The liberal internationalist belief that global trade and interdependence would democratize and “Westernize” authoritarian regimes like China, prevalent in the 1990s, 2000s, and 2010s, is widely seen as having significantly undermined U.S. security and global position by the 2020s. This outcome was largely a result of several critical miscalculations and unintended consequences.
The Core Belief (The “Liberal Bet”)
Liberal internationalism rests on the premise that increased economic engagement, cross-cultural exchange, and integration into multilateral institutions cultivate shared interests and mutual understanding, ultimately encouraging political convergence toward liberal democracy. According to this perspective, economic prosperity fosters the rise of a middle class that demands political freedoms—a concept known as the modernization hypothesis—while authoritarian regimes are expected either to democratize or to become “responsible stakeholders” within the existing rules-based international order.
A related idea, Thomas Friedman’s Golden Arches theory, suggests that no two countries that both have a McDonald’s have ever fought a war against each other, highlighting the pacifying effects of economic interdependence. This framework heavily influenced U.S. policy toward China, particularly in the decision to grant Permanent Normal Trade Relations and support China’s accession to the World Trade Organization in 2001, under the expectation that China’s economic liberalization would not only advance its political evolution but also generate economic benefits for the United States.
Empowering an Authoritarian Rival, Not Democratizing It
China presents a striking counterexample to the conventional wisdom, most famously articulated by Francis Fukuyama, that liberal democracy and free-market capitalism naturally reinforce each other. Contrary to the “liberal bet,” China did not democratize; instead, the Chinese Communist Party (CCP) leveraged economic growth to strengthen its authoritarian grip, enhance surveillance capabilities, and deepen political control, particularly under Xi Jinping. By prioritizing economic growth and social stability over liberal democratic norms, the CCP created a virtuous circle in which prosperity reinforced its legitimacy and provided the resources to maintain and facilitate further economic development, rather than undermining its authority.
This model has been validated by China’s sustained economic success under authoritarian rule, alongside Singapore’s comparable trajectory, offering an alternative development path that challenges the Western narrative that liberal democracy is a prerequisite for prosperity. By maintaining tight political control through a dominant-party system, limited press freedom, and carefully managed civil society while simultaneously embracing open markets, foreign investment, and global trade integration, China demonstrates that a non-liberal-democratic state can achieve sustained growth, innovation, and global competitiveness without the institutional frameworks of full democracy. This experience has, in turn, eroded the appeal of Western democratic ideals as the sole route to development.
Hollowing Out U.S. Industrial and Technological Base
U.S. companies, driven by profit motives and supported by trade policies, aggressively offshored manufacturing to China to take advantage of lower labor costs, lighter regulations, and a rapidly expanding supply chain ecosystem. This shift contributed to the decline of significant portions of the U.S. manufacturing sector and created a deep reliance on China for essential goods, ranging from pharmaceuticals and rare earth minerals to advanced electronics components, generating critical vulnerabilities during crises such as the COVID-19 pandemic and raising national security concerns.
Simultaneously, U.S. engagement with China facilitated substantial technology transfer, both through legitimate channels such as joint ventures and R&D centers, and through illicit means including intellectual property theft. This transfer significantly accelerated China’s technological advancement. The situation echoes historical patterns from the 19th century, when the United States, with relatively weak domestic and international patent enforcement, relied on reverse-engineering European, particularly British, machinery and designs to build its own industrial base. In both eras, the U.S. benefited economically in the short term but exposed itself to strategic and technological vulnerabilities by enabling the rise of a future competitor.
Fueling China’s Military Modernization
China’s unprecedented economic growth, driven by global trade and Western investment, provided the financial resources necessary to modernize its defense industry across multiple domains, including naval power, air force capabilities, missile technology, cyber warfare, and space operations, directly challenging U.S. military primacy in strategic regions such as the Indo-Pacific.
Many technologies developed for civilian economic purposes—such as artificial intelligence, advanced manufacturing processes, and drone technology—have dual-use applications, allowing them to directly enhance China’s military capabilities. In some cases, Western companies’ engagement inadvertently facilitated this technological transfer, accelerating China’s defense modernization.
Undermining U.S.-led Global Norms and Institutions
The expectation that China would evolve into a “responsible stakeholder” within the liberal international order has not materialized. Instead, China has pursued an alternative approach, building its own global institutions, such as the Belt and Road Initiative, the Asian Infrastructure Investment Bank, and the Regional Comprehensive Economic Partnership, while simultaneously challenging liberal norms within established bodies like the United Nations, the World Trade Organization, and the World Health Organization.
