The presidential race between Donald Trump and Kamala Harris comes at a time of rising geopolitical tensions on multiple fronts. In the 15th report of an in-depth series, we look at China’s rise in hi-tech manufacturing and the US’ efforts to contain it.
After decades spent working around the clock to produce an almost unimaginable quantity of goods for global consumers, China’s factories have moved up the learning curve and begun assembling more complicated wares – and those in seats of power from Washington to Berlin have sat up and taken notice.
A seemingly endless stream of sleek electric vehicles (EVs) and other high-end tech, churned out at facilities operated by a growing contingent of sophisticated machines, has set off alarm bells in the West and prompted a raft of protectionist policies intended to reorient supply chains and bring manufacturing jobs back home.
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With the US presidential race tightening, one thing remains clear regardless of the victor: China’s ascent to the bleeding edge of industrial production is not the distant possibility it once was.
Nevertheless, both major party nominees – former president Donald Trump of the Republicans and Vice-President Kamala Harris of the Democrats – are all but certain to escalate efforts to keep China’s rise in check.
Their strategies – from punitive measures like tariffs and trade restrictions to positive inducements like domestic research funding – will flow from this principle, analysts said.
“The direction of travel is quite clear,” said Xu Tianchen, senior China economist with the Economist Intelligence Unit. “The tech war is only going to intensify, and the election result will matter tactically, not strategically.”
The “major difference”, Xu said, is whether the US will “leverage its allies to contain China – Trump will pursue harsh, indiscriminate actions against China and its firms more or less in isolation, while Harris is likely to favour a more targeted, concerted approach.”
Once known as the “world’s factory” and a source of low-cost goods, China now stands at the forefront of complex, high-precision industries, an evolution backed by years of industrial policy and significant state investment.
“The global landscape has shifted – China is no longer the apprentice in advanced manufacturing but stands toe-to-toe with the West, competing on equal footing,” said Zhao Zhijiang, an analyst at the Beijing-based public policy think tank Anbound.
“Chinese EV companies are now fully capable of going head-to-head with their Western counterparts, and the same holds true for industrial robotics and shipbuilding. Beyond technology, the West must [also] contend with the reality that China could dominate half, if not more, of these sectors’ global market share.”
The 30 million EVs China rolled off its assembly lines in 2023 accounted for over 60 per cent of global production. Manufacturers like BYD – laughed at by Tesla CEO Elon Musk in a now-infamous interview – are figures to be reckoned with, standing toe-to-toe with legacy firms as well as the new players riding the wave of the green transition.
Executives at the Chinese company may be the ones laughing now. In figures released Wednesday, BYD outsold Musk’s firm for the first time ever, beating it in revenue for the third quarter of 2024. In the first eight months of the year, BYD outsold German stalwart Volkswagen in China across all vehicle types, including internal combustion engines, according to the China Passenger Car Association.
China’s surging EV exports pushed the country to become the world’s largest auto exporter in 2023, overtaking Japan, with over 4.91 million cars shipped overseas.
In an attempt to keep this amassing fleet at bay, this year the US quadrupled tariffs imposed on EVs of Chinese make, raising duties to 100 per cent. But fears remain that this roadblock can be bypassed by shipping across the southern border with Mexico, exempting them from import taxes under the United States-Mexico-Canada Agreement.
Worries over this potential loophole led the Alliance for American Manufacturing, a US industrial advocacy group, to urge the Joe Biden administration to limit the entry of Chinese cars into the US market in a February report.
Trump upped the ante earlier this month, saying he would impose tariffs of up to 200 per cent on Chinese cars to prevent their sale in the US and save the bedrock automotive industry. He made the remarks in appropriate surroundings – Detroit, the largest city in the battleground state of Michigan and a former artery of the country’s rust belt.
The European Union has also adopted protectionist measures to stem the flow of Chinese-made cars, approving additional tariffs of up to 35.3 per cent on top of the bloc’s standard 10 per cent vehicle import duty in a heated vote on October 4.
These geopolitical hurdles will remain “for the foreseeable future, possibly lasting several decades,” said Zhao of Anbound. “We are entering an era of deglobalisation. Global integration is proving to be the exception, while the fragmentation of international space is emerging as the dominant trend.”
China has leveraged its sizeable state resources to counteract this tendency and build up industrial capacity, with more than 1 trillion yuan (US$141 billion) earmarked for strategic emerging industries in the first seven months of the year.
While the US leads in most cutting-edge technologies – particularly artificial intelligence and software – China’s broader supply chain advantage has become undeniable. According to a report published last month by the Korea Trade-Investment Promotion Agency, China put 290,000 industrial robots to work in 2022. This represented more than 50 per cent of global installations.
In 2021, China had 12 times the rate of robot use in manufacturing as the United States, with automation a “top priority, [backed] with generous subsidies,” according to a March report from the Information Technology and Innovation Foundation, a non-profit research institute.
In shipbuilding – a notoriously difficult field to break into, requiring an enormous pool of skilled workers and a high degree of specialisation – China has vaulted to the top of the heap.
Thanks to state-owned enterprises like China State Shipbuilding Corporation, the country accounted for 55.1 per cent of global ship completions in the first nine months, 74.7 per cent of new orders and 61.4 per cent of global orders on hand, according to Beijing’s Ministry of Industry and Information Technology.
China’s rapid growth in these demanding fields can be attributed to several factors, said Yu Xiang, an adjunct fellow at the Center for International Security and Strategy at Tsinghua University.
He cited institutional openness, the “innovative spirit” of entrepreneurs – especially in the private sector – and massive investments in independent research and development.
“Despite a range of measures taken by the US and Europe to curb China’s industrial rise, these efforts can no longer fully halt China’s progress,” Yu said.
“At most, they might slow it down in the long run. However, stalling the pace of China’s industrial ascent is ultimately detrimental to the overall growth of the global economy, and this will be disadvantageous for the US and Europe as well.”
To counter these barriers, Chinese companies have begun to look abroad, establishing new international supply chains reaching previously untapped markets.
But as the trade of most cutting-edge technologies is at the mercy of unpredictable geopolitical changes, regional expansion could be more viable than a global roll-out, said Anbound’s Zhao.
“This means businesses need to be keenly aware of geopolitical risks, which markets might require a more cautious approach,” he said, adding more mid-to-low-end technology could be shipped abroad as companies adjust to new global dynamics.
China will remain the single most important player in global supply chains
Xu Tianchen, Economist Intelligence Unit
“China can still excel in niche markets with precision manufacturing,” Zhao added.
“Supply chains will be shaped by ‘friendshoring’ and ‘close-in production,’ meaning they will become shorter, more regional, and selective. In certain industries, China is likely to play a crucial role within regional supply chains, though not necessarily on a global scale.”
According to data from China’s National Bureau of Statistics, in the first three quarters of 2024 the added value of hi-tech manufacturing rose by 9.1 per cent year-on-year, compared to a 5.8 per cent increase in total industrial output.
A deepening economic integration with the Asean bloc of countries is one example of China’s own overtures towards “friendshoring,” as companies ramp up their manufacturing capacities in Vietnam, Indonesia and Malaysia.
However, “China will remain the single most important player in global supply chains as a result of the unparalleled variety and cost-effectiveness of its products, a functioning industrial policy and the low cost of production factors,” said Xu of EIU.
The global expansion of Chinese firms and their increased investments will lead to stronger demand from the host country for Chinese final goods and components, and while supply chains may not be physically located in China in future, they will remain controlled by Chinese businesses, Xu added.
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