By JON HUNTSMANMr. Huntsman was U.S. ambassador to China from 2009-2011. A former governor of Utah and candidate for the 2012 Republican presidential nomination, he is now chairman of the Huntsman Cancer Foundation.

The recent drama in Beijing over dissident Chen Guangcheng illuminates two of the most important characteristics of today’s China and its political system. First, despite China’s economic success and growing regional influence, the leadership of the Chinese Communist Party is profoundly insecure. Second, the Chinese people are increasingly demanding a more transparent and fair society.

The Communist Party’s insecurity has been amplified by the 18th Party Congress, an unprecedented leadership transition taking place this fall with a backdrop of domestic political scandal, social unrest, uncertainties about the Chinese growth model, and increased tensions with the United States. The party fears that liberalization would unleash centrifugal forces that would threaten its authority. Yet people such as Mr. Chen, artist and dissident Ai Wei Wei, Nobel Peace Prize winner Liu Xiaobo, who is now imprisoned in China, and so many others provide a glimpse of China’s potential if it were to unlock the talents of its people.

In crafting an effective approach to the U.S.-China relationship, we need to understand China and all of its complexities—not engage in hyperbole or wishful thinking. Saying that the U.S.-China relationship is among the most important in the world today is not a statement meant to set China above our allies on our priority list, nor does it convey any aspiration for a “G-2” management of global problems. Rather, it is recognition of what is at stake.

The best hope for sustained bilateral cooperation will come from strategically identifying shared interests and operating from a position of shared values. Unfortunately, in today’s China those values we share are found mostly among people like Mr. Chen, and not in the Communist Party or the government.

America’s policy toward China should rest on the following pillars:

The U.S. must deal with China from a position of strength. This means getting our economic house in order by undertaking difficult structural reforms. China will approach all interactions with the U.S. by first sizing up relative strength and leverage. If we remain on our present course of fiscal irresponsibility, innovation-stifling policies and political paralysis, we can anticipate greater Chinese assertiveness and foreign policy adventurism.

Economics and trade must drive our foreign policy and Asia strategy. Chinese leaders have demonstrated that they want trade to be the lifeblood of their ties to the region. Today Beijing is the leading trading partner of most of our regional allies. Given the scale of the Chinese market, we should prudently consider the second-order effects of those relationships changing the regional incentive structure. Washington must get back in the game of robust trade liberalization. Beyond the Trans-Pacific Partnership talks, we should be pursuing free trade agreements with Japan, Taiwan and India, and allowing American businesses to enter Burma.

We should renew our ties to key allies, focusing on joint endeavors that hedge against some of the more difficult contingencies we could face in the region from an aggressive China and People’s Liberation Army. There is vast potential for cooperative problem solving among countries that do share our values, and this “outside-in” approach to Beijing will demonstrate the benefits to being a friend of the United States. We can clearly communicate to our allies through our actions that the U.S. will be able to project power in the region despite Chinese opposition.

Values matter. We have an opportunity to shape outcomes by living up to our ideals and demonstrating we are worthy of the region’s admiration and emulation. This approach will not only be consistent with the aspirations of many in China, but it will also leave the door open for a truly strong U.S.-China relationship based on shared values—should leaders in the Communist Party eventually embrace liberal reforms.

While our national leaders must try to bridge the communication gap in the near term, it will ultimately be everyday commercial, cultural and social interactions that will transform bilateral ties. I believe our peoples are more alike than different, and can see a future China where the likes of Chen Guangcheng are celebrated by both the people and the state rather than persecuted. Meanwhile, we should creatively engage constituencies beyond the government in Beijing and allow a multitude of relationships to flourish.

We must work with China on shared interests, while remaining vigilant to the inevitably competitive nature of our relationship for the foreseeable future. I’ve seen the competition up close, and I believe we can succeed with the right policies and leadership.

Chen Guangcheng has given us an opening that we can either see as a source of conflict or as an opening for expanding our dialogue on issues that increasingly matter to so many in China. The world will be watching.

Mr. Huntsman was U.S. ambassador to China from 2009-2011. A former governor of Utah and candidate for the 2012 Republican presidential nomination, he is now chairman of the Huntsman Cancer Foundation.