Colin Chow, National University of Singapore
For today’s major powers, openness has shifted from a stabilizing force to a perceived strategic vulnerability. Technologies such as semiconductors, artificial intelligence, and green energy have increasingly become geostrategic assets, embedding economic policy firmly within the calculus of national security. From Washington to Beijing, industrial policy is now crafted not primarily for economic growth or efficiency, but to secure technological primacy, mitigate strategic dependencies, and safeguard core national interests.
This transformation is structural rather than cyclical, representing a fundamental reorientation of how states evaluate risk and resilience in a fragmented, post-globalization order. Classical liberalization strategies, traditionally anchored in comparative advantage, have become subordinate to strategic imperatives. Nowhere is this shift more vividly demonstrated than in the ongoing U.S.–China economic confrontation.
Despite classical Ricardian arguments emphasizing mutual gains through trade, both powers have turned decisively toward protectionism—imposing extensive tariffs, supporting national champions, and reshaping markets in their strategic interest. Industrial policy, once viewed as merely an instrument for domestic development, has emerged as a crucial arena for modern economic statecraft.
A “Tipping-Point” Model
Quah’s (2025) analytical model demonstrates how rising national security concerns, once surpassing a threshold, trigger abrupt transitions from cooperative to disruptive industrial policies.
The model (see Fig. 1) argues that countries follow one of two broad strategies: one that fosters innovation and global competitiveness, through measures like subsidies for advanced technologies and public investment in R&D (x1 policy), or another that seeks to shield domestic industries through tariffs, investment restrictions, and other protectionist tools (x0 policy).
Which path a country chooses depends on its level of concern about national security (denoted in the model). When these concerns are relatively low, governments tend to pursue openness and cooperation, prioritizing growth and efficiency (x1 dominates). But once national security fears reach a certain threshold , countries pivot sharply. Openness is abandoned in favour of defensive policies, even at the cost of economic efficiency. That is, x0 rises. This policy shift isn’t gradual; it happens quickly once a critical point is crossed.
Figure 1: Quah’s (2025) tipping-point model demonstrates how increasing national security concerns drive an abrupt shift from openness-focused policies to protectionist measures.
The U.S.-China Standoff
This tipping-point dynamic clarifies the sharp rupture in today’s industrial policy landscape. Until February 2025, the U.S. and China maintained a fragile cooperative posture. Despite rising tensions, both sides upheld parts of the Phase One trade deal and allowed limited tech exports under licensing regimes. Diplomatic overtures, such as Treasury Secretary Janet Yellen’s meeting with China’s Vice Premier He Lifeng in late 2023, emphasized a mutual interest in stability. Yellen’s assurance that “the United States has no desire to decouple from China” highlighted the cautious commitment to managing strategic rivalry within an openness-oriented (x1) framework, consistent with conditions of relatively low perceived national security risk (<).
However, this fragile cooperation rapidly deteriorated on February 1, 2025, when President Trump issued Executive Order 14195, imposing a blanket 10% tariff on Chinese imports, citing the need to stem fentanyl flows. On March 3, this was raised to 20%. Within days, Beijing retaliated with 10 – 15% tariffs on U.S. agricultural imports, LNG, farm machinery , and escalated further by placing PVH and Illumina on its Unreliable Entity List, subsequently banning Illumina imports. In the model’s terms, this action represented a clear breach of the tipping point (>), triggering a dramatic collapse in openness (x1) and a swift pivot toward aggressive protectionist measures (x0).
Escalation peaked on April 2, dubbed “Liberation Day” by the Trump administration, when the U.S. imposed an additional 34% tariff on Chinese imports, prompting an immediate tit-for-tat response from Beijing. By mid-April, both countries had imposed punitive tariff regimes, with the U.S. reaching 145% tariffs on Chinese imports and China levying 125% duties on American goods. These rapid, large-scale responses closely align with Quah’s prediction that once national security concerns surpass the tipping point, states decisively abandon cooperation (x1) in favor of entrenched protectionism (x0).
China’s domestic posture confirmed this shift. At its annual Two Sessions, the government elevated self-reliance and domestic innovation to the centre of national strategy. On Liberation Day, President Xi invoked China’s historical vulnerability to foreign coercion, framing economic independence as a patriotic imperative. In the words of Chinese Foreign Ministry spokesperson Lin Jian: “China will fight to the end.”
Is There a Way Out?
Just as escalation can be triggered by crossing a critical threshold, it can likewise be prevented or moderated through timely interventions. Here, the role of “Third Nations” becomes crucial. These countries or regional blocs—though not global hegemons like the U.S. or China—possess sufficient economic, diplomatic, or institutional clout to influence global dynamics. Through strategic coordination rather than direct confrontation, Third Nations can mitigate polarization.
Consider the European Union. Though historically aligned with the U.S., the EU has been cautious about fully endorsing an anti-China posture. It has instead pursued strategic autonomy, using tools like the Carbon Border Adjustment Mechanism and the EU Chips Act to assert interests independently. ASEAN has similarly maintained balanced engagement with both Washington and Beijing, relying on multilateral platforms like the Regional Comprehensive Economic Partnership (RCEP) to hedge against polarization.
These actors can serve as Schelling (1960) focal points—third parties that reduce the perceived costs of cooperation by shifting expectations and establishing credible norms. Practical efforts might include export transparency frameworks, technology standard-setting forums, or trade compacts insulated from geopolitical shocks.
The mediating role of Third Nations becomes even more critical amid the uncertainty created by President Trump’s second term, marked by tensions and the weakening of long-standing alliances with traditionally reliable partners such as the EU, Mexico, and Canada. As these actors face uncertainty regarding U.S. commitments to multilateralism, Third Nations may increasingly need to fill the coordination gap, facilitating stability and cooperation in a multipolar global order.
Yet, transcending a security-driven economic paradigm necessitates more than diplomacy alone; it requires confronting deeply-rooted domestic narratives. In an early 2025 poll, 72% of Americans opposed dependence on Chinese suppliers for shipbuilding, and 70% viewed Chinese-built docks as a national security threat. In China, state media cast economic decoupling as a patriotic imperative. National narratives, not just strategic calculus, were raising .
Nevertheless, as tariffs exerted tangible impacts, popular sentiment began to shift. By late April, multiple polls showed President Trump’s approval rating falling below 40%—a six-point drop since mid-February. According to a Reuters/Ipsos poll, approval of his economic stewardship declined to 36%, the lowest of his presidency. Nearly half of Americans now give him a failing grade. Discontent over rising prices, disrupted supply chains, and the broader economic fallout from trade tensions is eroding the domestic consensus that once fuelled the push for decoupling. Protectionism, previously framed as strategic necessity, is now under growing pressure from American consumers feeling the weight of its economic costs.
Beyond Zero-Sum
The path out of this impasse is not merely technical; it is narrative. It requires a reframing of globalization that balances sovereignty with openness and resilience with cooperation. Industrial policy is no longer a neutral instrument—it has become the primary arena where global power is contested.
Yet, as Quah reminds us, tipping points are inherently dual-edged: while rapid escalation can arise from crossing critical thresholds, equally powerful is the potential to forestall such thresholds from being reached. With the right institutions, credible norms, and narrative leadership, it remains possible to transform strategic deadlock into productive interdependence. Third-party states—once regarded as peripheral or passive—hold newfound prominence as agents of stabilization, focal points of equilibrium capable of reshaping global trajectories.
The challenge ahead, then, is not to return to the past, but to construct a future in which strategic competition does not preclude productive coexistence—one where the collective pursuit of national interests does not undermine, but rather enhances, the shared prosperity of all nations.