After Tiananmen they can't believe in #1

But they did. For a long time they still believed that they could do achieve their goals in China via a slower more subversive approach than the overt 1989 color revolution attempt, via gradual elite corruption and infection with liberal ideology.

This is why up until the "pivot to Asia" happened you still had fairly positive coverage of China in the Western media and cultural sphere. In the 90s and 00s China was portrayed relatively positively in the media. The war propaganda faucet to demonize and dehumanize Chinese people in the eyes of Westerners was only turned on relatively recently.

If they really thought there was no hope of regime change after 1989 they would have started this much earlier when China was much weaker. They didn't because they didn't understand China (they still don't) and they deluded themselves into thinking things were still going their way.

#2 is possible but requires that the elite mistakes money for power

Well, that is how they think. But that's not the point that was being made. The point is that the logic of capitalism made it impossible for them to resist outsourcing to China, because the profits were too juicy to pass up. China understood this and took full advantage of it.

By the time the western elites noticed their catastrophic strategic mistake it was too late. Now they are panicking and for the last decade or so have been scrambling to try and find a way to reverse what has happened before the window of opportunity permanently closes.

Hence their increasingly reckless and self-harming escalations, with Ukraine, Taiwan, now Iran... They feel they are out of time and nothing is working anymore so they have to constantly take crazier and crazier gambles in hopes of digging themselves out of the hole.