On January 29, 1979, the Vice Chairman of the Chinese Communist Party Deng Xiaoping embarked on a nine-day tour of the United States. The visit took place less than a month after the establishment of diplomatic relations between China and the U.S. After decades of tension and suspicion, Deng’s visit marked the beginning of a gradual thawing of the ice between China and the U.S., ushering in a new chapter in their diplomatic history. Notably, Deng’s diplomatic visit secured political and material backing from the U.S. for China’s liberalizing economic reforms, known as the ‘reform and opening-up’ program. This external support was instrumental in the modernization of China.

Since the reform and opening-up period, the Chinese and American economies have become even further integrated, culminating in the formation of ‘Chimerica’—a term denoting the symbiotic interdependence between China and the U.S. in the modern global economy. Chimerica has become the cornerstone of contemporary U.S.-China relations, providing a powerful mutual deterrent against conflict. However, Chimerica is currently under threat, and China and the U.S. must take urgent measures to prevent its collapse.

Deng Xiaoping's Diplomatic Visit and the Beginnings of U.S.-China Economic Cooperation

Deng's diplomatic visit accelerated the thawing of U.S.-China relations and created external political and economic conditions favorable to China’s reform and opening-up program. In a private meeting with U.S. President Jimmy Carter, Deng expressed China’s commitment to uniting with the U.S. against the Soviet Union. China would fulfill this pledge by pursuing military action against the Soviet-backed Vietnam, in retaliation to the latter’s invasion of Cambodia.[1] Ultimately, the delegates found consensus in their mutual enmity with the Soviet Union, and left the meeting largely satisfied with the other side’s position.[2]

This meeting was the closest China and the U.S. had come to cooperation since the onset of the Cold War. Afterwards, the two countries were more willing to work together towards shared geopolitical goals, resulting in a decade-long ‘honeymoon period’ in U.S.-China relations, creating favorable political conditions for China’s reform and opening-up program. Since the success of this program relied on cooperation with Western nations, of which the U.S. was the de facto leader, reaching a political consensus with the U.S. was a crucial priority for China.

As well as building political trust between China and the U.S., Deng’s diplomatic visit opened new avenues for economic cooperation between the two countries. After the visit, senior U.S. officials, including Secretary of the Treasury Michael Blumenthal, traveled to China to open negotiations on topics such as U.S.-China trade, frozen assets on both sides, and most-favored nation treatment.[3] The resulting economic conditions supported China’s reform and opening-up program: China began importing technology and personnel from the U.S., while the U.S. made substantial investments in key Chinese industries. As well as paving the way for China’s economic ascent, these changes led to a lasting spirit of economic and technological cooperation between the two countries.

Continuing Economic Cooperation and Interdependence

Economic and trade relations between the U.S. and China have developed rapidly since the formal establishment of diplomatic relations in 1979. There were—and remain—clear differences between the industrial and economic structures of the two countries, with China relying heavily on labor-intensive industries and the U.S. on capital-intensive industries. The synergies between these two economic structures laid a solid foundation for mutually beneficial cooperation. During the honeymoon period between 1979 and 1989, the U.S. opened its market to Chinese exports, allowing U.S.-China economic relations to flourish. By 1989, the meteoric rise of the Chinese economy had provided the U.S. with access to new markets and attracted substantial U.S. foreign investment.

Despite occasional disruptions due to events such as the Tiananmen Square incident and the Third Taiwan Strait Crisis, U.S.-China economic relations have largely continued to improve, due to the nations’ shared economic interests. Economic and trade cooperation between the U.S. and China became even closer after the latter’s accession to the World Trade Organization in 2001. With reduced tariffs and trade barriers, the U.S. and China have stepped up exchanges of goods and services. While American consumption creates demand for Chinese manufacturing output, China’s abundance of labor and excess savings have increased the global rate of return on capital while depressing U.S. interest rates.[4] Thus, with increasing economic globalization, China and the U.S. have only become more economically interdependent, forming a complex symbiotic entity that the historians Niall Ferguson and Moritz Schularick have dubbed ‘Chimerica’.

Economic Interdependence as the Keystone of U.S.-China Relations

The formation of Chimerica has significantly eased tensions between China and the U.S., largely because their economic interdependence would make serious conflict prohibitively expensive. For instance, as of January 2025, China owned $760.8 billion in U.S. Treasury bonds.[5] China’s investment in U.S. debt helps to finance America's fiscal deficit while protecting its foreign reserves, creating a financial buffer against U.S.-China hostilities. While economic interdependence cannot completely rule out conflict, it is a strong deterrent, as disrupting this balance could cripple both economies.

