This chapter provides a detailed discussion of our “institutional peace” argument. Specifically, we propose that during the period of international order transition, the United States and China have employed a range of institutional balancing strategies that encompass both inclusive and exclusive approaches. These strategies are aimed at competing for leadership roles and the privilege to shape rules within and beyond the realms of international institutions. We underscore the significance of three positive externalities resulting from institutional balancing: the revitalization of institutions, the encouragement of regional cooperation, and competition in providing public goods. These externalities can contribute to a more peaceful transition within the international system, provided that the US and China engage in responsible competition under three crucial conditions: the maintenance of sustained nuclear deterrence, the continuation of deep economic interdependence, and the mitigation of ideological antagonism.