In trying to compete, the U.S. is mirroring China's protectionism and industrial policy. This is a strategic error, as the U.S. political system lacks the ability to centrally direct resources and execute long-term industrial strategy as effectively as China's state-controlled economy.
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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.
The U.S. is shifting from industry supporter to active owner by taking direct equity stakes in firms like Intel and U.S. Steel. This move blurs the lines between free markets and state control, risking a system where political connections, not performance, determine success.
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.
Unlike the U.S. government's recent strategy of backing single "champions" like Intel, China's successful industrial policy in sectors like EVs involves funding numerous competing companies. This state-fostered domestic competition is a key driver of their rapid innovation and market dominance.
Deng Xiaoping’s reforms, which ignited China’s growth, were based on adopting American free-market principles like private enterprise and foreign capital. China’s success stemmed from decentralizing its economy, the very system the U.S. is now tempted to abandon for a more centralized model.
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.
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.
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.
