While China bans many US tech giants, it welcomed Tesla. A compelling theory suggests this was a strategic move to observe and learn Tesla's methods for mass-producing EVs at scale, thereby accelerating the development of domestic champions like BYD, mirroring its past strategy with Apple's iPhone.
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Instead of a total ban, a more strategic approach is to "slow ball" an adversary like China by providing them with just enough technology. This keeps them dependent on foreign suppliers and disincentivizes the massive state investment required to develop their own superior, independent solutions.
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.
China's economic ascent began when Deng Xiaoping invited American experts to teach them about capitalism. This strategy, combined with becoming the world's manufacturing hub, allowed them to learn the system, grow strong quietly, and eventually become a dominant global power.
The belief that China's manufacturing advantage is cheap labor is dangerously outdated. Its true dominance lies in a 20-year head start on manufacturing autonomy, with production for complex products like the PlayStation 5 being 90% automated. The US outsourced innovation instead of automating domestically.
China is restricting exports of essential rare earth minerals and EV battery manufacturing equipment. This is a strategic move to protect its global dominance in these critical industries, leveraging the fact that other countries have outsourced environmentally harmful mining to them for decades.
China's economic structure, which funnels state-backed capital into sectors like EVs, inherently creates overinvestment and excess capacity. This distorted cost of capital leads to hyper-competitive industries, making it difficult for even successful companies to generate predictable, growing returns for shareholders.
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.
To mitigate its own risk, Apple's "50% rule" required suppliers to find other customers. This policy forced them to share advanced manufacturing processes co-developed with Apple, directly enabling the rise of Chinese smartphone rivals like Xiaomi and Huawei.
U.S. export controls on advanced semiconductors, intended to slow China, have instead galvanized its domestic industry. The restrictions accelerated China's existing push for self-sufficiency, forcing local companies to innovate with less advanced chips and develop their own GPU and manufacturing capabilities, diminishing the policy's long-term effectiveness.
