David Meale, former U.S. diplomat and current consultant, offered a cautiously optimistic perspective on U.S.-China relations at an APARC China Program seminar, arguing that despite significant tensions, there remains substantial room for what he calls “managed rivalry”—a relationship that is neither warm nor easy, but constructive enough for both countries to serve their populations and address global challenges. Drawing on his 33 years in the U.S. Foreign Service, he traced the evolution of U.S.-China relations over the past three decades and assessed current trajectories, bringing both diplomatic experience and fresh insights from private sector concerns to his analysis.

Three Decades of Evolving Relations
 

His entry into China-focused diplomacy came in 1995 when he was assigned to Hong Kong during the handover. During that era and through the early 2000s, U.S. policy operated under the assumption that China would gradually embrace the post-war rules-based international order shaped largely by the United States. The thinking was that China would develop a self-interest in preserving this order, becoming a constructive, if not easy, partner. This belief undergirded the strong U.S. effort to bring China into the World Trade Organization in 2001.

During his service as an Economic Officer in Taiwan in the 2000s, Meale witnessed the merging of talent from Asia and the United States that built China’s electronics manufacturing industry. Five percent of Taiwan’s workforce had moved to the mainland; there were even Shanghainese dialect programs on Taiwanese television at night for those dreaming of seeking their fortunes through cross-strait opportunities. Although there was tension with the Chen Shui-bian administration, there was a surprising amount of positivity in Taiwan about the mainland. That, of course, has now changed.

The Obama administration continued to work within the framework of bringing China into the existing international order, even as concerns grew. The approach aimed to convince China to preserve and, if necessary, shape this order, while using it to constrain China when necessary, as demonstrated by the attempt to resolve the South China Sea dispute involving the Philippines through the United Nations Convention on the Law of the Sea (UNCLOS).

The Trump administration marked a decisive shift. Meale noted that Trump openly discarded the goal of integrating China into the existing order, instead pursuing aggressive trade policies, technology restrictions, and explicit framing of China as a threat. The Chinese hoped the Biden administration would turn this around, but it instead maintained this posture, pursuing an “invest, align, compete” strategy—investing in the United States, aligning with allies, and defining the relationship as a competition.

Trump 2.0 brought “Liberation Day,” which Meale sees as the belief that the U.S. place in the world needs to be corrected; the United States is economically overextended, the trade imbalances and the associated debt cannot continue, and the supply chain vulnerability from COVID must be addressed. Tariffs were ratcheted up, and both sides imposed export controls. 

The Chinese hit back hard; Chinese officials are very proud of China’s pushback against an unchecked Trump. China’s economic growth is forecast at 5 percent this year, and the feeling from China is that it has shown the world the United States cannot push it around.

Looking ahead to 2026, Meale is optimistic. There will undoubtedly be crises that pop up: the Chinese will overreach on rare earth elements, and the United States will take an economic action that the Chinese did not plan on. Meale sees this as the “sine curve” of the U.S.-China relationship. There’s a crisis, tensions rise, there’s a response, and things eventually cool down. The curve goes up and down, but very little gets resolved.

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China's Current Challenges
 

China, Meale noted, effectively contains two economies: one serving approximately 400 million people who are producing world-class products with perhaps the world's best industrial ecosystem and impressive infrastructure, and another economy serving the rest of China's population, which has improved significantly over recent decades but relies heavily on informal work and the gig economy.
China faces deep structural problems, including a property sector crisis that has destroyed significant household wealth, an economy structured excessively around investment rather than consumption, youth unemployment reflecting a mismatch between graduating students and available jobs, and "involution" (neijuan, 内卷)—a race to the bottom in sectors where government incentives have driven overcapacity. China's reliance on export-led growth comes at a time when its overcapacity is increasingly unwelcome not just in developed countries but across the global South.

These challenges, Meale argues, will not result in a financial crisis or recession, but rather chronic headaches that will affect its foreign relations. Growth will continue, albeit at a slower pace, and the country will have significant work ahead to address inequality and structural imbalances.

