The US won World War II largely due to its unparalleled manufacturing capacity. Today, that strategic advantage has been ceded to China. In a potential conflict, the US would face an adversary that mirrors its own historical strength, creating a critical national security vulnerability.
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From China's perspective, producing more than it needs and exporting at cutthroat prices is a strategic tool, not an economic problem. This form of industrial warfare is designed to weaken other nations' manufacturing bases, prioritizing geopolitical goals over profit.
China offers a hyper-concentrated manufacturing ecosystem where suppliers are neighbors, supported by world-class infrastructure. This dramatically speeds up prototyping and production, turning complex international logistics into a simple "walk down the street."
Apple's deep reliance on China is not just about cost but a 25-year investment in a manufacturing ecosystem that can produce complex products at immense scale and quality. Replicating this unique combination in India or elsewhere is considered fanciful.
German automaker Volkswagen can now develop and build an electric vehicle in China for half the cost of doing so elsewhere. This shift from simple manufacturing to localized R&D—the "innovate in China for the world" model—signifies a dangerous hollowing out of core industrial capabilities and high-value jobs in Western economies.
Contrary to their intent, U.S. export controls on AI chips have backfired. Instead of crippling China's AI development, the restrictions provided the necessary incentive for China to aggressively invest in and accelerate its own semiconductor industry, potentially eroding the U.S.'s long-term competitive advantage.
According to IMF data analysis, China's manufacturing surplus as a share of its GDP has surpassed 2%, exceeding the levels of Japan and Germany during their most dominant export eras. This indicates China is achieving global manufacturing dominance at a scale and speed that is historically unprecedented, fundamentally altering global trade dynamics.
While the West may lead in AI models, China's key strategic advantage is its ability to 'embody' AI in hardware. Decades of de-industrialization in the U.S. have left a gap, while China's manufacturing dominance allows it to integrate AI into cars, drones, and robots at a scale the West cannot currently match.
While the U.S. oscillates between trade policies with each new administration, China executes consistent long-term plans, like shifting to high-quality exports. This decisiveness has enabled China to find new global markets and achieve a record trade surplus, effectively outmaneuvering U.S. tactics.
Beyond raw materials, China's national ambition is to achieve near-total self-sufficiency. The prevailing mood is that there is "nothing for which it wants to rely on foreigners a single day longer than it has to." This philosophy of aggressive import substitution signals a fundamental break with the logic of reciprocal global trade.
From 2001 onwards, while the U.S. was militarily and economically distracted by the War on Terror, China executed a long-term strategy. It focused on acquiring Western technology and building indigenous capabilities in AI, telecom, and robotics, effectively creating a rival global economic system.
