the spring he confirmed again in Madrid This summer began to wear down almost immediately. Last month, Beijing announced anti-dumping and anti-discrimination investigations into US chip policy, and soon after, turned its sights on the US semiconductor giants themselves by ordering Chinese companies – including ByteDance and Alibaba – to stop purchasing Nvidia chips on national security grounds. Meanwhile, Washington has moved forward with a new 50% affiliate rule, which expands technology controls to include subsidiaries of Chinese companies already on the US Commerce Department’s Entity List. In the run-up to the proposed summit between US president Donald Trump and Chinese leader Xi Jinping in Seoul, these and other countermoves have been politely dismissed as posturing.

Then, last week, the shell cracked. Beijing has announced sweeping new restrictions on exports of rare earth magnets and other high-performance materials, tightening licensing rules and targeting global supply chains long deemed too important to be touched. China’s move was not merely procedural; It was purposeful, principled, and bore the hallmarks of Xi. The rules expand Beijing’s reach beyond production to permission, giving China de facto control over what the world can build with its materials. However, what China saw as calculated coercion, Trump interpreted as betrayal, believing the rare earth issue had been settled. Within hours, Trump threatened to impose massive tariffs on Chinese imports, introduced new restrictions on software, and suggested that the summit might collapse unless China reversed course – a possibility that seemed remote.

Brinkmanship and intimidation aside – including Beijing’s military pledge to “Fight to the end“The leadership-level meeting will take place this month because it has to. Both sides need it for different reasons. Trump needs a stage to show control over the chaos; Xi needs a mechanism to manage it.

Each of them increasingly sees dialogue not as a breakthrough, but as a means of pressure. The summit’s insistence, despite the escalating unrest, highlights a deeper truth: that confrontation has become part of the routine, not its collapse. Each leader realizes that the other will take a public stand, inflict a limited amount of pain, and then regroup once the balance of influence is restored. This cyclical logic – escalation, assimilation, and stability – has become the rhythm of the bilateral relationship. What on the surface looks like volatility is actually a form of order: a directed contest in which each side reaches a solution without abandoning dialogue.

This emerging framework – Mutually Assured Disruption – is in some ways the economic counterpart of Mutually Assured Destruction (MAD): deterrence through entanglement rather than destruction. However, unlike nuclear MAD, inactivation is not permanent; It is reversible, repeatable, and can be turned up or down intentionally. Each side is now seeking to control the pace of escalation, and determine when and where to withdraw the tools of economic pain. The goal is not to achieve stability, as was the case during the Cold War, but to achieve superiority in managing instability. Dominance therefore depends less on who uses it The biggest Tools on paper and more about who can absorb shocks, recalibrate quickly, and turn uncertainty into a weapon without losing control.

Mutually confirmed perturbation is based on three interwoven assumptions. First, it is possible to legalize this coercion without collapsing markets. Second, each side can tolerate and adapt faster than the other, because each believes its rival is more fragile than it appears. Third, global supply chains can be weaponized to bend rather than break, imposing enough stress to indicate strength without causing systemic failure. However, unlike nuclear MAD, this same framework rewards escalation: every act of disruption reinforces the illusion of control and tempts both sides to move forward, convinced that the other will blink first. Most importantly, each capital believes it can master all three elements, yet the more effort each exerts, the greater the disruption to the design.

This brings us to today. Xi and Trump face the same paradox: Both feel compelled to escalate to maintain their credibility, but both are approaching the limits of what their economies — and political systems — can bear. Beijing’s overconfidence has led to a conflation of temporary discipline with durability, encouraged by Trump’s April rollback of triple-digit tariffs when markets wobbled. Xi Jinping, who himself faces economic headwinds, sees value in brinksmanship, going above and beyond to test the United States’ pain threshold because he believes Washington will back down. At the same time, Washington’s overconfidence leads it to confuse pressure with strategy, wrongly assuming that Beijing will return to the status quo agreed to in Geneva last spring. The result is not so much a strategy as a confrontation: two forces locked in a struggle over conviction, each waiting for the other to back down first.

Whatever happens in Seoul, the result will be temporary. Both sides are working within a new strategic equilibrium defined not by decision but by repetition – a cycle of confrontation, calibration, and partial retreat that neither seems able or willing to break. The logic of mutually assured obstruction ensures that any truce will be reciprocal, not transformative. Washington’s response to Chinese coercion has been selective exclusion: cutting off Beijing’s access to advanced semiconductors, investment flows, and supply chain choke points. Beijing’s response has been selective scarcity: restricting access to minerals, materials and markets that the world still needs. These twin tools – exclusion and scarcity – now form the scaffolding on which economic governance is built, leading to intensified competition within the system itself.

In the future, China may have a higher capacity to tolerate pain, but the United States still has a greater ability to impose costs. Washington controls the most important choke points – advanced semiconductors, design software, cutting-edge tools, and access to the dollar system. Beijing’s influence is real — it’s rare earths, batteries, and intermediates — but it’s narrower and more reversible. However, in this age of mutually assured turmoil, endurance is no longer the measure of strength, but rhythm is its measure; At the present time, it seems that Beijing is determining this goal. The irony here is unambiguous: the logic of deterrence during the Cold War valued patience and permanence. Today’s competition rewards speed and shock, as each side races to force surrender before the system collapses. The danger is that in trying to win faster, both may lose control completely.