Rather than fully adhering to the existing rules-based order, China has reinterpreted these rules and norms to serve its national interests. Its political model prioritizes social stability and sustained economic growth over liberal democratic principles, maintaining one-party rule, restricted political pluralism, and a managed civil society, even as it embraces open markets, foreign investment, and global trade. This strategy demonstrates that a state can achieve long-term prosperity and global competitiveness without fully adopting democratic freedoms. In parallel, China leverages its economic power and expanding global reach to shape narratives and conduct influence operations across international organizations, academic institutions, and media outlets, thereby impacting global discourse and norms associated with democratic governance.
Creating Strategic Dependence and Leverage for China
WTO accession in 2001, coupled with massive Western investment, accelerated China’s rise in manufacturing, infrastructure, and technology. By 2020, China had become the world’s largest trading nation, the largest manufacturer, and a formidable technological and geopolitical competitor. Western capital, technology, and markets played a crucial role in building a robust non-Western development model that now challenges U.S. norms and global influence.
The concept of Pax Americana assumes that global peace and stability can be maintained primarily through U.S. dominance. It envisions a unipolar world in which the United States, as the preeminent military, economic, and political power, can enforce order, deter conflict, and uphold international norms. This perspective presumes that American leadership alone is sufficient to maintain global security, projecting the notion that peace depends on the continuation of U.S. primacy rather than on multilateral cooperation or balanced power structures. Liberal thinkers once argued that economic interdependence would ensure peace, but China demonstrated the opposite, exploiting asymmetries in global economic relationships. Rare earths were leveraged as geopolitical tools, market access threats were used to silence criticism from corporations and governments, and state-driven industrial policies and subsidies undermined Western industries in sectors such as solar panels, steel, and electric vehicles. Over time, the West became economically dependent on China, limiting its leverage and exposing vulnerabilities in supply chains, as exemplified during COVID-19 disruptions and global semiconductor shortages.
In response to these vulnerabilities, China developed its dual circulation strategy, recalibrating its economic model to emphasize domestic demand while continuing to engage selectively with global markets. By reducing reliance on Western countries for technology, supply chains, and markets, China seeks to insulate its economy from external shocks, trade restrictions, and geopolitical pressures. Strengthening domestic consumption, innovation, and industrial capacity enhances China’s self-reliance while maintaining strategic engagement with global trade. Simultaneously, this strategy has created a growing asymmetry in interdependence: while China reduces its dependence on Western markets, advanced economies have become increasingly reliant on China for manufacturing, raw materials, critical minerals, and complex supply chains in sectors such as electronics, electric vehicles, and pharmaceuticals. This shift has transformed the dynamics of global economic power, giving China significant leverage to influence economic and technological affairs. Deep interdependence has created what can be described as a “hostage economy,” in which the United States and its allies face potential coercion through threats of supply chain disruption or market exclusion. Moreover, reliance on Chinese markets has complicated alliance cohesion, forcing some partners to navigate difficult choices between economic interests and security commitments.
Overall, China’s rise illustrates how the assumptions underlying the liberal international order and U.S. primacy have been challenged by a strategically astute, economically integrated, and increasingly self-reliant competitor, reshaping the global balance of power.
Neglect of Industrial and Technological Sovereignty
Liberal internationalism, with its emphasis on free trade and market openness, discouraged industrial policy, labeling it as “protectionist,” while China pursued a contrasting approach of state capitalism and long-term techno-nationalism.
In the United States, Milton Friedman’s principle of shareholder primacy profoundly shaped corporate thinking from the 1980s onward, influencing governance, executive compensation, and strategic decision-making. Under the leadership of figures like Jack Welch at GE, maximizing shareholder value became synonymous with fulfilling a company’s purpose.
This focus on profitability and globalization drove U.S. corporations to relentlessly seek lower costs, often through offshoring manufacturing, which offered immediate financial gains and boosted stock prices. Free trade orthodoxy justified the relocation of critical industries, including semiconductors, active pharmaceutical ingredients, and rare earths, under the assumption that the U.S. would retain dominance in high-value services. Meanwhile, China invested heavily in STEM education, infrastructure, and manufacturing, steadily moving up the value chain.
