Contrary to commercial peace theories, which predicted that economic engagement would make possible China’s peaceful rise, China seems to be engaging in more militarized disputes with its neighbors and trade partners. I offer an explanation for this apparent anomaly by examining the relationship between borders, trade, and conflict in a new dataset on Chinese Foreign Relations (CFR). I integrate the three main causal mechanisms in the commercial peace literature, constrain, inform, and transform, into a unified theoretical framework and use China’s foreign policy behavior to develop and test this theory. I show that economic engagement, while capable of creating new areas of cooperation, is not effective at resolving underlying causes of military conflict such as territorial disputes or constraining the use of military force during crisis bargaining. Though disputed borders have been found to depress international trade flows in other regions, they have not impeded China’s growing trade with its disputant neighbors. At the same time, China’s use of military force against trade partners does not disrupt economic ties or produce opportunity costs as previously assumed. I find that conflict over unresolved territorial disputes account for 87% of Chinese uses of military force and China is not constrained by growing trade dependence with other claimants. These results suggest that trade may lead to stability at higher intensities of conflict --making wars more unthinkable-- but can also create instability at lower intensities of conflict -- incentivizing calibrated uses of military force, against which revoking trade would not be a credible response. Therefore, as long as China’s territorial disputes remain unresolved, economic interdependence will not decrease the frequency with which China uses military force in these disputes but will put a ceiling on the intensity of these conflicts.