The sixth round of China-US Strategic and Economic Dialogue (SED) on July 9-10 in Beijing occurred just a year after presidents Barack Obama and Xi Jinping met in California and proclaimed that they sought a new type of major power relationship. But in the interim, a cascade of troubling events, from NSA spying to US complaints about China's cyber activities, imperil the prospect of a largely cooperative Sino-US relationship.

The SED illuminates the complexity of the Washington-Beijing relationship, addressing everything from trade and currencies to cyber and climate change. With $562 billion in annual two-way trade, China holding $1.2 trillion in US treasuries, $17 billion in FDI in the US, and the US holding $70 billion FDI in China, it is a relationship of deep interdependence. Yet it is also one of geopolitical competition.

The fundamental question is: Can the US and China reach a modus vivendi that both sides can accept? How this question is answered will shape the global order in the 21st century.

As it evolved after China began its reform and opening-up in 1978 and after the end of the Cold War, the US-China relationship has become more unique. When in history has the leading power been a debtor financed by a rising power, with military planners in both capitals all the while preparing military contingencies?

It is difficult to find a parallel situation where the world's two largest economies, from very different cultures and political systems, were woven into the same economic system, yet were strategic competitors.

With the US security role underpinning stability in East Asia, China's economy grew from some $200 billion in 1980 to about $8 trillion today as it assimilated into global institutions such as the WTO. If a bilateral investment treaty between China and the US can be reached, new opportunities for deeper economic integration will follow.

China's reemergence as a great power has spurred strategic competition with narratives on both sides reflecting a growing distrust. China views US policies toward the Asia-Pacific region - from the "rebalance" and strengthening its alliances to the Trans-Pacific Partnership -  as a concerted strategy of containment. The US is concerned that China's policies in the region are aimed at reducing Washington's presence, its maritime access and alliances.

For the past generation, the US and its allies in Asia have followed a hedging strategy toward China: on the one hand, economic cooperation with booming trade and investment; on the other, efforts to counterbalance China's growing military as it has gained sophisticated and new military capabilities. The US Department of Defense estimates China's defense budget of 2013 at $145 billion, second only to the US.

China has also hedged, pursuing a policy of active economic and political cooperation with the US and its Asia-Pacific neighbors, while acquiring military capabilities to defend its core interests in the region. It is an open question whether the two contradictory paths, economic integration and security confrontation, can be sustained indefinitely. If China simply seeks a larger strategic footprint, and a larger say in writing the global rules, that can be accommodated. However, If Beijing seeks to apply its own rules and marginalize the US in the Asia-Pacific region, that is not compatible with US core interests and it will become very difficult to manage differences.

The measure of success or failure at forging a more cooperative US-China relationship depends largely on how core issues play out. For the US, it is about a rules-based system and unimpeded access to the global commons - maritime, air, cyber and space. For China it is mainly about sovereignty and respect. The US-China relationship is approaching a tipping point: to become more cooperative than competitive, if a new model of major power relationship is possible, both sides will need the political will to find a balance of interests.

The author is a senior fellow at the Atlantic Council. He served as a member of the US Department of State Policy Planning Staff from 2004 to 2008, and on the National Intelligence Council from 2008-12. Follow him on Twitter at @Rmanning4