
When an American missile punctured a Chinese spy balloon last week, it was a dramatic symbol of what many have long suspected: the U.S. policy of engagement with China has collapsed as completely as that balloon.
Engagement — the idea that if the U.S. wrapped China in a cocoon with Western economies a more liberal China would emerge — had a hell of a run and scored some big victories over the last half century. China’s economic reforms have lifted hundreds of millions of Chinese out of poverty and made the country a manufacturing powerhouse whose inexpensive exports helped slash the shopping bills of American consumers. China even worked with the U.S. to oppose the Soviet Union and limit the spread of nuclear weapons, after its fall.
But engagement ultimately failed to produce the political change and respect for human rights in China that American politicians and business leaders had all but promised it would. American leaders believed that engagement would weaken the Chinese Communist Party by building a middle class that demanded reform, while Chinese leaders saw engagement as a way to strengthen allegiance to the Party as the guarantor of prosperity.

The policy eventually collapsed through contradictions and misunderstandings and abruptly ended on March 16, 2020 — when President Trump started labeling the pandemic sweeping the globe “the Chinese virus.” A decade earlier, the U.S. and China had worked together to combat a made-in-America financial crisis that threatened everyone. Faced with a fresh global crisis, the two countries’ leaders weren’t even talking to each other.
President Biden has taken small steps to undo some of this diplomatic standoff. After a cordial meeting with Xi Jinping in November on the sidelines of a Group-of-20 summit in Bali, he agreed to send Secretary of State Antony J. Blinken to China, the first trip of its kind in three years. Many spectators hoped the trip would finally put a floor under the rapidly deteriorating relationship, allowing for some kind of re-engagement.
Then came the balloon.

In the domestic and bilateral firestorm that followed, Blinken postponed his trip, China’s defense minister refused to answer a call from U.S. Secretary of Defense Lloyd Austin, and in his State of the Union address this past week President Biden taunted Xi Jinping by name.
Still, Secretary of State Blinken has said that the U.S. “remains committed to diplomatic engagement with China” and emphasized the need to de-escalate tensions.
But what exactly that de-escalation looks like is increasingly unclear. The U.S. is frantically searching for a new framework to guide relations with China, and dust-ups like the spy balloon episode reveal just how difficult it would be to formulate a policy of re-engagement.
In Washington, the leading policy framework is some form of disengagement or decoupling, though the shape and depth is up for grabs. With the U.S. and China deeply intertwined economically, even the most hawkish politicians and academics modulate their calls for separation by adding an adjective in front of their proposed policy objective: “selective” decoupling (House Select Committee on China Chairman Mike Gallagher), “strategic” decoupling (former U.S. Trade Representative Robert Lighthizer), and “partial” disengagement (Princeton scholar Aaron Friedberg).



We’re destined to be the fiercest rivals anyone ever saw. But we’re also inseparable, conjoined twins.
Graham Allison, the Douglas Dillon Professor of Government at Harvard University
Former Deputy National Security Adviser Matt Pottinger, who did as much as any policy maker during the Trump administration to reverse engagement policy, captured the mood of the moment by proposing a strategy of “constrainment.” The U.S shouldn’t try to freeze out China, as it did the Soviet Union during the containment era, he says. The U.S. should hobble China in areas where it threatens U.S. dominance and do business in areas where that suits American interests. The goal, he says, is “ensuring the Chinese regime cannot acquire so much leverage that they are able to pressure countries to subordinate their national security interests because they’re over a barrel on the economic side.”

The Biden administration insists it is charting more of a middle course than the Republicans — a kind of frenemies policy. National Security Adviser Jake Sullivan has called it “strategic competition,” while Secretary of State Blinken’s oft-stated recipe is “invest” (in the U.S.), “align” (with allies) and “compete” (with China on defense and technology). Blinken has also listed a half-dozen areas where he says the U.S. is seeking China’s cooperation, including climate change, non-proliferation and the global economy.
But whatever one calls it, the Biden administration’s approach represents a clear move toward disengagement. And critics say that its calls for some cooperation with China are likely to fail because they are drowned out by the administration’s more aggressive policies.
“The effort to talk with China remains half-hearted compared to robust efforts to strengthen American capabilities and constrain Chinese development in areas most threatening to the U.S.,” says Jessica Chen Weiss, the Cornell scholar and one-time advisor to the Biden State Department who has become a leading critic of the administration’s China policies.
The deeply hawkish turn in U.S. policy has started to kick up a backlash both privately among some in the Treasury and Commerce departments who have been on the losing side of policy debates, as well as publicly among academics, some of whom argue that the U.S. risks alienating allies and undermining American policy objectives.
“We’re destined to be the fiercest rivals anyone ever saw,” says Graham Allison, a professor of government at Harvard University and a leading defense intellectual who warns that similar battles between incumbent powers and rising powers have ended in war. “But we’re also inseparable, conjoined twins.”
HOPE FLOATS
Washington once looked to engagement to defuse crises with Beijing. President George H.W. Bush embraced the policy as a way to justify continuing to work with China after Beijing’s 1989 killing of protestors in Tiananmen Square. Bush argued that cutting off trade relations, as China’s critics urged, would undermine U.S. goals.

