7 May 2025, NIICE Commentary 10886
Bornika Borah
The defining conflict of our era is not being fought on a battlefield—it is unfolding in boardrooms, customs ports, and innovation labs. Protectionism, technical decoupling, and geopolitical ambition fuelled the U.S.-China competition, which quickly changed the international political economy (IPE). What started out as dependency has turned into a conflict about who gets to decide how technology, global trade, and climate policy are governed. This rivalry is not new, but its implications are escalating. Understanding it through the lens of IPE reveals more than trade disputes or national security concerns—it shows a systemic reconfiguration of global economic relations, with consequences for supply chains, development models, and geopolitical alignments worldwide.
From Chimerica to Confrontation
The roots of this rivalry stretch back to the 1970s, when President Nixon's diplomatic opening to China initiated a process of economic normalization. China's 2001 accession to the World Trade Organisation symbolised the liberal internationalist belief that economic integration would produce convergence in markets and governance. For a time, it worked. A deeply intertwined system emerged, dubbed "Chimerica," where U.S. consumers and capital fuelled China's export-led growth. However, the interdependence had structural asymmetries. The U.S. ran chronic trade deficits while China accumulated massive surpluses and reserves—tensions over intellectual property theft, forced technology transfers, and opaque state subsidies steadily built. By the mid-2010s, U.S. policymakers no longer viewed China as a rising stakeholder but a revisionist competitor.
The 2018 trade war under the Trump administration marked the formal pivot. Tariffs replaced trust. Industrial policy replaced laissez-faire logic. A Phase One trade deal signed in 2020 failed to resolve core disputes. What emerged instead was a new era of economic nationalism, where states prioritised resilience, control, and strategic advantage over efficiency or multilateral cooperation.
Tech Decoupling: The Sharp Edge of Rivalry
Nowhere is the rivalry more acute than in the technology sector. The United States has targeted Chinese tech champions like Huawei and ZTE with sanctions and export controls. More recently, legislation has been proposed to track Nvidia's AI chips to prevent them from smuggling into China, a clear sign that Washington sees advanced technology as a core national security concern. China, in turn, has responded aggressively to tech self-reliance. It's "Made in China 2025" strategy—revived in rhetoric and action—aims to build indigenous semiconductors, robotics, and green energy capabilities. This tit-for-tat approach is not just a supply chain issue but a structural decoupling of innovation ecosystems.
The fragmentation of global tech has far-reaching consequences. Countries and companies must choose sides or develop "hedging" strategies to avoid overexposure. The myth of neutral technology has collapsed, replaced by what IPE theorists might call a strategic techno-regime, where control over innovation equates to control over geopolitical leverage.
Multinationals Under Pressure
Previously viewed as proponents of globalization, multinational firms are currently caught in the crossfire of geopolitics. In an effort to lessen its reliance on Chinese manufacturing, Apple has started moving its production facilities to Vietnam and India. Both Beijing and Washington are keeping an eye on Tesla's activities in Shanghai. Even legacy American firms like Ford are reporting steep losses due to rising tariff costs, projecting a $1.5 billion hit this year alone. Cost-benefit analysis, national security considerations, reputational risks, and the growing influence of economic statecraft increasingly shape corporate decision-making. Geopolitical risk is no longer a niche concern but a core determinant of global business strategy.
The Indo-Pacific and the Global South: Strategic Terrain
The U.S.-China rivalry is not confined to bilateral relations—it is global in scope. Nowhere is this clearer than in the Indo-Pacific, where the U.S. has launched the Indo-Pacific Economic Framework (IPEF) as an alternative to China's growing influence through the Regional Comprehensive Economic Partnership (RCEP). These competing trade architectures reflect divergent visions of regional integration and norm-setting. Countries in the Global South, especially those in Africa, Latin America, and Southeast Asia, are handling this competition with ever-increasing complexity. Many people use the competition to get better terms on loans, infrastructure, and technology transfers rather than taking sides overtly. But there are risks associated with this agency. The spectre of debt traps, policy fragmentation, and revived neocolonial patterns looms large. An IPE perspective emphasises how structural asymmetries—economic size, technological capacity, capital flows—are not deterministic. Smaller states can exert agency by playing rival powers against each other. Yet, long-term development outcomes will depend on institutional strength and the ability to avoid overdependence on any single hegemon.
Green Geopolitics and the Clean Tech Race
Climate policy is an emerging front in the U.S.-China rivalry. Both countries invest heavily in clean technologies—from electric vehicles to critical mineral supply chains. The U.S. Inflation Reduction Act and China's green Belt and Road initiatives are more than just environmental programs; they are tools of geopolitical influence. This green competition has paradoxical effects. On one hand, it accelerates innovation and raises global standards. On the other hand, it creates new chokepoints and dependencies, particularly in extracting and processing critical minerals. Countries rich in lithium, cobalt, or rare earths are increasingly considered resource suppliers and strategic actors in a green transition shaped by power politics.
From Decoupling to Managed Competition
Despite rising hostilities, total economic decoupling between the U.S. and China remains unlikely. Their economies remain deeply entangled through trade, financial markets, and academic exchange. Instead, a framework of "managed competition" is emerging, where guardrails are introduced to avoid outright conflict even as competition intensifies. This model is imperfect and unstable. It is predicated on procedures for crisis management, diplomatic restraint, and implicit agreements that might not always hold. However, it shows that both parties understand that competition must be reciprocated in order to be sustained.
Conclusion: Navigating a New Economic Order
The main factor changing the global economic order is the contest between the United States and China, which is more than just a headline. Through tariffs, tech restrictions, green industrial policy, and strategic alliances, both nations are redefining how globalisation works, who benefits, and what rules apply. Building resilient multilateral systems to manage great power competition without triggering systemic collapse is challenging for policymakers. It entails incorporating geopolitical insight into strategic planning for companies. It provides academics with a live laboratory for comprehending the interplay between institutions, power, and economic behaviour in a world that is changing quickly.
We are about to enter a time where the parameters of economic interaction are determined by politics and protectionism. Understanding the dynamics of the U.S.-China rivalry through IPE is no longer optional—it is essential for anyone seeking to navigate the emerging global order.
Bornika Borah is a Research Intern at NIICE and is currently pursuing her Masters in International Studies at Christ University, Bengaluru, India.