On the question of Taiwan, Meale pushed back against predictions of imminent Chinese military action, particularly speculation about 2027 as a critical year tied to the 100th anniversary of the People's Liberation Army. He argued that, right now, one of China’s top goals is to avoid being drawn into a Taiwan conflict. China has recently purged nine senior military officials and is dealing with serious problems in its military. Five years from now, however, the situation could look quite different.

Defining End States and Finding Common Ground
 

Meale concluded by outlining what he believes each side seeks as an end state, arguing that these visions, while different, are not irreconcilable. Rather than global domination, he argued China seeks a world that works for what it calls "grand rejuvenation." This means overcoming the century of humiliation, reunifying with Taiwan, and living safely and securely on its own terms. China wants recognition as a global power, dominance in its near seas, freedom from technology containment, elimination of shipping chokepoints, access to markets, and the ability to pursue relationships with ideologically aligned countries.

The United States, meanwhile, accepts that competition with China is permanent but seeks a predictable China. U.S. goals include protecting advanced technology where it has an advantage, avoiding supply chain vulnerabilities, shaping Beijing's choices without attempting to control them, maintaining the Taiwan status quo until it evolves in a mutually and naturally agreed way, and ensuring fair trade to address what it sees as a stacked deck in current trade relationships. The United States also wants to prevent China from enabling adversaries, as seen in Chinese firms rebuilding Russia's military-industrial complex while maintaining nominal neutrality on Ukraine.

These end states, Meale acknowledged, collide in many ways but not in absolute ways. He sees substantial room for leader-driven, managed rivalry that can function constructively. This rivalry will not be easy or warm, but it can allow both countries to serve their populations while cooperating where global interests align.
 

Key Takeaways  
 

• The “integrated China” assumption is over. U.S. policy no longer aims to bring China into the existing international order, marking a fundamental shift from decades of engagement strategy.
• China's economy faces structural challenges, not a crisis. China will continue to grow, but must address inequality, overcapacity, and wealth destruction from the property crisis.
• Taiwan timing matters more to Beijing than deadlines. China seeks to control when and how the Taiwan issue is resolved, preferring not to be forced into premature action.
• Managed rivalry is possible. Despite significant tensions and incompatible elements of each side's goals, there remains space for constructive competition. While the relationship between the world's two largest economies will stay competitive and often contentious, it need not become catastrophic.
   

Overview and Contributions:

In “Profitable Misconduct, Corporate Governance, and Law Enforcement,” Anat R. Admati, Nathan Atkinson, and Paul Pfleiderer show how misconduct, managerial compensation, and enforcement policy are closely — and at times perniciously — related. Corporate misconduct can cause extensive harm, including death, physical and mental injury, and environmental destruction. Profit-maximizing corporations can also harm democracy and the rule of law by impacting both the language and the enforcement of the law. This paper focuses on a situation in which, as is often the case, law enforcement efforts to address corporate misconduct are ineffective. There are many reasons for this situation, including difficulties in monitoring opaque corporations and detecting misconduct, as well as the many ways corporations can limit their liabilities.

The authors show that when managerial compensation aims to motivate maximizing profits for shareholders, managers will generally engage in profitable misconduct and, importantly, that corporations can reduce or nullify the deterrence effects of fines and penalties that target either the corporation or managers directly might have, thus further weakening already insufficient enforcement. They also show that common enforcement policies, such as those that offer discounted fines when corporations self-report misconduct or implement compliance programs, can backfire and exacerbate harm by making misconduct more profitable. Understanding corporations' strategic responses to law enforcement is essential for designing more effective policies to deter misconduct.
 

Corporate Governance, Misconduct, and Law:

The authors begin by discussing why the policing of corporate misconduct is so difficult. One problem arises because corporations are collections of individuals, which renders responsibility diffuse and complicates the identification of perpetrators. Detecting misconduct often depends on highly visible, chance events such as plane crashes, whistle-blowing, or media investigations. When the profits gained from misconduct exceed the expected fines and other financial consequences, executives may view misconduct as a “cost of doing business.” Other problems are due to the difficulties encountered in estimating the extent of the harm and the limitations on the penalties that can be imposed. Even when misconduct is detected, fines often fall short of the corporation’s private gains from that misconduct. In notable cases, corporations can limit the consequences by declaring bankruptcy. It is also very rare for directors and executives to face meaningful criminal liability.