“The most compelling reason to remain engaged in China is not economic or strategic but moral,” Bush said in a speech at Yale in May 1991, two years after Tiananmen. “It is wrong to isolate China if we hope to influence it.”
Three months later, engagement was enshrined in Bush’s National Security Strategy document. “Through a web of bilateral relationships, the United States has pursued throughout the postwar period a policy of engagement in support of the stability and security that are prerequisites to economic and political progress,” the document announced.
Prior to Bush, Washington talked about ending China’s isolation usually without promising China would change politically. The U.S. had cited more transactional reasons to work with China, specifically the two countries’ interest in weakening the Soviet Union.

Bill Clinton doubled down on Bush’s engagement policy to justify dropping his demands that China immediately improve its human rights policies in exchange for continuing trade preferences. Over time, engagement would encourage China to make the changes the U.S. sought, Clinton said — an argument that multinational businesses had been using in their lobbying pitches.
“I never thought democracy was the end goal of engagement,” says former Clinton trade representative Charlene Barshefsky, who helped shape the policy in the 1990s. “But I thought there might be a possibility for greater political pluralism.”
Presidents George W. Bush and Barack Obama picked up the same theme and worked with Beijing to battle the global financial crisis through massive stimulus spending and close coordination. “Our ability to communicate and coordinate with the top Chinese leaders 24/7 during the height of the panic was important in helping us avoid another Great Depression” because China was a huge holder of U.S. government securities, Hank Paulson, who served as the Bush administration’s Secretary of Treasury, wrote in his book Dealing With China.


But cracks in engagement were starting to become apparent. The financial crisis soured China on following U.S. leadership and convinced China of the strength of its political system. China’s cyber-spying, militarization of tiny islands in the South China Sea, and efforts to buy U.S. technology firms soured relations by the end of Obama’s term.
Although Donald Trump pledged to reverse China policy in his 2016 campaign — accusing China of economic “rape” — he stuck with engagement for his first three years in office as president while he negotiated a broad trade deal. After meeting with Xi Jinping in Osaka, Japan, in 2019, he even said that the U.S. and China could become “strategic partners,” the same term the Clinton administration had used.

But disputes over the spread of the coronavirus proved to be the final undoing. The U.S. accused China of withholding crucial information about the virus and suggested it may have originated in a Chinese laboratory. Chinese spokesmen responded with accusations that the U.S. had spread the disease through its bioweapons research. The two sides also clashed over China’s repression of Uyghurs in Xinjiang and squelching of democratic rights in Hong Kong among other anti-democratic moves.
Few believed any longer that economic engagement would spur Chinese political reform.
The American strategy “from the start wasn’t totally realistic,” says Yao Yang, the dean of Peking University’s National School of Development. “China is a socialist country with a long history of a strong state.” And since Xi assumed power, Yao says, “China has made it clear to the world that China is going to maintain its unique political system.”
I never thought democracy was the end goal of engagement, but I thought there might be a possibility for greater political pluralism.
Charlene Barshefsky, former Clinton trade representative
Which brings us to the ideological competition currently underway. Xi Jinping frequently compares fractious American democracy to “a sheet of loose sand,” and contrasts it to the solid base of China’s one-party rule. He recently told a meeting of the Party’s National Academy of Governance that he wanted to dispel the myth that “modernization is equal to Westernization.”

