How can the West navigate trade and security regarding China?

Themes: the dilemma between the West’s trade and security concerns  western perceptions of China; history of Chinese trade with the West; potential paths to de-escalation; future outlook on the West’s trade relations with China.

Concise commentary on complex issues from
different points of view.

The UKNCC Guest Contributor Programme offers contrasting ‘short, sharp reads’ for those
seeking a fuller exploration of key questions. This issue explores:
“How can the West navigate a dilemma between trade
and security regarding China?”

Authors, alphabetically by surname:

• Dr. Charles Austin Jordan, Senior Analyst at Rhodium Group.
• Dr. Yan Shi, Fellow, Center for International Security and Strategy (CISS), Tsinghua
  University.
• Joerg Wuttke, Partner at DGA-Albright Stonebridge Group, Former President of the European Union Chamber of Commerce in China.

Contact us at:
perspective.ukncc@pm.me

“How can the West navigate a dilemma between trade and security regarding China?”

Dr. Charles Austin Jordan, Senior Analyst at Rhodium Group

June 2025

Response 1 of 3

The UK National Committee on China (UKNCC) Guest Contributor Programme highlights contrasting responses, by leading authors, to key questions posed by the UKNCC. The programme is designed to stimulate a deeper exploration of China related issues; drive curiosity; and test conventional wisdom.

Contact us at:
perspective.ukncc@pm.me

Advanced industrial democracies (the “West”) are struggling to chart a coherent course in their relationship with China. They are presently caught between the imperatives of national security and the economic gains of global integration. That dilemma cannot be addressed effectively until policymakers first reach consensus on the more foundational issue of the nature and scale of the challenge that China presents.

Understanding the trade and security dilemma

We are in the midst of a global reappraisal of relations with China. Among most advanced industrial democracies, there is broad agreement that the economic relationship with Beijing must shift, yet little consistency in how to effect that shift across governments. This indeterminacy is mirrored at the domestic level. For example, in the case of the US, controls on exports of AI chips to China have grown steadily in scope since the first measures adopted in October 2022, and now, after a short-lived promise to rescind them, cover products initially designed to comply with earlier restrictions. There does not appear to be an upper bound to the controls in sight. Similarly, tariffs have risen to dizzying heights, threatening a near-total embargo, before being temporarily clawed back after the Geneva talks held between May 10-12. That truce nearly unraveled but was salvaged through intense negotiations in London. As of this writing, it remains precarious, with China’s export controls on military-use rare earth materials still unresolved. Clearly, governments are trying to rightsize restrictions appropriate to the level of risk, but absent clear frameworks, have struggled to come up with definitive solutions.

Part of the reason navigating this dilemma has been so difficult for governments is that the mere fact it exists is in many ways surprising. The global about-face on integration is a reckoning with centuries of popular (though not uncontested) thought about the dividends to peace paid by economic interdependence. As Montesquieu states, “Peace is the natural effect of trade. Two nations who traffic with each other become reciprocally dependent; for if one has an interest in buying, the other has an interest in selling; and thus their union is founded on their mutual necessities.” The so-called ‘commercial peace’ has been a mainstay argument of liberal international relations theory, counting among its advocates thinkers and leaders spanning Kant, Schumpeter, Richard Cobden, Margaret Thatcher, Bill Clinton, and countless others.

But the world, and the nature of global commerce, has changed. China has emerged as a great disruptor to the age-old wisdom concerning the benefits of interdependence. The primary cause of this is that China’s political economy has evolved to be so radically different from anything that has existed previously, particularly in regard to the extent of state-led distortions in the economy, that it has generated existential crises over the multilateral regime governing trade. Trade is increasingly viewed as unfair because of these distortions. Chinese economic actors (both firms and entrepreneurs), which normally serve as ballast to the tempestuousness of international politics, are more and more seen as extensions of the Chinese Communist Party, generating new security vulnerabilities in their own right. As US Senator John Cornyn testified, “There is no real difference between a Chinese state-owned enterprise and a ‘private’ Chinese firm in terms of the national security risks that exist when a US company partners with one.” My own research has tracked the reversal of reform and the vast expansion of the state’s political presence in the private economy under Xi. Lastly, global anxieties over China were accelerated by the supply chain weaknesses laid bare by the COVID-19 pandemic and further exacerbated by fears of the return of conventional warfare driven by the conflict in Ukraine.

It’s little surprise, then, that interdependence has failed to secure peace. The problem now, as Edward Fishman eloquently explains in his recent book Chokepoints, is that states today face a trilemma. They can only possess two of the following three conditions: deep economic interdependence, economic security, or geopolitical competition. It is widely recognised that the US’s unipolar moment has collapsed, heralding the return of geopolitical competition. And thus, states are left with a choice between security and interdependence.

Responses to the dilemma hinge upon perceptions of risk

Disagreements on the appropriate policy response to this dilemma stem fundamentally from disparities in risk perception. Put simply, those who view China as an existential security threat will support tighter restrictions on economic ties. Observers such as Robert Lighthizer exemplify this view: because the competition is believed to be existential, any economic interaction which facilitates China’s gains in wealth, technology, or power should be severely curtailed. Those with a more tempered assessment of the risks inherent to the relationship conversely tolerate greater economic integration. Such is the case for the adherents of ‘de-risking,’ one of the signature innovations of Biden-era foreign policymakers, who advocate for an approach that they would argue is better characterised as “competitive’ rather than ‘confrontational.”

