Too Close to Clash: The US-China Standoff Nobody Can Win
Waging economic war when your enemy makes your arms and ammunition
Grüezi!
Washington controls the money and the seas.
Beijing controls the factories.
Neither can knock out the other – and that’s reshaping everything we thought we knew about global power.
1. When Your Enemy’s Enemy Is Also Your Problem
America’s decision to bomb Iranian nuclear facilities alongside Israel last week should have marked a clear choosing of sides. Instead, it revealed something more complicated – and very little about nuclear weapons.
Unable to quite rein in its renegade ally, Washington found itself joining Israel’s strikes, whilst also asking China to help calm things down. China loudly condemned the attacks, but – whether quiet diplomacy or exhaustion actually worked – its ally Iran did not close Hormuz.
Amidst the presidential cursing and live-posting, the rest of us must try to find a pattern in the chaos.
What remains suggests a new form of conflict management: powers can take military action whilst simultaneously back peddling to limit escalation – not through coordination but through mutual vulnerability.
For three decades after the end of the Cold War, China’s manufacturing might and America’s financial power seemed complementary – a globalising partnership that would lift living standards and end history.
That optimism is long over. Washington now eyes China warily, flexing financial sanctions and military power, whilst Beijing counters with massive manufacturing dominance and infrastructure deals that skirt US-led systems.
The unsurprising result? Neither side can currently win. They’re too entangled to separate, too opposed to cooperate. Call it competitive interdependence – a fancy term for being stuck with your rival.
2. China’s Trillion-Dollar Workaround
Consider the scale of China’s challenge to US supremacy. The Belt and Road Initiative has poured $1.2 trillion into 140 countries since 2013 – history’s largest infrastructure programme. Last year alone saw $71bn in construction contracts and $51bn in fresh investments. Ports, railways, pipelines, and digital networks – all to create physical alternatives to American trade routes.
But here’s the catch. On the other side of the ledger, China’s payment system CIPS (Cross-Border Interbank Payment System) looks tiny next to America’s CHIPS (Clearing House etc.). Worldwide, CHIPS serves 11,000 financial firms versus CIPS’s 1,300. CHIPS processes 40 times the daily transaction volume of its upstart Chinese rival – $1.8 trillion versus $46bn.
Worse, CIPS relies on SWIFT’s messaging service for 80% of its transactions. China can build all the railways and ports it wants, but it still needs dollar-denominated trade and US-controlled financial systems. It’s building a parallel system that is reducing Washington’s leverage without eliminating it altogether.
3. Why the Arctic Won’t Save China (And Neither Will Russia)
Take the Northern Sea Route – China’s dream of bypassing Western-controlled shipping lanes through the Arctic. On paper, it looks brilliant. Chinese shipping giant COSCO found that 14 Arctic voyages saved 220 days, nearly 7,000 tons of fuel, and $9.4m compared to going through Suez. The passage is 40% shorter.
Reality has proved less exciting. The NSR managed just 38m tons in 2024, less than half its 80m target. Ice isn’t the only problem. Russia controls 70% of it and charges hefty transit fees. China just swapped Western chokepoints for Russian ones.
The overland alternatives aren’t much better. Rail freight costs three to five times more than sea shipping, it can’t handle bulk cargo, and lines run through unstable regions. Yes, these matter in a crisis. But for everyday trade? China still has to work within the system it’s trying to escape.
4. The Debt Trap That Wasn’t
Western analysts keep getting China wrong. The sheer scale of American power can make it feel monolithic, but we know that US power is mediated by domestic politics, legal decisions, lobbying, media, allies and a whole raft of often conflicting interests. We’re familiar with both its construction and its contradictions.
China, on the other hand, remains opaque. There are no polling percentages to guide the factional ups and downs inside Zhongnanhai, no strategic political leaks, or angry ex-staffers to give us the inside scoop.
Instead, a lot of commentary portrays Beijing as Bond villain-esque, meticulously planning global domination, whilst quietly explaining itself to China whisperers.
The “debt trap diplomacy” narrative is a familiar financial version of this, and Sri Lanka’s Hambantota Port is exhibit A for Casino Royale communist plotting –although in fact it tells a rather different story.
China didn’t propose the port. Sri Lankan politicians pushed for it for domestic reasons. When Colombo needed funding, it approached America and India first. Both said no. China was not the predatory first mover, instead it was the lender of last resort.
Bloomberg’s 2022 investigation found that accusations of Chinese debt-trap diplomacy in Africa were “unfounded”. The messy reality? Chinese development financing is too fragmented and poorly coordinated to execute grand strategy.
Provincial governments, state enterprises, and private firms often work at cross-purposes. Recipients play these competing Chinese interests against each other – hardly the monolithic predation Western narratives suggest.
5. CHIPS With Everything
But alternative payment systems are slowly eating away at America’s financial arsenal and China’s digital currency is the most determined nibbler.
How does it work? An importer transfers digital currency directly from their account to the seller’s. The central bank executes the transaction using its own ledger. No CHIPS, no SWIFT, no Western intermediaries.
The scale remains small – $19 trillion in 2024 versus SWIFT’s $150 trillion. The yuan comprises just 4.3% of global payments. But effectiveness can matter more than scale.
