Study China’s playbook
China grabbed big chunks of manufacturing capacity, Trump has long alleged, by taking advantage of the US. If such tactics are so effective, America should use them against its most important strategic rival.
China did not deploy tariffs to turn itself into the world’s factory. Since the 1990s, Beijing has lowered barriers to imports while employing a suite of policies to promote manufacturing champions. Some of those measures have produced persistent complaints from its trade partners: keeping the value of the yuan artificially low, compelling foreign companies to exchange technology for market access and suppressing wage growth in its workforce. Policymakers have also used standard industrial policy tools, such as subsidising investments in research and development, and offering tax breaks and preferential loans for manufacturers in sectors deemed strategic, such as electric vehicles (EVs) and semiconductors.
To industrialise, China deployed two particularly effective measures that the US should copy. First, it invited foreign investment. European carmakers were among the first to troop in during the 1980s. American companies followed through the 1990s, and especially after China acceded to the World Trade Organization in 2001. More recently, Apple and Tesla have made gigantic investments in Shenzhen, Shanghai and other cities. Today, foreign companies produce almost one-third of China’s exports.
In comparison, the US has dedicated less effort to attracting foreign investment, relying on attributes such as its huge market size, strong rule of law and sound currency as sufficient incentives. The multibillion-dollar chip fabs that Taiwan Semiconductor Co and Samsung Electronics Co are putting up in the southwest are a good start, but the US should lay out the welcome mat for Chinese technology leaders, too. Instead, at various levels, the US government has mostly stymied efforts by Chinese companies to produce EVs or their batteries stateside. That is a mistake. Four decades ago, American automakers benefited from knowledge spillovers from Japanese competitors building auto plants in America. The same could happen again with Chinese companies.
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Another thing America should copy from China is its network of giant industrial hubs. Shenzhen is the world’s centre of electronics production because a tremendous amount of process knowledge is concentrated there. That is represented by a large and flexible workforce able to make smartphones, drones, robotics or the next valuable product. The trend in the US has been the opposite, with one-time industrial hubs dissipating across the country. Detroit no longer deserves to be called the Motor City, and Silicon Valley does not turn out many microprocessors these days.
American companies have tended to spread out their investments to have a presence in multiple congressional districts. The goal: to expand their influence in Washington and play one locale against another in a competition for investment incentives. Instead, policymakers and businesses need to work together to build concentrated industrial hubs where knowledge can circulate among workers, entrepreneurs, investors and academics, the way it once did in Detroit and Silicon Valley.
Create new manufacturing paradigms
Not only do China’s manufacturers have access to a cheaper workforce than their American peers, but their factories are also more automated. In 2023, China installed 51% of the world’s industrial robots; the US, just 7%.
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To compete, the US needs to develop new manufacturing paradigms on the scale of the ones Americans pioneered during earlier industrial revolutions. Inventor Eli Whitney revolutionised the production of muskets in the early 19th century with the introduction of interchangeable parts; a century later, automaker Henry Ford perfected the moving assembly line.
What sort of technological change can US manufacturers embrace in the 21st century? One obvious target is artificial intelligence (AI). For all of China’s strengths in deploying robots, its advances in AI remain uneven, giving American companies a shot at overcoming industrial weaknesses. Just as the shift from steam power to electricity required a total redesign of the typical factory, effectively exploiting the capabilities of AI in manufacturing will demand new kinds of machines, sensor suites and workflows.
Imagine the auto factory of tomorrow. CNC machines (the acronym stands for computer numerical control) or adjustable stamping systems will create large, modular parts. Simple machines will assemble seats, axles and doors that have been specially designed to be easily manipulated by rudimentary grippers. AI will monitor every step to identify defects and strategise on a better production process, making adjustments in real time.
To help usher in such a transformation, US policymakers will need to let go of the idea that factories will produce a cornucopia of jobs as they did in the last century. Rather, the priority should be on leveraging the country’s scientific and technological strengths.
Beyond AI, there are several potential developments that could herald a new industrial revival. Machine-tool makers may be able to produce smart tools, making manufacturing more akin to programming. America’s leadership in commercial spaceflight could provide a platform for advances in so-called orbital manufacturing, a type of fabrication that uses the conditions of space, such as microgravity, to produce unique materials and products. More speculatively, nanotechnology might make precision manufacturing possible, allowing for an atom-by-atom level of control.
Preserve American strengths
The US has a better chance of securing its place as a manufacturing superpower if it remains a prosperous nation with steadfast allies and a credible reputation for excellence in science and industry.
Working with friendly countries should be the cornerstone of America’s manufacturing revival. By threatening to tariff the entire world at once, Trump has made pursuing his own whims the most clear and present threat to the prosperity of Europe, Japan, South Korea and the nations of Southeast Asia, all of which share American concerns about Chinese trade practices to some degree. Any country negotiating with Trump knows that he is quick to change his mind. During his first presidency, for instance, he forced Mexico and Canada to renegotiate the North American Free Trade Agreement. Now he is threatening to renege on the revamped pact.
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The US can still stand together with allies: relying upon Japan and South Korea for shipbuilding, drawing rare earths from Canada and Australia, and tapping into the broad industrial expertise of Europe. The Biden administration was moving in this direction, keenly aware that the US cannot match China’s industrial might on its own. But now, many governments are nursing grievances against Washington and wondering if their broken trust can be repaired.
It is hard to see how Trump’s assault on universities will deliver a great flowering of American science, either. Yes, universities are plagued by waste and often untethered from real-world concerns. But it is incontrovertible that they drive science forward, given that they are responsible for conducting about half of all basic scientific research in the country. University research has driven advances in computer-aided design and 3D printing, two of the biggest manufacturing paradigm shifts in recent decades. Will the next potential breakthrough perish in a university lab because it was starved of federal grants?
Finally, for the US to reclaim industries where it once shone and pioneer new ones, its leaders must endorse a mix of high- and low-skilled immigration. Taiwanese engineers have helped to rebuild the sorry state of the American semiconductor industry. If Trump makes the US into an inhospitable country, fewer talented people will want to innovate here. In a survey last year, only a quarter of Americans replied favourably to the survey question: “I would be better off if I worked in a factory.” The country will need a larger workforce to provide a ready pool of labour to do what is often gruelling and unglamorous work.
America needs to be the best version of itself to succeed. Even now, it could offer an appealing vision that China and Russia cannot match. But the more that Trump makes the country captive to his impulses — whether on trade policy, immigration or the treatment of investors — the more likely that it will not be China that is isolated from the rest of the world, but America itself. — Bloomberg Businessweek
Dan Wang, a research fellow at Stanford University’s Hoover History Lab, is the author of the forthcoming Breakneck: China’s Quest to Engineer the Future. Ben Reinhardt is CEO of Speculative Technologies