President Biden, meanwhile, calls the battle between democracy and autocracy the defining struggle of our times, and said in his State of the Union address that the U.S. is “investing in American innovation, in industries that will define the future that China intends to be dominating.” As for Xi, the president said, “Name me a world leader who would change places with Xi Jinping” because of Beijing’s problems at home.
The Biden administration is under enormous domestic pressure to deliver on that message of American strength and to disengage further, especially as Republicans compete in taking shots at the administration for being soft on China. According to a 2022 Pew Research Center poll, 82 percent of Americans have an unfavorable view of China — nearly twice the percentage surveyed in 2005.
And that was before the balloon.
BURST BUBBLE

Despite its moderate tone, the Biden administration has taken aggressive steps in just its first two years in office. Militarily, it has worked with allies to respond to Chinese muscle-flexing in Asia. The U.S. has signed a deal with Britain and Australia to help Australia build nuclear submarines to patrol Asian waters, strengthened its ties with India, Japan and Australia through the Quad political grouping, and convinced Japan to give at least rhetorical support for Taiwan in its disputes with China.
But the administration’s export controls are most emblematic of its shift toward disengagement. For decades, the U.S. has used export controls to try to block the Chinese military from acquiring advanced technology while allowing exports of technology for commercial users.

During the Trump administration, that policy was amped up by blacklisting companies seen as economic rivals, especially Huawei Technologies Co., which sought to become the global purveyor of 5G telecommunications technology. Denying Huawei advanced semiconductors made it difficult for it to continue signing up big European and Asian customers. The U.S. goal was to stay several generations ahead of the Chinese technologically.
But last fall, the Biden administration said that strategy was no longer sufficient and announced a set of controls to broadly block China from importing or developing advanced technology. The U.S. said it would bar any Chinese company from purchasing advanced semiconductors used in artificial intelligence, the machines needed to make the chips, and the components and technology necessary to build the machines.
“Given the foundational nature of certain technologies,” Jake Sullivan, the national security adviser, said previewing the policy in September, “we must maintain as large of a lead as possible.”
The U.S. wants to dominate computing, artificial intelligence, quantum information, biotechnology and clean technology— the technologies thought to be the drivers of the 21st century economy — Sullivan said. Several weeks later, the Commerce Department’s export-control chief Alan F. Estevez made clear that the U.S. planned to block China from more than chips and chip-making technology.
An interview with Alan Estevez covering export controls, from the Center for a New American Strategy (CNAS). October 27, 2022.
“We are going to continue to look at not just what we did in semiconductors, but areas that the Chinese are using to threaten the United States and its allies,” Estevez said. “Obviously semiconductors at the tip of the spear of tech needed for just about everything.”
To succeed, the U.S. must convince other advanced economies not to ship leading-edge technology to China as well. It also must police smuggling. Semiconductors are so small that a few dozen shipping containers full of the banned chips would be enough to keep the Chinese military-industrial complex humming, says Gregory C. Allen, a technology expert at the Center for Strategic and International Studies in Washington.
“This policy embodies a major reversal of 25 years of trade and technology policy with China,” Allen says. “The policy is trying not just to restrain the pace of Chinese technological growth; it’s trying to reverse Chinese technological progress” by denying Beijing access to the tools and talent to build their domestic industry.
The administration is also weighing other forms of disengagement. They include reviewing and potentially blocking American technology investments in China, cutting off Huawei from a broader array of chips, and banning Chinese-owned TikTok in the U.S., or forcing its sale. The Biden team also has kept in place the tariffs on Chinese imports approved by the Trump administration despite complaints by Treasury Secretary Janet Yellen that they don’t serve U.S. “strategic interests.”
HOT AIR
The U.S. offensive has led to calls in China to retaliate.
If the U.S. won’t sell advanced technology to China, Beijing should close its vast market to American firms, says Lu Feng, a professor in Peking University’s department of political economy.

“Since the U.S. has used [a] ‘nuclear weapon’ against China, China should also use its own ‘nuclear option’ to counterattack,’ Lu said in a January interview with the website Guancha.cn. “If you have technology, but no market then in the end technology is also a dead end.”
The interview was viewed 400,000 times in the first few days after it was posted online, says David Cowhig, the former State Department official who translated the comments.
But rather than direct confrontation, China generally has taken a kind of passive-aggressive approach. Beijing hasn’t agreed to the kinds of cooperation the U.S. says it wants and instead has tried to use cooperation as leverage to get the U.S. to back off.
When then-House Speaker Nancy Pelosi visited Taiwan, last summer, for instance, China shut down climate talks for months, even though the U.S. argued that a climate agreement was important globally.
“Now the U.S. said that by suspending the climate dialogue China is punishing the world, but the question is, does the United States represent the world,” said Qin Gang, who at the time was China’s ambassador to the U.S. and has since been promoted foreign minister.
More recently, The Wall Street Journal reports, two Chinese ministries say they are considering limiting exports of the advanced technology used to produce the silicon ingots and wafers for solar panels, a field where China has a substantial lead over the United States.
The best way for China to respond to the U.S. policy of decoupling is to keep [a] reasonable rate of growth through further market-opening reform. If China can do so, other countries will resist U.S. pressure of decoupling with China.
Justin Yifu Lin, a former World Bank chief economist
China has made similar threats previously, though, without following through for fear of harming its economy and frightening off foreign investors. China, for instance, approved regulations in 2020 for its “unreliable entity” list —its response to the Commerce Department’s “Entity List” — but it hasn’t named a single company. The U.S. entity list, which requires shippers to get a rarely-granted license to export to listed companies, by contrast, includes 639 Chinese companies. The Biden administration added 155 of them, including six companies on Friday connected with surveillance balloons.

