Nuclear deterrence and economic interdependence are key factors in cost calculations underpinning decisions on war or peace between states. This paper combines deterrence and interdependence in a proposed theory of major power peace, with reference to a number of insightful works on the ongoing transition of power from the US to a rising China. The paper explores the hypothesis that as long as the US and China can deter each other with a combination of conventional and nuclear forces, and refrain from actions to drastically reduce their economic dependence on each other, there is little risk of war between them. Peace will be further secured if important third party countries, notably Japan, remain covered by US extended deterrence and integrated economically with both China and the USA through trade and transnational production chains. Only if the US, Chinese or Japanese governments take politically motivated actions to radically reduce their economic dependence on one another are they likely to engage in a security competition of sufficient intensity to generate an arms race and a substantial risk of war. This does not just hold for all-out war but for limited war as well, given the risk of escalation.