Manufacturing Is a War We Cannot Afford to Lose

Yahoo

14-04-2025

In remarks given at the American Dynamism Summit recently, Vice President Vance declared 'I believe ... we're on the cusp of a great American industrial comeback.' Comebacks aren't necessary unless you've fallen behind, and Vance wasn't shy about terming the four-decade decline of American manufacturing as 'deindustrialization.'
America's deindustrialization wasn't just coincidence or the confluence of misguided policy and bad luck. It was also a function of China's deliberate, patient and ultimately effective strategy of changing the global balance of power. It shifted manufacturing from the west to China—increasing China's industrial strength while deindustrializing the rest of the world. Since 1978, China has embarked on an ambitious and sustained industrialization program that leveraged excess labor, monetary policy, and centralized state planning. American corporations, keen to exploit lower labor costs and gain access to billions of new customers, seized upon the opportunity to outsource to China.
The centralized planners of the Chinese Communist Party (CCP) incentivized the growing dependence by providing heavy subsidies to their national champions, undercutting global producers to dominate key markets. The United States, Germany and Japan have been China's primary targets. China's market distorting practices, employed in violation of international rules governed by the WTO (China joined in 2001), helped transform China into an industrial juggernaut. By 2009, it had replaced Germany as the world's largest exporter. Their trade in manufactured goods with the United States leapt more than five-fold between 2001 and 2019.
China's approach has been deliberate and strategic. The European automotive sector is a case in point. With its huge consumer market, China enticed German auto makers to set up joint ventures with local Chinese companies in order to access that market. The Chinese market has become so important that it is now the top sales market for Volkswagen, BMW, and Mercedes Benz, but the majority of that manufacturing capacity to make those vehicles is now in China.
As German companies offshore their factories to China, the CCP is driving capital into national champions such as BYD so that they are able to sell Chinese-manufactured cars in European markets at significantly lower costs than if they would be able to if they were not a state-funded entity. With models as low as €22,000, BYD and other producers account for 11% of EV sales in Europe and trending upward rapidly. A 2024 report by CSIS estimated the CCP dumped more than $230 billion into subsidies for its EV makers since 2009 to undercut global competitors and achieve a dominant position.
Financial success of German automakers in China has done little to protect Germany's domestic manufacturing capacity. German car manufacturers are becoming uncompetitive in German markets. Volkswagen is closing three major factories, while Mercedes plans to reduce capacity (read that as cut jobs and hours for auto workers). BMW is shifting to producing EVs and high-end models, but that may only delay inevitable collapse, particularly as cheap Chinese EVs expand penetration in the European market. Remarkably, Germany abstained from an EU vote to erect tariffs against Chinese cars, cowed as they are by its automakers' utter dependence on the Chinese market.
The CCP has run this play repeatedly to undermine global manufacturing competitors and engender dependence on their manufacturing, particularly in tech. In 2019, Huawei, the Chinese national champion in cellular communication technology, was well on its way to the commanding heights of cell infrastructure globally. Its highly subsidized products beat South Korean and Swedish competitors on price point and put them on a path to 'lock in' Europe after having built out most of Africa for cellular in connection with China's Belt and Road Initiative. Absent sanctions and a diplomatic effort by the United States, Samsung and Ericsson could have been left in the cold for years.
Drone makers in the west are facing a similar fate. Having introduced a revolution in military drones, the United States has watched incredulously as China secured nearly 80% market share in smaller, civilian drones. Despite the obvious military uses for low-cost attritable drones as well as the intelligence threat posed by ubiquitous Chinese drones crisscrossing the American landscape, U.S. manufacturers have been unable to keep up with China's highly subsidized national champion DJI. American manufacturers simply cannot win in a head-to-head competition with a company backed by the full economic support of the Chinese government.
In addition to lost jobs and failed manufacturing businesses, we are losing the ability to make the essential equipment our country needs in both peacetime and wartime. It is no accident that China has focused on winning markets with obvious military applications such as cars, ships, and drones. American policymakers assumed that opening to China (Most Favored Nation status, WTO membership, etc.) would liberalize the Chinese government. Instead, we are now reliant in many cases on a potential adversary that's grown more confident and belligerent as its capabilities grow and others' diminish.
The stakes are extremely high. Industrial strength is national strength, and the current status quo is unacceptable. To achieve a result other than the managed decline of America's relative power – industrial, economic, and military—we must chart another path.
Bret Boyd is CEO of Sustainment, a technology company dedicated to helping American manufacturers thrive.