According to Tsinghua University’s Yan Xuetong, Russia’s share of yuan payments outside China jumped from under 1% to 3.9% after sanctions – demonstrating how US pressure accelerates adoption among states caught in its financial crosshairs.
These weapons still work against isolated targets. Against states with Chinese support? They impose costs without necessarily compelling policy change.
6. Mutually Assured Production
The depth of Sino-American integration creates vulnerabilities that neither side can escape. Every major manufacturer sources at least 2% of industrial inputs from China – but that average conceals dramatic concentrations.
Electronics, pharmaceuticals, renewable energy? More like 50-80% from China. That reverse dependency runs through finance: Chinese institutions need CHIPS for dollar settlement, and CIPS relies on SWIFT for messaging.
If governments needed a reminder of what these dependencies mean then they got it with the COVID-19 pandemic. When Wuhan shut down, global supply chains seized up within weeks. States discovered that patents and blueprints were worth nothing without actual manufacturing.
Electric vehicles are yet another reminder. Geopolitics was invented by oil companies. As the age of combustion power closes, China controls 52% of global lithium-ion battery exports and dominates critical mineral processing.
American tech dominance faces similar limits. The US controls chip design software, key patents, and advanced manufacturing equipment. But turning that into chips requires Taipei’s fabrication, Dutch lithography equipment, Japanese materials, and Korean memory.
The interdependence extends beyond trade and technology. Washington now restricts Chinese students in “critical fields” – a form of academic decoupling that inadvertently acknowledges American dependence on preventing knowledge transfer.
Neither power can go it alone at a price that they’re willing to pay.
7. The Geography of “Good Enough”
The global economy is increasingly fracturing into overlapping zones of influence. China’s central bank governor calls it “a system where a few sovereign currencies coexist and compete with checks and balances.” Translation: nobody wins, everybody survives.
We see this everywhere. India makes 14% of iPhones today versus 1% in 2021 – not because it’s better than China, but because Apple needs insurance. The EU dabbles with “strategic autonomy” through its own digital currency and semiconductor production.
Middle powers maintain dollar reserves whilst facilitating yuan trade, using SWIFT for Western deals whilst joining CIPS for China.
Modern hegemony requires financial control, manufacturing dominance, and technological leadership. Neither great power has all three.
Modern hegemony requires financial control, manufacturing dominance, and technological leadership. Neither great power has all three. America’s financial supremacy can’t overcome dependence on Asian production.
China’s manufacturing might cannot break free of Western technology. Across the Taiwan strait, TSMC controls 62% of global chip foundry capacity – making the small island a fulcrum of global power.
Back to Iran: Why Nobody Wins For Now
The Iran strikes showed this new reality in action. When Israel launched “Operation Rising Lion” and American B-2s joined in bombing Iranian nuclear sites, neither power ended up pushing for wider confrontation.
China condemned loudly whilst it quietly persuaded Iran’s theocrats to keep Hormuz open. America brazenly followed its renegade ally only to finally discipline it.
Neither power is working from global public-spiritedness – simply from recognition that escalation would devastate both economies. Oil above $90 per barrel would crush Chinese manufacturing margins and trigger American inflation. The closure of Hormuz would cripple everyone.
China kept buying Iranian oil, evacuating citizens whilst maintaining trade. Washington conducted military strikes whilst urging de-escalation. No coordination, no joint statements – just parallel recognition that shared vulnerabilities outweigh competitive advantages.
This points toward “managed strategic competition,” what the Chinese call “moral realism”: a world where no single power provides dominant leadership, forcing regional coalitions to manage their own stability.
Unlike Cold War containment seeking an opponent’s collapse, this framework accepts a permanent rivalry within boundaries. Powers compete in semiconductors whilst cooperating on climate, rival for regional influence whilst maintaining financial flows. Taiwan’s chips, Middle Eastern energy, and nuclear escalation all represent mutual vulnerabilities requiring mutual restraint.
Critics point to America’s 11 aircraft carriers versus China’s three, SWIFT’s power to exclude Russian banks, and the dollar’s 88% share of forex transactions. Fair points. But Russia’s economy grew 3.6% in 2023 despite sanctions. Alternative systems from CIPS to digital currencies grow 50-75% annually. Naval blockades would devastate American allies before harming China.
The path forward requires accepting what neither capital admits: they’re condemned to coexistence. Too entangled for divorce, too nuclear for war, facing challenges too big for unilateral solution. Success means redefining victory – from domination to resilience, from hegemony to influence, from control to shaping.
The Iran strikes glimpsed this future: dangerous but manageable, competitive but not catastrophic. If systemic rivals can bomb the same country whilst simultaneously working to prevent wider war, perhaps competitive interdependence can evolve into stable coexistence.
The alternative – resolving competition through confrontation – risks everything both built. Learning to compete without destroying the system? That is the challenge of the 21C, and it’s being decided between the erratic whims of Washington and the technocratic wiles of Beijing.
Thanks for reading!
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Adrian
Very insightful picture, Adrian. And it reminds me of what Gwyneth Paltrow remarked when asked about her famous parents' long-lasting Hollywood marriage. 'Didn't they ever want to divorce?' the journalist asked. 'Oh yeah. Plenty of times.' Paltrow replied.' Just not at the same time.'