Further along the spectrum lie the security minimisers. Much of the Scholz administration in Germany epitomised this approach. Though eventually adopting a less sanguine position, his advocacy for deeper economic integration with China—and his downplaying of security risks, even as his coalition expressed concerns—was notable. On a landmark trip to China in 2024, he remarked that “we don’t want any decoupling from China. We want China to continue to enjoy economic success” and that decoupling “is out of the question for us”—remarks that were delivered in what he deemed a “spirit of trust.”

The West would benefit immensely from a unified approach taken in partnership in responding to China, but this seems increasingly unlikely given the current trajectory. Europe is perhaps rightfully attuned to the growing security risks of its Russian neighbour and regards China as less of a threat than does the US. The views of former WTO director Pascal Lamy regarding the benefits of Chinese FDI are echoed throughout European capitals: “We should do what China did to us 30 years ago…Welcome to the EU, provided you produce here.” Such ideas are much less welcome in Washington, where even investments by strong security allies are controversial.

The inability of Western governments to agree on a tolerable level of interdependence with respect to the Chinese economy ultimately implicates effective responses. Laudable ideas, such as promoting allied scale in manufacturing or new defence pacts, falter without a shared understanding of risk. Governments with a lower risk assessment may commit fewer resources or cut sidedeals with China, undermining leverage. Both weaken the collective response.

Complications in assessing risk and the path forward

Agreement on the extent of risk China poses, and hence the acceptable level of economic interdependence, will be elusive. One helpful notion is to understand that there are different types of risks, which are deeply related but often conflated. China poses both economic and military risks to the West. The feverish worry of China overtaking the US economically is probably overstated, as the Chinese economy faces several structural headwinds with no easy policy solution. On the other hand, the military risks it poses may be underappreciated.

Conventional warfare and territorial aggrandisement are becoming again, slowly, fixtures of the international system. Disparities in risk perception by leaders may simply be due to varying sensitivities to each of these dimensions, and stating these dimensions more plainly may help to reduce discrepancies.

Ultimately, the most straightforward way for the West to navigate the dilemma would be to obviate it. This would require creating sufficient incentives for China to change its political and economic system such that it no longer presents a security challenge. But belief in the possibility of peaceful evolution is at its nadir, and change is unlikely to come from within China. Citizens’ satisfaction with the CCP’s governance exceeds 90% consistently. Neither has Beijing signalled an intent to deviate from its economic model—as evidenced by a rumour for a successor to the landmark ‘Made in China 2025’ plan.

Barring any changes domestically, the next best option is a collective response. That starts with a shared understanding about the nature and scale of risk that China poses in the first place.

Dr. Yan Shi, Fellow, Center for International Security and Strategy (CISS), Tsinghua University.

Drawing from the U.S. model, the EU’s framework now broadly defines “national security” to encompass everything from basic infrastructure to critical technologies.

In recent years, with China’s growing competitiveness and worsening perceptions in the West, “security concerns” in economic relations with China have expanded to all areas—not just high-tech, but also critical raw materials, supply chains, and geopolitical risks. Rather than the blunt pressure seen under Mike Pompeo’s efforts to ban Huawei, the Biden administration coordinated more closely with Western allies under the mantra of a “small yard, high fence” strategy—effectively excluding China from the Western tech ecosystem. In this view, limiting China’s technological development became synonymous with safeguarding national security. The Biden administration continued the “decoupling” approach initiated under Trump 1.0, and Trump 2.0 is likely to maintain this direction. On the European side, the European Commission under Ursula von der Leyen adopted a “de-risking” approach— essentially a milder, more theoretical form of decoupling—rooted in the concept of “weaponised interdependence”.

At the core of these policy shifts lies a deeper anxiety: the West’s discomfort with and collective anxiety around competition from China. The threat is not only technological or economic but also structural, as China’s comprehensive industrial and supply chains enable it to wield substantial economic power. This, in turn, increases the cost of pursuing decoupling. Examples such as China’s electric vehicle (EV) production system and the open-source strategy of Deepseek demonstrate a more efficient “lower cost, higher profit” model suited to cooperation with global—and especially Global South —markets.

What the West finds even more troubling is that China’s economic integration with global markets has not led to Western-style political liberalisation. Instead, China’s rising competitiveness is often interpreted as a result of its distinct political system—turning economic rivalry into a perceived ideological and systemic competition. Hence, Western security concerns over engagement with China often reflect deeper concerns over ideological security.

These concerns are further exacerbated by internal Western challenges: political polarisation, anti-establishment populism, and the rise of the far-right. However, it is unwise to conflate external competition or internal governance issues with national security. Much like the Qing dynasty’s closed-door policy, isolating oneself from the world economy is unlikely to ensure either prosperity or stability. It would only undermine competitiveness. Any political or economic system must be willing to reform and address internal shortcomings—especially after decades of rapid globalisation. This is why China paired the ideas of “reform” and “opening up” as twin pillars of development.

Today, we are already in a new era of technological and industrial competition. All participants should aim to maximise the strengths of their respective systems, rather than mislabel internal reform challenges as external security threats. China has no intrinsic geopolitical disputes with most Western countries, provided its territorial integrity is respected. As such, security concerns grounded in speculative geopolitical risks are misguided and misleading to the public.

Security is a top priority for any country, but if it is poorly defined, it can lead to misguided policies. Rather than seeking “decoupling” to reduce reliance on China’s market, supply chains, or critical raw materials, building genuine political trust is a more realistic and constructive solution. After all, without access to the Chinese market, even the most technologically advanced economies in the West may struggle to generate the revenue necessary to reinvest in R&D.

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