Tit-for-Tat or Tipping Point? Action-Reaction Dynamics in U.S.-China Relations

Abstract

This paper analyzes the evolving strategic relationship between the United States and China using a novel empirical framework. Drawing on monthly data from 1990 to 2024, I use two complementary indices that reflect each country's posture toward the other. The first captures U.S. hostility toward China, derived from the full population of U.S. newspaper articles. The second is the China-U.S. Relations Index developed by Yan et al. (2010), which quantifies China's diplomatic stance toward the U.S. These indices are embedded within an action-reaction framework estimated via a Structural Vector Autoregression (SVAR), identified using an external instrument based on COVID-related U.S. media coverage. The results reveal an asymmetric dynamic: China reacts to U.S. hostility in a tit-for-tat fashion, while the U.S. meets conciliatory gestures from China with temporary increases in hostility-suggesting deep-seated mistrust. Although the system is dynamically stable, the slow adjustment and fragile equilibrium underscore how vulnerable the relationship remains to shocks and miscalculation-such as the unprecedented escalation in tariffs that now threatens to push both countries toward a costly economic decoupling.

Keywords: U.S.-China relations, Action-reaction model, SVAR with Instrumental Variables, Trade war