Instead of battling, China has generally presented a friendlier face since Xi Jinping had his precedent-breaking third term as president confirmed in October. China, for example, settled a dispute with the U.S. over auditing its firms; allowed on-site inspections of Chinese firms facing sanctions in the U.S.; restarted in-person meetings of business and academic leaders from both countries; and dispatched Chinese Vice Premier Liu He to Davos, Switzerland, to tell the world China was open for business and would let the “market play a decisive role.1The reform-minded Liu, who led China’s delegation during Trump-era trade talks and is a long-time favorite in Washington, retires in March. U.S. business executives say they expect him to play a big role in China’s informal talks with American business counterparts.”
This charm offensive may have been fatally marred by the balloon incident, with Chinese Vice Foreign Minister Xie Feng saying the shootdown “severely impacted and undermined” relations. But if the charm offensive does continue, skeptics warn that it is aimed at blunting U.S. efforts.
”Fundamental change on the part of China? None,” says former Clinton Trade Rep Barshefsky.
“It’s straight out of Mao‘s playbook: When the enemy advances, you retreat,” adds Trump’s former security adviser Pottinger.
Chinese economist Justin Yifu Lin, who once served as the chief economist at the World Bank, says China can also use its economic might to split off America’s allies.
“The best way for China to respond to the U.S. policy of decoupling is to keep [a] reasonable rate of growth through further market-opening reform,“ he writes in an email. “If China can do so, other countries will resist U.S. pressure of decoupling with China.”

Some American business executives say U.S. policies risk losing the vast Chinese market, which would hurt American competitiveness. And Beijing does its best to keep its Wall Street allies happy. In the last few weeks, Morgan Stanley and J.P. Morgan have each won approval to operate wholly owned mutual fund businesses in China.
At the very least, the executives say, the U.S. should renew regular dialogues with Chinese officials in anticipation of a November meeting between Presidents Biden and Xi when the U.S. hosts the Asia-Pacific Economic Cooperation forum in San Francisco.
“The Chinese are signaling very clearly that economic growth is of paramount interest and other concerns will take a back seat,” says Craig Allen, president of the U.S.-China Business Council, a trade association that represents multinational firms.
But many American politicians these days seem unmoved by the corporate lobbying and unconcerned about losing the Chinese market. A new House Select Committee on China expects to haul CEOs before the panel to explain their business ties to China, an effort that’s bound to make companies gun-shy of doing business there.
“Where we want to ask some hard questions of the Teslas of the world, or of the Apples of the world in particular, is what strings come with having that footprint in China?” the panel’s chairman, Rep. Mike Gallagher, recently told The Wire.

Similarly, states that once competed for Chinese investment now turn their backs on it. In Virginia, Republican Gov. Glenn Youngkin brags that he took the state out of the running for a Ford Motor Co. electric battery plant because Ford was teaming up with the Chinese leader in the field, Contemporary Amperex Technology Co. (CATL). Youngkin told reporters that he objected to employees “going to work for the Chinese Communist Party-controlled company.”
CATL has benefited greatly from Chinese government subsidies and policies but is privately owned. One of CATL’s predecessors, Amperex Technology Limited, even received a $22.5 million investment from Youngkin’s old firm, the Carlyle Group, in 2003 when Youngkin was an executive there. At the time, Carlyle called CATL “a notable example of next generation Chinese businesses making a mark in the global technology arena.”
“That was 20 years ago,” says Rebecca Glover, Youngkin’s deputy chief of staff. “U.S. relations with China have fundamentally changed.”
SET ADRIFT
Incidents like the balloon or the battery factory loudly signal how much the two countries have already disengaged. Moody’s Analytics also points to a number of smaller trends: declining Chinese tourism, fading interest among Chinese youth to study in the U.S., Chinese efforts to build a cross-border payment system independent of America, cratering U.S. investment in China and vice versa, and moves by U.S. companies, like Apple, to expand manufacturing outside of China. For its part, Moody’s Analytics slashed its headcount in mainland China late last year as part of a round of layoffs globally at its parent company, Moody’s Corp.
Moreover, although Chinese imports have reached pre-pandemic levels, China’s share of total U.S. trade is declining in part because of U.S. tariffs, says Chad P. Bown, a trade specialist at the Peterson Institute for International Economics in Washington.

