The United States and China have each built the capacity to inflict serious economic damage on each other, and neither has used it in full. Washington controls the semiconductor technology on which China’s ambitions depend. Beijing, through its near monopoly on rare earth processing, controls inputs that the West’s defense and advanced manufacturing cannot do without. Most analysts judge that neither side will be able to escape these dependencies for several years.

In a new Andersen Institute White Paper, we argue that the resulting mutual vulnerability—the Cold War logic of Mutually Assured Destruction (MAD), where “destruction” should read as economic disruption—now constrains both sides and prevents further decoupling. That equilibrium does not ensure stability. The baseline is several years of “unstable stability”: a world less integrated than the one we lived in for decades, less decoupled than many fear, and punctuated by flare-ups that resolve through de-escalation rather than victory or settlement.

We map this contest across two stacks: the real economy stack of computing, semiconductors and rare earths (economic MAD, or EMAD) and the financial stack of dollar dominance and digital finance (financial MAD, or FMAD).

U.S. and China Export Restrictions’ Footprint on the Global Corporate Narrative

Note. The figure plots the footprint (% of total mentions) of U.S. Technology (blue line with circles) and China Rare Earth (red line with squares) restrictions on global earning call reports, together with a count of total relevant export restrictions mentions (gray shaded area, right scale).

On the real side of the economy, an LLM analysis of global earnings call reports shows this mutual vulnerability is already coloring the corporate discourse. Chinese export controls surfaced in late 2024 but scaled fast. China’s policy footprint was effectively absent from the global corporate narrative before that; it peaked just below 20% of total discourse after the April 2025 export controls on seven medium-to-heavy rare earths. By the end of 2025, the gap between the two narratives was within single digits of each other.

On the financial side, a form of FMAD has existed for some time. The U.S. dollar dominance and the power to cut entities out of the global U.S. dollar payment system are a first-strike capability. China’s Treasury holdings and the exposure of U.S. interests to its regulatory reach are the second.

Digital finance could tip this balance either way. Portable U.S. dollar-denominated digital assets, the path the U.S. has chosen with the GENIUS Act, could deepen U.S. dollar dominance and erode China’s capital controls. More permeable Chinese capital control would diminish China’s shock absorption capacity and tilt the MAD balance toward Washington. A stronger U.S. hand, in turn, would likely lead to more fragmentation.

A shift in dollar-denominated demand for digital assets toward offshore rails like Tether in a quest to escape the risk of sanctions would do the opposite. That would weaken Washington’s enforcement capacity and, counterintuitively, restraining its hand.

Tether-Circle Market Capitalization Ratio and Fragmentation Events

Note: Dashed vertical lines mark seven fragmentation events. The events are the Russian invasion of Ukraine, the start of Israel’s ground operation in Gaza, the 2025 Liberation Day tariffs, U.S. sanctions on Iran’s shadow oil fleet, Trump’s Greenland tariff threats against Europe, Maduro’s capture, and the start of the U.S.–Iran conflict.

The dynamics of the relative market capitalizations of offshore, unregulated U.S. dollar stablecoins (such as Tether) and onshore, regulated U.S. dollar stablecoins (such as Circle) around fragmentation events is consistent with this idea. Following such events, stablecoin demand shifts offshore, affecting the instrument composition of U.S. dollar global demand without necessarily undermining dollar dominance itself.

Both the U.S. and China, meanwhile, run internally inconsistent policies. The U.S. is closing its door to trade while keeping an open financial account, and China is doing the reverse. These are configurations that are ultimately unsustainable and could erode the very policy arsenals that sustain the MAD equilibrium.

For corporate leaders, the variable that matters most is time. Two clocks are running at once. The first is structural and slow: most analyses assess that neither side can escape its key dependency on the other for several years, which makes mutual vulnerability a reliable planning baseline. The second is unpredictable and can move fast: the policies that hold mutual vulnerability in place are internally inconsistent, and each side’s own contradictions could end the calm sooner than the structural clock implies.

The practical implication is that the multi-year horizon is enough time to plan around but no promise of globalization-era stability. Firms should use it to decide which dependencies to reduce first (and on which side of the divide), sequencing this derisking by where they sit on the fault line. With the end-date uncertain, the payoff comes from adapting early to the new MAD reality.

For investors, the open question is valuations. National security is now an overriding government priority, yet it is unclear whether markets have fully priced in a security risk premium across asset classes and geographies. Markets have tended to read tariffs, digital finance, and financing costs as separate events, while they are in fact interconnected.

For policymakers, especially in Europe and the middle powers that have mostly been bystanders to the rewriting of the global order, the contest has created space. Now the question is whether and how to use it. Middle powers need not pick one block and stay in it. Europe, above all, has the economic weight to matter and the leverage (e.g., single-market access, the power to write rules) to stop being a target for pressure from both sides. They can either act with urgency or spend the next decade as collateral damage.

Over the next several years, the winners will be those who treat this new MAD equilibrium as a condition to plan and optimize around, managing the risks and seizing the opportunities, rather than a disruption to wait out.

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