The hollowing out of America’s domestic industrial base, combined with the dislocation of working-class communities, fueled populism, political polarization, and strategic fragility. The early-2000s optimism that globalization would create broadly shared prosperity—the “flat world” vision—proved largely unfulfilled for many American workers and regions, as wealth concentrated in tech hubs and manufacturing jobs vanished. This economic dislocation provided fertile ground for Donald Trump’s America First agenda, which sought to reverse perceived losses from globalization, prioritize domestic industry, and reassert U.S. sovereignty over trade, immigration, and international agreements.
Long-term underinvestment in infrastructure, STEM education, core manufacturing, and strategic industries such as semiconductors and 5G left the United States vulnerable. In contrast, China’s sustained focus on state-led development and strategic technological investment has enabled it to rival or surpass the U.S. in areas such as artificial intelligence, green energy, quantum computing, and global infrastructure financing. This divergence highlights the consequences of contrasting economic philosophies: where the U.S. embraced shareholder-driven globalization, China leveraged state-guided industrial policy to secure enduring technological and strategic advantages.
Loss of Soft Power Narrative Control
While Western liberalism has long assumed the universality of its economic and political model, the experiences of China and Singapore demonstrate that economic modernization does not necessarily require democratization. In Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, Ha-Joon Chang offers a sharp critique of the IMF and World Bank, arguing that these institutions often impose policies on developing countries that hinder, rather than foster, economic growth. By pushing a rigid agenda of rapid liberalization, privatization, and the removal of trade protections, these institutions ignore historical evidence showing that today’s wealthy nations relied heavily on protectionism, state intervention, and targeted industrial policies to achieve prosperity.
Chang further contends that such policies create a “policy orthodoxy” that constrains national sovereignty, leaving developing countries with little room to implement strategies suited to their specific circumstances, such as infant industry protection, selective subsidies, or controlled capital flows. By enforcing one-size-fits-all prescriptions, the IMF and World Bank risk perpetuating dependency and locking developing nations into subordinate roles in the global economy, effectively denying them the policy tools historically employed by successful economies.
In contrast, China’s approach to investment and development, often described as “no-strings attached,” deliberately departs from the conditionality imposed by Western-led institutions. Unlike the IMF and World Bank, which typically tie loans or aid to political and economic reforms or structural adjustments, China provides funding, infrastructure support, and development assistance without demanding specific policy changes. This pragmatic model, which emphasizes speed, mutual economic benefit, and respect for national sovereignty, has allowed China to expand its influence in Africa, Asia, and Latin America, presenting itself as a development partner whose support appears more attainable and less intrusive than the Western conditionality model.
The contrast between China’s rising industrial and technological capabilities and the hollowing out of America’s domestic industrial base underscores a critical vulnerability for the United States and a corresponding strategic advantage for China. Against this backdrop, U.S. initiatives such as the Build Back Better World (B3W) and its successor, the Partnership for Global Infrastructure and Investment (PGII), have struggled to translate ambitious promises into tangible outcomes, raising doubts about their long-term viability. These challenges reflect broader constraints on U.S. ideological hegemony, particularly in the Global South, where pragmatic, sovereignty-respecting approaches like China’s are increasingly attractive.
Conclusion
Liberal internationalists overestimated the transformative power of trade while underestimating the resilience of China’s state-led capitalism. They assumed that economic engagement would automatically lead to political convergence, believing that prosperity would foster liberalization and integration into the existing global order. In practice, this belief produced unintended consequences: it created economic dependence, encouraged strategic complacency, contributed to political fragmentation at home, and eroded the United States’ global influence. Rather than facilitating democratization or fostering a “responsible stakeholder,” these policies helped build a more powerful, confident, and capable China, one that now represents the first true near-peer strategic challenge to U.S. hegemony since the Cold War.
By the 2020s, it became clear that China had emerged as a technologically advanced, assertive, and strategically sophisticated competitor, far exceeding the expectations of policymakers who had relied on liberal internationalist assumptions. The notion that trade and integration would automatically produce political alignment proved fundamentally flawed, transforming what was intended as a pathway to cooperation into a strategic vulnerability. This realization has driven a major recalibration of U.S. policy, shifting from engagement to strategic competition, pursuing selective decoupling, and strengthening alliances, all aimed at countering the power and influence that past policies—ironically rooted in ideals of liberal internationalism—helped to create.