It's Not a New Cold War—It's a U.S.-China Chess Game

The Donald Trump administration's latest National Security Strategy document is turning heads for how it talks—and doesn't talk—about China. As CNN noted, "Gone are the sweeping declarations about China being America’s most consequential geopolitical challenge." Instead, the new strategy emphasizes the U.S.-China economic rivalry above all else. This shift fundamentally challenges the popular framing of the relationship as a second Cold War.

Fragmentation, Not Decoupling

The original Cold War was a contest between the communist Soviet Union and the capitalist, democratic United States. Their blocs were largely insulated from each other, with minimal flows of goods, finance, and technology. That's not the case today. The world's economic landscape is defined by global value chains, where production happens in multiple stages across several countries. This deep integration means a full 'decoupling' is incredibly costly.

What is observable is a degree of fragmentation. Recent research by Harvard economist Gita Gopinath shows a decline in trade between political blocs relative to flows within them. But this is far from the near-total separation of the Cold War. Unlike the U.S.-Soviet rivalry between distinct economic systems, both the U.S. and Chinese economies rely on private capital, international trade, and technology transfers, creating inter-dependencies that are hard to sever.

Mutual Dependence and Domestic Constraints

The U.S. acts as a provider of services, tech, and investment, while China remains the world's factory. This interdependence creates constraints. For China, facing an aging population and weakening domestic demand, export-led growth is critical for domestic political stability. Its merchandise exports to the U.S. stood at around $525 billion in 2024, representing about 15% of its total.

The U.S., in turn, benefits from cheaper imports that help keep consumer prices in check. With inflation a central political concern, especially heading into the 2026 midterm elections, the scope for aggressive trade confrontation is limited. An estimate from the Federal Reserve Bank of St. Louis suggests that tariff hikes during the three-month period of June-August 2025 added around 0.5 percentage points to headline inflation.

The Other Players on the Board

Russia, while no longer a global pole like the Soviet Union, remains a military heavyweight. Its economy's reliance on energy exports means it operates largely outside the economic logic that constrains both Washington and Beijing. Meanwhile, India's young, large population positions it as a major future market. Its ability to translate this demographic potential into production strength will depend on its integration with Asian value chains.