Despite this background, many China specialists are still pressing for re-engagement although they are modest about what they can accomplish. In a recent Foreign Affairs article, for example, former Bush Treasury Secretary Paulson proposed reducing U.S. tariffs on China so long as Beijing agreed to carry out the terms of the trade deal negotiated during the Trump administration, including boosting agricultural purchases.
Other “re-engagers” have proposed a variety of other small steps, including working collaboratively at the International Monetary Fund on economic issues (former World Bank President Robert Zoellick), asking prominent Americans and Chinese to meet together quietly to propose paths forward (China scholar Orville Schell), or meeting regularly to discuss issues dividing the two nations (a host of former officials).
“In the past, we would have said to an administration, ‘Here are 20 issues with China we want to address,’” says Myron Brilliant, who has played a major role in every U.S.-China lobbying battle since the early 1990s and now serves as the executive vice president and head of international affairs at the U.S. Chamber of Commerce. “Now we take a more practical approach. Unfortunately, the U.S. government has little appetite for pursuing a bilateral dialogue they see yielding little.” (Brilliant says he is leaving the Chamber at the end of the month.)
Without the tether of China’s incremental change, the U.S. now sees re-engagement like the ill-fated balloon: meandering, painfully slow-moving and ultimately shot down.
At a minimum, says Chen Weiss, the Cornell professor, the U.S. and China could quietly agree to scale back actions that the other side finds confrontational and pursue some kind of détente. For instance, the U.S. could limit the number of times it sails warships through the Taiwan Straits in exchange for China limiting the times it sends warplanes past the median line between Taiwan and China. The two countries, she says, need a “more stable and predictable modus vivendi.”
Indeed, that was also a goal of Blinken’s for his now postponed trip to Beijing.

To better handle such disputes as the balloon, Harvard economist Dani Rodrik and Peking University’s Yao, along with other academics in both countries, have been working on a re-engagement plan. Their group, which they call the U.S.-China Trade Policy Working Group, would divide disputes into different categories, including actions that both countries agree should be prohibited and problems that require multilateral negotiations to solve. If negotiations between the U.S. and China over a particular issue fail, retaliation should be proportional to the harm, the group proposes.
Rodrik says the U.S. and China should hold annual high-level discussions similar to those in the Bush and Obama administrations. Yao would name them the “Competition Management Talks.”
“You have to start with a vision of a multipolar world where rules are written with everyone’s interests taken into account,” Rodrik says.

Even this seems improbable. Although Chinese officials and Blinken list many of the same areas as ripe for cooperation, the Chinese haven’t agreed to move forward in any of them outside of climate change. Chinese officials won’t discuss nuclear arms control, says Allen, the CSIS tech expert, despite recent reports that China now has more land-based intercontinental ballistic missile launchers than the United States. And even getting China to agree to a handful of additional journalist visas has been a struggle, says Schell, the veteran China watcher now at the Asia Society.
To make matters even dicier, House Speaker Kevin McCarthy has said he plans to visit Taiwan, which is bound to be met with a stiff response from Beijing. He may be followed to Taipei by a parade of Republican candidates for president, say Washington lobbyists who closely track Taiwan issues.
Yao and a group of Chinese business executives and academics met with American officials from five agencies during a January trip to Washington, but he says the officials had little interest in the working group’s proposal. The Americans said talks would allow China to stall without making policy changes, according to Yao. “Both sides are so angry,” he says. “Both are in an irrational state.”
Stephen Orlins, president of the National Committee on U.S.-China Relations, who accompanied Yao in his meetings, said the discussions were “warm and friendly,” but “the Biden administration doesn’t want to go down the path of infinite conversations without outcomes.”
Without the tether of China’s incremental change, the U.S. now sees re-engagement like the ill-fated balloon: meandering, painfully slow-moving and ultimately shot down.

Bob Davis, a former correspondent at The Wall Street Journal, covered U.S.-China relations beginning in the 1990s. He co-authored “Superpower Showdown,” with Lingling Wei, which chronicles the two nations’ economic and trade rivalry.