Nathan Gardels is the editor-in-chief of Noema Magazine. He is also the co-founder of and a senior adviser to the Berggruen Institute.
Amid the swirling confusion over ever-shifting American tariff levels, threats of protectionist countermeasures and talk of imminent global trade wars, it was easy to miss the most significant shift of late in the strategic rivalry between the United States and China.
Following the logic of export controls imposed by the Biden administration, President Donald Trump banned the sale of Nvidia’s H20 chips to China in a bid to blunt its rapid advances in AI. In turn, China choked off the supply of rare earth minerals to the U.S. The nation holds a virtual monopoly on the world’s supply, which is critical for industries across the manufacturing spectrum, including medical, defense and consumer electronics.
Last week, this was all reversed, as both sides lifted their restrictions, at least for the time being. This trade-off at the most consequential core of the economic dispute revealed the stubborn reality of interdependence. Both powers have come to recognize they cannot achieve rejuvenation and make themselves great again without some reliance on each other.
U.S. Treasury Secretary Scott Bessent summed up the transaction in terms Adam Smith would have understood regarding the value of trade when nations have different absolute advantages: “They had things we wanted, and we have things they wanted.”
By several accounts, President Trump’s apparent change of mind was due to the compelling case made by Nvidia CEO Jensen Huang. After Chinese startup DeepSeek released an open-source model on par with the West’s most advanced AI models, Huang argued that the export control of chips was only accelerating China’s race to beat the U.S., and that, if China won the race without the U.S., its models, run on its chips, would dominate in the rest of the world.
That is a departure from the long-standing posture of the Trump and Biden administrations, which have treated advanced electronic chips — “dual-use” technologies that can be deployed in weaponry as well as for purely commercial purposes — as technology that must be banned from export to China altogether. China mirrored the argument to justify its controls on the export of rare earth minerals to the U.S.
Out of the sheer necessity of the division of advantage in what remains of the global trading system, both sides have, in this case, accepted the nuance of reciprocal reason and rejected the zero-sum logic of decoupling. What the reversal of the chips vs. rare earth minerals standoff shows is that the attempt to pursue mercantilism in full unmasks its own limits.
Indeed, what seems to be the emergent pattern in trade deals across the board, from Japan to the European Union, is that interdependence weighs too heavily to raise trade barriers too high.
That, in turn, implies that there must be rules of the game to ensure fair reciprocity; advantage cannot be unilaterally dictated by the mercantile interest of one trading partner over another without risking comparable countermeasures.
What all this bodes for the future of the U.S.-China strategic rivalry remains unclear. What is clear is that the interdependence established after decades of globalization cannot be so easily unraveled in the short term — and that once a proper measure of security, self-reliance and resilience is achieved, key advantages for mutual prosperity remain, provided there are reciprocal gains through trade.
During the Cold War between the West and the Soviet Union, the economic spheres were separate. What is fascinating about the new Cold War with China is that this is not a confrontation of separate spheres, but a conflict over the extent of integration between them. This suggests that the outcome will also be different.
One won’t defeat the other in some summary way, but each will be mutually transformed by the other through a new mode of interaction forged out of the legacy of interdependence that has benefits no less considerable than faults.