However, Chimerica has been beset by a number of crises. The global financial crisis of 2007-2008 revealed the fragility and instability of Chimerica,[6] and its economic foundations are being gradually eroded, as China’s labor market is shrinking while U.S. fiscal expenditure and income are converging.[7] In 2018, the Trump administration initiated a trade war against China with the aim of reducing trade imbalances and U.S. economic dependence on China. Perhaps more worryingly, now with the Trump administration back in power, the U.S. has imposed a 145% tariff on Chinese exports, and China has struck back with 125% tariffs on U.S. goods.[8] The escalating U.S.-China trade war will further destroy Chimerica, reshaping the existing rules-based global order.

Should Chimerica collapse, relations between the U.S. and China may soon follow. Without this economic safeguard, geopolitical competition between the countries is likely to escalate, and political and security conflicts would become more frequent. Moreover, it will deeply hurt the global economic growth and stability. Although the recent deal reached between China and the U.S. in Geneva lowered tariffs on both sides and sent a positive signal of avoiding full economic decoupling,[9] it remains only a temporary and informal deal aimed at creating time for further dialogue. The current tariff level is still higher than it was prior to last month, when Trump began raising tariffs. To prevent Chimerica’s downfall, the U.S. and China must consistently seek substantive constructive negotiations for mutually beneficial economic cooperation, create institutional platforms for discussing monetary policies, and jointly pursue equitable trade agreements while avoiding unilateral protectionism.

The normalization of U.S.-China relations, accelerated by Deng’s diplomatic journey to the U.S., provided favorable conditions for China’s reform and opening-up program, which in turn paved the way for deepening U.S.-China economic integration. Despite economic globalization, profound ideological differences, and frequent diplomatic crises, the symbiotic relationship between the Chinese and U.S. economies has, until recently, provided a stable bedrock for ongoing cooperation. However, Chimerica is now under threat from various crises, making joint cooperation more urgent than ever.

Yipin Lyu holds a bachelor's degree in international economics and trade from Henan University (PRC) and a master's degree in war studies from King's College London. He has also worked as a research assistant at One Belt-One Road Strategy Institute, Tsinghua University. He is a graduate student at OSGA and Hertford College, University of Oxford. His research interests focus on military history, international relations theory, and historical international relations.

Bibliography

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Bao, Anniek. “China Strikes Back with 125% Tariffs on US Goods Starting April 12.” CNBC, April 11, 2025. https://www.cnbc.com/2025/04/11/china-strikes-back-with-125percent-tariffs-on-us-goods-starting-april-12.html.

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[1] “Memorandum of Conversation,” Foreign Relations of the United States, 1977–1980, vol. XIII, China, doc. 205 (2013), https://history.state.gov/historicaldocuments/frus1977-80v13/d205.

[2] “Backchannel Message From the Ambassador to China (Woodcock) to Michel Oksenberg,” Foreign Relations of the United States, 1977–1980, Volume XIII, China, doc. 227 (2013), https://history.state.gov/historicaldocuments/frus1977-80v13/d227.

[3] Most-favored nation (MFN) treatment is an international trade principle where any trade benefit granted by a country to a trade partner, such as a tariff reduction or market access, must be applied equally to all of its MFN trade partners; “Memorandum From Secretary of the Treasury Blumenthal to President Carter,” Foreign Relations of the United States, 1977–1980, Volume XIII, China document 232. (2013), https://history.state.gov/historicaldocuments/frus1977-80v13/d232.

[4] Niall Ferguson and Moritz Schularick, “‘Chimerica’ and the Global Asset Market Boom.” International Finance 10, no. 3 (2007): 215-239, doi.org/10.1111/j.1468-2362.2007.00210.x.

[5] CEIC Data Global Database, “China Holdings of US Treasury Securities,” last accessed May 6, 2025, https://www.ceicdata.com/en/china/holdings-of-us-treasury-securities/holdings-of-us-treasury-securities.

[6] Central for International Governance Innovation, “The End of ‘Chimerica’,” last accessed April 28, 2025,

https://www.cigionline.org/articles/end-chimerica/.

[7] Niall Ferguson and Xu Xiang, “Making Chimerica great again.” International Finance 21, no. 3 (2018): 250,

doi.org/10.1111/infi.12335.

[8] Anniek Bao, “China Strikes Back with 125% Tariffs on US Goods Starting April 12,” CNBC, April 11, 2025, 

https://www.cnbc.com/2025/04/11/china-strikes-back-with-125percent-tariffs-on-us-goods-starting-april-12.html.

[9] Jamey Keaten, David McHugh, Elaine Kurtenbach, and Ken Moritsugu, “US and China reach a deal to slash sky-high tariffs for now, with a 90-day pause,” Associated Press, May 12, 2025,

https://apnews.com/article/china-us-switzerland-tariffs-negotiations-b3f5174d086e39b2522ab848ddad9372.