Governments have often been unsuccessful in prosecuting misconduct because of the high legal bar required to show personal intent to commit crimes and the reticence of prosecutors to pursue challenging cases due to career concerns and limited resources, especially relative to the resources corporations can access. As we saw in the financial crisis, authorities often worry about targeting “important” corporations and imposing significant fines and sanctions.
 

Argument and Implications:

The authors’ mathematical model captures some of the complexities involved in the interactions among corporations, managers, and governments. One of the values of a model is that it can show how well-intentioned and seemingly reasonable policies can be counterproductive once one accounts for various ways profit-maximizing actors will respond. The authors consider, for example, some policies that have been designed to increase the probability that misconduct will be detected in a timely way. These policies encourage corporations to implement “compliance” programs or to self-report misconduct by promising that any fines they must pay will be heavily discounted. Using their model to analyze the effectiveness of this approach, the authors find that these policies can make matters much worse. This is because the discounted fines can increase the profitability of misconduct while it is undetected or not self-reported. This can lead to firms engaging more aggressively in misconduct, knowing that this can be self-reported later, and the corporation will be subject to reduced fines. If corporations strategically take all this into account, the total harm may actually increase. The authors are not contending that these policies will always increase harm, but they are pointing out that these policies are quite likely to be inferior to others that don’t allow strategic responses that can make things worse.

One reason that the fines imposed directly on corporations are often inadequate to deter misconduct is that authorities are reluctant to levy sufficiently large fines because they fear this will lead to “collateral damage” suffered by innocent stakeholders like employees and customers. These concerns are allayed if, instead of corporate-level fines, large fines are imposed on managers. The authors’ model shows that it can be very expensive for shareholders to offset the potential deterrence effects of managerial fines if the only way shareholders can do this is by increasing the manager’s stock-based compensation to make misconduct more rewarding relative to the level of fines. Because it is so expensive for the corporation and shareholders to respond in this way, relying more on managerial fines might be a good policy. Unfortunately, shareholders have much less expensive ways to offset fines on managers — they can indemnify the manager or provide insurance that pays for fines. Essentially, they can simply offset the fines with cash, which is much cheaper. As the authors point out, this suggests that, to strengthen enforcement and deterrence, limitations on corporations' ability to indemnify and insure managers are likely a good way forward.
 

One of the main lessons of the authors’ analysis is that internal governance practices set by the corporation and its shareholders can profoundly influence the effectiveness of external governance designed to limit the harm created when corporations and their managers engage in profitable misconduct. Further study of these interactions and their implications for effective enforcement policies is clearly warranted.

*Research-in-Brief prepared by Adam Fefer.

Urgent Rethink Needed on U.S-China Trade and Technological Competition
Stein also pushed back against long-held assumptions that the U.S. market alone can dictate global business trends. The notion that “the only market that matters is the U.S. market” no longer holds, noting that Chinese consumers and innovation ecosystems now play a decisive role in shaping product development and global supply chains. He noted that European businesses have expressed a radical shift in strategy, they said, “we've been in China for Asia, in North America, for the Americas…We're now going from that model to what could very well become an, ‘in China for China and the world minus one.’ And the minus one is, of course, the U.S. market.”

On the technology front, he offered a candid evaluation of the U.S.-China competition. Stein reflected on the current state of artificial intelligence in China and the U.S., he said, “ at the end of the day it's not who has the best model; a good enough model is a good enough model, where it really makes a difference is in the application…and I see China racing ahead in the application of AI.” 

Know Your Competitor
Stein concluded with a call for more measured and constructive engagement. He urged both Washington and Beijing to establish clearer rules of the road, maintain open lines of communication, and invest in policy solutions that reduce uncertainty rather than amplify it.

Stein’s keynote offered a business-grounded counterpoint to prevailing narratives of decoupling and confrontation. His insights reinforced the importance of understanding the full complexity of economic interdependence, as well as China’s capacity for global market disruption, and the costs of miscalculation. As part of the broader SCCEI China Conference, his remarks served as a reminder that if America does not properly understand its competitor, efforts to stay ahead may well backfire and erode U.S. strength and global standing. 

A full recording of Sean Stein’s keynote is available on YouTube and below.